<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1994
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C>
BEST BUY CO., INC. BEST BUY CAPITAL, L.P.
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
</TABLE>
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<TABLE>
<S> <C>
MINNESOTA DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
41-0907483 41-1790489
(I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number)
</TABLE>
----------------
RICHARD M. SCHULZE
CHIEF EXECUTIVE OFFICER
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MN 55344
(612) 947-2000
(Name, address, including zip code, and telephone number, including area code,
of registrants' principal executive offices and agent for service)
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COPIES TO:
<TABLE>
<S> <C>
ROBERT T. MONTAGUE ROBERT E. BUCKHOLZ, JR.
Robins, Kaplan, Miller & Ciresi Sullivan & Cromwell
2800 LaSalle Plaza 125 Broad Street
800 LaSalle Avenue New York, NY 10004
Minneapolis, MN 55402 (212) 558-4000
(612) 349-8500
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1)(2) PER SECURITY (4) OFFERING PRICE (4) REGISTRATION FEE
<S> <C> <C> <C> <C>
Best Buy Capital, L.P. Convertible
Preferred Securities (2); Best Buy Co.,
Inc. Series A Convertible Preferred
Stock ($1.00 par value) (1)(5); Best
Buy Co., Inc. Depositary Shares (1)(5);
Best Buy Co., Inc. Common Stock ($.10
par value) (1)(5); Best Buy Co., Inc.
Convertible Subordinated Debentures
(3)(5); Best Buy Co., Inc. Guarantee
with respect to Best Buy Capital, L.P.
Convertible Preferred Securities (5)... $230,000,000 $50.00 $230,000,000 $79,311
<FN>
(1) There are being registered hereunder such presently indeterminate number
of shares of Common Stock of Best Buy Co., Inc. into which the Convertible
Preferred Securities or the Convertible Preferred Stock, as the case may
be, may be converted or exchanged (through the Convertible Subordinated
Debentures of Best Buy Co., Inc.).
(2) Includes $30,000,000 of Convertible Preferred Securities which may be sold
pursuant to an over-allotment option granted to the Underwriters.
(3) The Convertible Subordinated Debentures will be issued by Best Buy Co.,
Inc. to evidence the loan by Best Buy Capital, L.P. to Best Buy Co., Inc.
of the proceeds from (i) the offer and sale of the Convertible Preferred
Securities and (ii) other capital contributions to Best Buy Capital, L.P.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(5) No separate consideration will be received for the Best Buy Co., Inc.
Guarantee, the Best Buy Co., Inc. Convertible Subordinated Debentures, the
Best Buy Co., Inc. Series A Convertible Preferred Stock, the Best Buy Co.,
Inc. Depositary Shares or the Best Buy Co., Inc. Common Stock.
</TABLE>
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1994
4,000,000 PREFERRED SECURITIES
BEST BUY CAPITAL
% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES
("CONVERTIBLE MIPS"*)
(LIQUIDATION PREFERENCE $50 PER SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO
COMMON STOCK OF,
BEST BUY CO., INC.
---------
[LOGO]
The 4,000,000 % Convertible Monthly Income Preferred Securities (the
"Preferred Securities") representing the limited partnership interests offered
hereby are being issued by Best Buy Capital, L.P. ("Best Buy Capital"), a
Delaware limited partnership. All of the partnership interests in Best Buy
Capital, other than the limited partnership interests represented by the
Preferred Securities, are owned by Best Buy Co., Inc., a Minnesota corporation
("Best Buy" or the "Company"), which is the general partner in Best Buy Capital
(in such capacity, the "General Partner"). Best Buy Capital exists for the sole
purpose of issuing its partnership interests and investing the proceeds thereof
in debt securities of Best Buy. The limited partnership interests represented by
the Preferred Securities will have a preference with respect to cash
distributions and amounts payable on liquidation over the General Partner's
interest in Best Buy Capital.
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions from Best Buy Capital, at an annual rate of % of the
liquidation preference of $50 per Preferred Security, accruing from the date of
original issuance and payable monthly in arrears on the last day of each
calendar month of each year, commencing , 1994 ("dividends"). See
"Description of Securities Offered - Preferred Securities - Dividends."
(CONTINUED ON NEXT PAGE)
------------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SECURITIES,
INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS ON THE
PREFERRED SECURITIES AND THE SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE
RELATED FEDERAL INCOME TAX CONSIDERATIONS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE COMMISSION(1) BEST BUY CAPITAL(2)(3)
--------------- ------------------- ----------------------
<S> <C> <C> <C>
Per Preferred Security.................................... $ (2) $
Total(4).................................................. $ (2) $
<FN>
- ----------------
(1) Best Buy Capital and Best Buy have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will ultimately be used by Best Buy Capital to purchase
convertible subordinated debentures of Best Buy, the Underwriting Agreement
provides that Best Buy will pay to the Underwriters, as compensation
("Underwriters' Compensation"), $ per Preferred Security (or $ in
the aggregate). See "Underwriting."
(3) Expenses of the offering which are payable by Best Buy are estimated to be
$550,000.
(4) Best Buy Capital and Best Buy have granted the Underwriters an option for
30 days to purchase up to an additional 600,000 Preferred Securities at the
initial public offering price per Preferred Security solely to cover
over-allotments. Best Buy will pay to the Underwriters, as Underwriters'
Compensation, $ per Preferred Security purchased pursuant to this
option. If such option is exercised in full, the total initial public
offering price, underwriting commission and proceeds to Best Buy Capital
will be $ , $ and $ , respectively. See "Under-
writing."
</TABLE>
----------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company on or about
, 1994.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
WILLIAM BLAIR & COMPANY
---------
The date of this Prospectus is , 1994.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
In the event of the liquidation of Best Buy Capital, holders of Preferred
Securities will be entitled to receive for each Preferred Security a liquidation
preference of $50 plus accumulated and unpaid dividends to the date of payment,
subject to certain limitations. See "Description of Securities Offered -
Preferred Securities - Liquidation Rights."
Each Preferred Security is convertible in the manner described herein at the
option of the holder, at any time prior to the Conversion Expiration Date (as
hereinafter defined), into shares of Best Buy Common Stock, par value $.10 per
share ("Best Buy Common Stock"), at the rate of shares of Best Buy Common
Stock for each Preferred Security (equivalent to a conversion price of $ per
share of Best Buy Common Stock), subject to adjustment in certain circumstances.
See "Description of Securities Offered - Preferred Securities - Conversion
Rights." The last reported sale price of Best Buy Common Stock, which is listed
under the symbol "BBY" on the New York Stock Exchange ("NYSE"), on September 29,
1994 was $38 5/8 per share. See "Market Prices of Best Buy Common Stock." On and
after , 1997, Best Buy Capital may, at its option, cause the
conversion rights of holders of the Preferred Securities to expire. Best Buy
Capital may exercise this option only if for 20 trading days within any period
of 30 consecutive trading days, including the last trading day of such period,
the last sale price of Best Buy Common Stock as reported on the NYSE Composite
Transaction Tape exceeds 120% of the conversion price of the Preferred
Securities, subject to adjustment in certain circumstances. In order to exercise
its conversion expiration option, Best Buy Capital must issue a press release
announcing the date upon which conversion rights will expire (the "Conversion
Expiration Date") prior to the opening of business on the second trading day
after a period in which the condition in the preceding sentence has been met.
The Conversion Expiration Date shall be a date not less than 30 and not more
than 60 days following the date of the press release described above. See
"Description of Securities Offered - Preferred Securities - Conversion Rights."
The Preferred Securities are also subject to exchange in the manner
described herein, in whole but not in part, into depositary shares (the
"Depositary Shares"), each representing ownership of 1/100th of a share of
Series A Cumulative Convertible Preferred Stock, par value $1.00 per share, of
Best Buy ("Best Buy Series A Preferred Stock"), deposited with the Depositary
(as defined herein) upon a vote of the holders of a majority of the aggregate
liquidation preference of all outstanding Preferred Securities following the
failure of holders of Preferred Securities to receive dividends in full for 15
consecutive months. Each Depositary Share will entitle the holder thereof to all
proportional rights and preferences of the Best Buy Series A Preferred Stock
(including dividend, voting, conversion and liquidation rights and preferences).
The Best Buy Series A Preferred Stock will have dividend and conversion features
substantially similar to those of the Preferred Securities (adjusted
proportionately per Depositary Share) but will not be subject to mandatory
redemption. See "Description of Securities Offered - Preferred Securities -
Optional Exchange for Depositary Shares," "- Description of Best Buy Series A
Preferred Stock" and "- Description of Depositary Shares."
In the event that, at any time after the Conversion Expiration Date, less
than 5% of the Preferred Securities remain outstanding, such Preferred
Securities shall be redeemable at the option of Best Buy Capital, in whole but
not in part, at a redemption price equal to the liquidation preference for such
Preferred Securities plus accumulated and unpaid dividends (whether or not
earned or declared). The Preferred Securities are also subject to mandatory
redemption by Best Buy Capital on the 30th anniversary of the date of original
issuance. See "Description of Securities Offered - Preferred Securities -
Redemption."
Best Buy will irrevocably and unconditionally guarantee, on a subordinated
basis and to the extent set forth herein, the payment of dividends by Best Buy
Capital on the Preferred Securities (but only if and to the extent declared from
funds of Best Buy Capital legally available therefor), the redemption price
(including all accumulated and unpaid dividends) payable with respect to the
Preferred Securities and payments on liquidation with respect to the Preferred
Securities (but only to the extent of the assets of Best Buy Capital available
for distribution to holders of the Preferred Securities) (the "Guarantee"). The
Guarantee will be unsecured and will be subordinate to all Senior Indebtedness
(as described herein) of
- --------------
* An application has been filed by Goldman, Sachs & Co. with the United States
Patent and Trademark Office for the registration of the MIPS servicemark.
2
<PAGE>
Best Buy and will rank PARI PASSU with the most senior preferred or preference
stock now or hereafter issued by Best Buy. The proceeds from the offering of the
Preferred Securities will be invested by Best Buy Capital in convertible
subordinated debentures of Best Buy (the "Subordinated Debentures") having the
terms described herein. Interest payment periods on the Subordinated Debentures
are monthly but may be extended by Best Buy for up to 60 months, in which event
Best Buy Capital would be unable to make monthly dividend payments on the
Preferred Securities. If Best Buy does not make interest payments on the
Subordinated Debentures, Best Buy Capital would not have sufficient funds to pay
distributions on the Preferred Securities. The Guarantee is a full and
unconditional guarantee from the time of its issuance, but does not apply to any
payment of distributions unless and until such distributions are declared. The
failure of holders of the Preferred Securities to receive dividends in full for
15 consecutive months would trigger the right of such holders to obtain
Depositary Shares representing Best Buy Series A Preferred Stock in the manner
described herein. See "Description of Securities Offered - Preferred Securities
- - Dividends," "- Description of the Guarantee" and "- Description of the
Subordinated Debentures."
The Subordinated Debentures and the Guarantee are subordinated in right of
payment to all Senior Indebtedness (as defined under "Description of Securities
Offered - Description of the Subordinated Debentures - Subordination") of Best
Buy. As of August 27, 1994, Best Buy had approximately $392 million of
indebtedness constituting Senior Indebtedness.
Application will be made to list the Preferred Securities on the NYSE under
the symbol "BBY pfM."
The Preferred Securities will be represented by a global certificate or
certificates registered in the name of The Depository Trust Company ("DTC") or
its nominee. Beneficial interests in the Preferred Securities will be shown on,
and transfers thereof will be effected only through, records maintained by the
participants in DTC. Except as described herein, Preferred Securities in
certificated form will not be issued in exchange for the global certificates.
See "Description of Securities Offered-Preferred Securities - Book-Entry-Only
Issuance - The Depository Trust Company."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AND BEST BUY COMMON STOCK AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
AVAILABLE INFORMATION
Best Buy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by Best Buy may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 7 World Trade Center, 7th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such material may also be inspected and
copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
Best Buy and Best Buy Capital have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
No separate financial statements of Best Buy Capital have been included
herein. Best Buy and Best Buy Capital do not consider that such financial
statements would be material to holders of Preferred Securities because Best Buy
Capital is a newly organized special purpose entity, has no operating history
and no independent operations and is not engaged in, and does not propose to
engage in, any activity other than as described under "Best Buy Capital."
Further, Best Buy believes that financial statements of Best Buy Capital are not
material to the holders of the Preferred Securities since the Preferred
Securities have been structured to provide a guarantee by Best Buy of the
Preferred Securities such that the holders of the Preferred Securities with
respect to the payment of dividends and amounts upon liquidation, dissolution
and winding-up are at least in the same position vis-a-vis the assets of Best
Buy as a preferred stockholder of Best Buy. See "Best Buy Capital" and
"Description of Securities Offered - Preferred Securities," "- Description of
the Guarantee" and "- Description of the Subordinated Debentures." Best Buy
beneficially owns directly or indirectly all of Best Buy Capital's partnership
interests (other than the Preferred Securities).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-9595) pursuant
to the Exchange Act are incorporated herein by reference:
1. Best Buy's Annual Report on Form 10-K for the fiscal year ended
February 26, 1994, filed pursuant to Section 13(a) of the Exchange Act.
2. Best Buy's Quarterly Reports on Form 10-Q for the quarters ended May
28, 1994, and August 27, 1994.
3. All other reports filed by Best Buy pursuant to Section 13(a) or
15(d) of the Exchange Act since February 26, 1994, consisting of its Current
Reports on Form 8-K, dated April 4, 1994, and August 16, 1994.
4. All other documents filed by Best Buy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering.
5. The description of Best Buy's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission pursuant to
Section 12 of the Exchange Act.
Best Buy will provide without charge to each person, including any
beneficial owner of Preferred Securities, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference in such documents). Requests should be directed to Best Buy Co., Inc.,
7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344, Attn: Corporate
Communications, telephone (612) 947-2000.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONNECTION WITH, THE MORE DETAILED INFORMATION AND THE COMPANY'S FINANCIAL
STATEMENTS INCLUDING THE NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
THE COMPANY
Best Buy is one of the nation's fastest growing specialty retailers. The
Company offers a wide selection of name brand consumer electronics, home office
equipment, entertainment software and appliances. In 1989, the Company
dramatically changed its method of retailing by introducing its "Concept II"
store format, a self-service, non-commissioned, discount style sales environment
designed to give the customer more control over the purchasing process. Consumer
electronics retailing had traditionally relied on a showroom format presenting
display models on the sales floor and storing the boxed merchandise in a back
room, thus enabling a salesperson to direct the customer to products yielding
the greatest commission. The Company found that an increasing number of
customers had become knowledgeable enough to select products without the
assistance of a commissioned salesperson and preferred to make purchases in a
more convenient and customer friendly manner. With its innovative retail format,
the Company has achieved significant success, as evidenced by comparable store
sales increases in excess of industry averages, moving it into a leading
position nationally in all of its principal product categories. Since the
beginning of fiscal 1993, the Company has added 103 stores and four distribution
centers, and now operates 176 stores, principally in the central United States.
In fiscal 1994, the Company expanded the geographic area it serves by entering
the Atlanta, Detroit and Phoenix markets. In the current fiscal year, the
Company is continuing its expansion to the coasts by entering Los Angeles,
Baltimore/Washington, D.C. and other new markets in Florida, Kentucky, Nevada,
North Carolina, Ohio and South Carolina. The Company anticipates operating 204
stores by the end of the current fiscal year and opening approximately 50
additional stores in fiscal 1996.
During the past year, the Company has been developing a strategy to further
enhance its store format. The strategy, known as "Concept III," features a
larger, redesigned store format created to produce a more informative and
exciting shopping experience for the customer. Through focus group interviews
and other research, the Company determined that customers wanted more product
information and a larger product selection. In order to meet these evolving
consumer preferences, the Company has developed interactive Answer Centers
featuring touch screen monitors from which customers and sales personnel can
immediately access product information. These Answer Centers, to be stationed
throughout the store, will utilize proprietary technology providing audio and
video presentations designed, by the Company, to enable users to compare
products and better understand the features and benefits of product options. The
enhanced store format will also feature more hands-on demonstrations allowing
customers to, among other things, experience audio and video products such as
"surround sound" systems and sample featured compact discs at approximately 100
private listening stations. Finally, these larger stores, generally 45,000
square feet with some as large as 58,000 square feet, will accommodate a larger
product selection intended to be as good as or better than the largest selection
offered by most of Best Buy's competitors in each of its principal product
categories. By the end of this fiscal year, approximately 10% of the Company's
stores will incorporate all of the Concept III enhancements, with most of the
remaining stores anticipated to be converted over the next three to four years.
By reacting quickly to changing consumer preferences, Best Buy has captured
a leading, and in some cases dominant, share in the markets it serves. The
success of the Company's retail format and the increase in the number of stores
operated has resulted in revenue growth of 223% and an increase in earnings of
334% over the last two fiscal years. In fiscal 1994, the Company's revenues
increased 86% to $3.0 billion, while comparable store sales increased 27%.
Fiscal 1994 earnings increased 110% to $41.7 million, before an accounting
change for income taxes. The Company expects that the implementation of its
Concept III strategy will enable it to maintain its market leadership position
as well as increase its market share.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SECURITIES,
INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS ON THE
PREFERRED SECURITIES AND THE SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE
RELATED FEDERAL INCOME TAX CONSIDERATIONS.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 4,000,000 of Best Buy Capital's % Convertible
Monthly Income Preferred Securities, liquidation
preference of $50 per security. Additionally, Best Buy
Capital and Best Buy have granted the Underwriters an
option for 30 days to purchase up to an additional
600,000 Preferred Securities at the initial public
offering price solely to cover over-allotments, if any.
Dividends......................... Dividends on the Preferred Securities will be cumulative
from the date of original issuance of the Preferred
Securities and will be payable at the annual rate of
% of the liquidation preference of $50 per Preferred
Security. Dividends will be paid monthly in arrears on
the last day of each calendar month, commencing
, 1994. The proceeds from the offering of
the Preferred Securities will be invested in the
Subordinated Debentures. Interest payment periods on the
Subordinated Debentures are monthly but may be extended
from time to time by Best Buy for up to 60 months, in
which event Best Buy Capital would be unable to make
monthly dividend payments on the Preferred Securities
during the period of any such extension. During such
period, interest on the Subordinated Debentures and
dividends on the Preferred Securities will compound
monthly. The failure of holders of the Preferred
Securities to receive dividends in full for 15
consecutive months would trigger the right of such
holders to obtain depositary shares (the "Depositary
Shares"), each representing 1/100th of a share of Best
Buy Series A Cumulative Convertible Preferred Stock, par
value $1.00 per share ("Best Buy Series A Preferred
Stock"), as described below under "Optional Exchange for
Depositary Shares." See "Investment Considerations -
Option to Extend Payment Periods; Federal Income Tax
Consequences," "Description of Securities Offered -
Description of the Subordinated Debentures - Option to
Extend Interest Payment Period" and "Description of
Securities Offered - Preferred Securities - Optional
Exchange for Depositary Shares."
Liquidation Preference............ $50 per Preferred Security, plus an amount equal to any
accumulated and unpaid dividends (whether or not earned
or declared).
Conversion into Best Buy
Common Stock..................... Each Preferred Security is convertible in the manner
described below at the option of the holder, at any time
prior to the Conversion Expiration Date (as defined
below), into shares of Best Buy Common Stock, par value
$.10 per share (the "Best Buy Common Stock"), at the
rate of shares of Best Buy Common Stock for each
Preferred Security (equivalent to a conversion price of
$ per share of Best Buy Common Stock), subject to
adjustment in certain circumstances. A holder of a
Preferred Security wishing to exercise its conversion
right shall surrender such Preferred Security, together
with an irrevocable conversion notice, to a conversion
agent acting on behalf of the holders of Preferred
Securities (the "Conversion Agent"), which shall
exchange the Preferred Security for a portion of the
Subordinated Debentures held by
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Best Buy Capital and immediately convert such
Subordinated Debentures into Best Buy Common Stock. On
and after , 1997, and provided that Best Buy
Capital is current in the payment of dividends on the
Preferred Securities, Best Buy Capital may, at its
option, cause the conversion rights of holders of the
Preferred Securities to expire. Best Buy Capital may
exercise this option only if for 20 trading days within
any period of 30 consecutive trading days, including the
last trading day of such period, the last sale price of
Best Buy Common Stock, as reported on the NYSE Composite
Transaction Tape, exceeds 120% of the conversion price
of the Preferred Securities, subject to adjustment in
certain circumstances. In order to exercise its
conversion expiration option, Best Buy Capital must
issue a press release announcing the date upon which
conversion rights will expire (the "Conversion
Expiration Date") prior to the opening of business on
the second trading day after a period in which the
condition in the preceding sentence has been met. The
Conversion Expiration Date shall be a date not less than
30 and not more than 60 days following the date of such
press release or, if Best Buy Capital has not exercised
its conversion expiration option, the earlier of the
date of an Exchange Election referred to below under
"Optional Exchange for Depositary Shares" or two
business days prior to the scheduled date for the
mandatory redemption of the Preferred Securities. See
"Description of Securities Offered - Preferred
Securities - Conversion Rights."
Redemption........................ If at any time following the Conversion Expiration Date,
less than 5% of the Preferred Securities remain
outstanding, such Preferred Securities shall be
redeemable at the option of Best Buy Capital, as a whole
but not in part, at a redemption price of $50 per
Preferred Security together with accumulated and unpaid
dividends (whether or not earned or declared) (the
"Redemption Price"). The Preferred Securities are also
subject to mandatory redemption by Best Buy Capital on
the 30th anniversary of the date of original issuance at
the Redemption Price.
Optional Exchange for
Depositary Shares................ Upon the failure of holders of the Preferred Securities
to receive, for 15 consecutive months, the full amount
of dividend payments, the holders of a majority of the
aggregate liquidation preference of Preferred Securities
then outstanding, voting as a class at a special
partnership meeting called for such purpose or by
written consent, may, at their option, direct the
Conversion Agent to exchange all (but not less than all)
Preferred Securities for all (but not less than all) of
the Subordinated Debentures held by Best Buy Capital,
and to immediately exchange the Subordinated Debentures
on behalf of such holders for Depositary Shares, each
representing a 1/100th interest in a share of Best Buy
Series A Preferred Stock at the Exchange Price (as
defined under "Description of Securities Offered -
Preferred Securities - Dividends"). Each Depositary
Share will entitle the holder thereof to all
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
proportional rights and preferences of the Best Buy
Series A Preferred Stock (including dividend, voting,
conversion and liquidation rights and preferences). The
Best Buy Series A Preferred Stock will have dividend,
conversion and other terms substantially similar to the
terms of the Preferred Securities (adjusted
proportionately per Depositary Share), except that,
among other things, the holders of Best Buy Series A
Preferred Stock will have the right to elect two
additional directors of Best Buy whenever dividends on
the Best Buy Series A Preferred Stock are in arrears for
18 months (including for this purpose any arrearage with
respect to the Preferred Securities) and the Best Buy
Series A Preferred Stock will not be subject to
mandatory redemption.
Guarantee......................... Pursuant to a Guarantee Agreement (the "Guarantee"),
Best Buy will irrevocably and unconditionally agree, on
a subordinated basis, to pay in full (a) the dividends
(including any Additional Dividends thereon, as defined
under "Description of Securities Offered - Preferred
Securities - Additional Dividends") by Best Buy Capital
on the Preferred Securities, if and to the extent
declared from funds of Best Buy Capital legally
available therefor, (b) the redemption price (including
all accumulated and unpaid dividends) of the Preferred
Securities, to the extent of funds of Best Buy Capital
legally available therefor, and (c) payments on
liquidation with respect to the Preferred Securities, to
the extent of the assets of Best Buy Capital available
for distribution to holders of the Preferred Securities.
The Guarantee will be unsecured and will be subordinated
to all Senior Indebtedness (as defined herein) of Best
Buy and will rank PARI PASSU with the most senior
preferred shares hereafter issued by Best Buy and PARI
PASSU with any guarantee now or hereafter entered into
by Best Buy in respect of any preferred or preference
stock of any affiliate of Best Buy. A holder of
Preferred Securities may enforce Best Buy's obligations
under the Guarantee directly against Best Buy, and Best
Buy waives any right or remedy to require that an action
be brought against Best Buy Capital or any other person
before proceeding against Best Buy. See "Investment
Considerations - Subordinate Obligations Under Guarantee
and Subordinated Debentures; Dependence on Best Buy" and
"Description of Securities Offered - Description of the
Guarantee."
Voting Rights..................... Generally, holders of the Preferred Securities will not
have any voting rights. However, upon an Event of
Default under the Subordinated Debentures (as described
under "Description of Securities Offered - Description
of the Subordinated Debentures - Events of Default"), a
failure by Best Buy Capital to pay dividends in full on
the Preferred Securities for 15 consecutive months
(other than as a result of a deferral by Best Buy of
interest payments on the Subordinated Debentures as
described under "Subordinated Debentures" below) or a
default by Best Buy under the Guarantee, the holders of
the Preferred Securities will be entitled to appoint and
authorize a Special General Partner to enforce Best Buy
Capital's rights
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
under the Subordinated Debentures, enforce Best Buy's
obligations under the Guarantee and declare and pay
dividends on the Preferred Securities to the extent
funds are legally available therefor. In addition, upon
the failure of holders of Preferred Securities to
receive, for 15 consecutive months, the full amount of
dividend payments as a result of a deferral by Best Buy
of interest payments on the Subordinated Debentures,
holders of the Preferred Securities will be entitled to
call a special partnership meeting for the purpose of
deciding whether to exchange all Preferred Securities
then outstanding for Depositary Shares, as described
above under "Optional Exchange for Depositary Shares."
See "Description of Securities Offered - Preferred
Securities - Dividends."
Use of Proceeds................... The proceeds to be received by Best Buy Capital from the
sale of the Preferred Securities will be invested in the
Subordinated Debentures of Best Buy, which, after paying
the expenses associated with this Offering, will use
such funds to support its expansion plans and for
working capital and other general corporate purposes.
See "Use of Proceeds."
Subordinated Debentures........... The Subordinated Debentures will have a maturity of 30
years and will bear interest at the rate of % per
annum, payable monthly in arrears. Best Buy has the
right to select an interest payment period or periods
longer than one month (during which period or periods
interest will compound monthly), provided that any
extended interest payment period does not exceed 60
months and provided further that an extended interest
payment period may not extend the stated maturity of the
Subordinated Debentures. If Best Buy selects an interest
payment period longer than one month, it will be
prohibited from paying dividends on any of its capital
stock and making certain other restricted payments until
monthly interest payments are resumed and all
accumulated and unpaid interest (including any interest
payable to effect monthly compounding) on the
Subordinated Debentures is brought current. Best Buy
will have the right to make partial payments of such
interest during the extended interest payment period.
The Subordinated Debentures are convertible into shares
of Best Buy Common Stock at the option of the holders
thereof and exchangeable for Depositary Shares
representing Best Buy Series A Preferred Stock as
described above under "Optional Exchange for Depositary
Shares." The payment of the principal and interest on
the Subordinated Debentures will be subordinated in
right of payment to all Senior Indebtedness (as defined
under "Description of Securities Offered - Description
of the Subordinated Debentures - Subordination") of Best
Buy. As of August 27, 1994, Best Buy had $392 million of
indebtedness constituting Senior Indebtedness. See
"Investment Considerations - Subordinate Obligations
Under Guarantee and Subordinated Debentures; Dependence
on Best Buy."
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED(1) SIX MONTHS ENDED
---------------------------------------------------------------- --------------------------
MARCH 3, MARCH 2, FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, AUGUST 28, AUGUST 27,
1990 1991(2) 1992 1993 1994(3) 1993 1994
---------- ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues................... $ 512,850 $ 664,823 $ 929,692 $1,619,978 $3,006,534 $ 1,004,899 $ 1,782,575
Gross profit............... 120,341 141,657 181,062 284,034 456,925 168,674 251,136
Operating income........... 13,147 10,976 18,776 35,908 77,178 16,764 29,345
Earnings before cumulative
effect of accounting
change.................... 5,683 4,540 9,601 19,855 41,710 9,110 11,841
Net earnings (loss)........ 5,683 (9,457) 9,601 19,855 41,285 8,685 11,841
Per share amounts:
Earnings before
cumulative effect of
accounting change....... .23 .18 .33 .57 1.01 .23 .27
Net earnings (loss)...... .23 (.38) .33 .57 1.00 .22 .27
OPERATING DATA:
Comparable store sales
increase (4).............. 0.3% 1.0% 14.0% 19.4% 26.9% 21.4% 26.4%
Number of stores (end of
period)................... 49 56 73 111 151 124 168
Average revenues per store
(5)....................... $ 11,500 $ 12,400 $ 14,300 $ 17,600 $ 22,600 $ 19,200 $ 25,200
Gross profit percentage.... 23.5% 21.3% 19.5% 17.5% 15.2% 16.8% 14.1%
Selling, general and
administrative expenses
percentage................ 20.9% 19.7% 17.5% 15.3% 12.6% 15.1% 12.4%
Operating income
percentage................ 2.6% 1.6% 2.0% 2.2% 2.6% 1.7% 1.6%
Inventory turns (6)........ 3.7x 4.5x 5.1x 4.8x 5.0x 5.0x 4.7x
Ratio of earnings to
combined fixed charges and
preferred dividends (7)... 2.27x 1.79x 2.46x 3.35x 3.87x 2.84x 1.89x
</TABLE>
<TABLE>
<CAPTION>
AUGUST 27, 1994
---------------------------
ACTUAL AS ADJUSTED(8)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................... $ 318,487 $ 518,487
Property and equipment, net....................................................... 235,126 235,126
Total assets...................................................................... 1,270,905 1,375,905
Long-term debt, including current portion......................................... 220,157 220,157
Total liabilities................................................................. 943,259 848,259
Convertible preferred securities of subsidiary.................................... -- 200,000
Shareholders' equity.............................................................. 327,646 327,646
<FN>
- ------------------
(1) The fiscal period ended March 3, 1990 had approximately 11 months because
the Company changed its fiscal year to a 52/53 week period ending on the
Saturday closest to the last day in February of each year.
(2) During fiscal 1991, the Company changed its method of accounting for
extended service plans, resulting in a cumulative effect adjustment of
($14.0 million), or ($.56) per share. Profit recognized from the sale of
extended service plans under this accounting method was $10.8 million (on a
pro forma basis), $12.3 million, $11.8 million, $12.0 million and $12.5
million in fiscal years 1990 through 1994, respectively, and was $6.1
million and $7.4 million for the six months ended August 28, 1993 and
August 27, 1994, respectively. This profit is before any allocation of
selling, general and administrative expenses, except for direct selling
expenses, primarily commissions.
(3) During fiscal 1994, the Company changed its method of accounting for
incomes taxes resulting in a cumulative effect adjustment of ($425,000), or
($.01) per share. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 7 to the Financial
Statements.
(4) Comparable stores are stores open at least 14 full months.
(5) Average revenues per store are based upon total revenues for the trailing
12-month period divided by the weighted average number of stores open
during such 12-month period.
(6) Inventory turns are calculated based upon a rolling 12-month average of
inventory balances.
(7) For purposes of determining the ratio of earnings to combined fixed charges
and preferred dividends, earnings are defined as income before income taxes
plus fixed charges other than capitalized interest. Fixed charges consist
of interest costs (including the amortization of deferred debt issuance
costs and capitalized interest), the portion of rental expense that is
representative of an interest factor and preferred dividends.
(8) Adjusted to give effect to the sale of 4,000,000 Preferred Securities in
connection with this offering, before deducting the estimated offering
expenses and Underwriters' Compensation.
</TABLE>
10
<PAGE>
INVESTMENT CONSIDERATIONS
PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS:
SUBORDINATE OBLIGATIONS UNDER GUARANTEE AND SUBORDINATED DEBENTURES;
DEPENDENCE ON BEST BUY
Best Buy's obligations under the Guarantee and the Subordinated Debentures
are subordinate and junior in right of payment to all Senior Indebtedness of
Best Buy. There are no terms in the Preferred Securities, the Subordinated
Debentures or the Guarantee that limit Best Buy's ability to incur additional
indebtedness, including indebtedness that ranks senior to the Subordinated
Debentures and the Guarantee, or the ability of its subsidiaries to incur
additional indebtedness. The Guarantee guarantees payment to the holders of the
Preferred Securities of accumulated and unpaid monthly dividends, amounts
payable on redemption, and amounts payable on liquidation of Best Buy Capital.
In each case, however, such amount is guaranteed only to the extent that Best
Buy Capital has funds on hand legally available therefor and payment thereof
does not otherwise violate applicable law. If Best Buy were to default on its
obligation to pay interest or amounts payable on redemption or maturity of the
Subordinated Debentures, Best Buy Capital would lack legally available funds for
the payment of dividends or amounts payable on redemption of the Preferred
Securities, and in such event holders of the Preferred Securities would not be
able to rely upon the Guarantee for payment of such amounts. See "Description of
Securities Offered - Description of the Guarantee" and "Description of
Securities Offered - Description of the Subordinated Debentures -
Subordination."
Best Buy Capital's ability to pay amounts due on the Preferred Securities is
solely dependent upon Best Buy's ability to make payments on the Subordinated
Debentures as and when required. Since Best Buy is also the Guarantor of the
Preferred Securities, in the event that Best Buy Capital is unable to make
payments on the Preferred Securities as and when required, there is a
substantial likelihood that Best Buy will be unable to make payments on the
Guarantee as and when required.
OPTION TO EXTEND PAYMENT PERIODS; FEDERAL INCOME TAX CONSIDERATIONS
Best Buy has the right to extend interest payment periods on the
Subordinated Debentures for up to 60 months, and, as a consequence, monthly
dividends on the Preferred Securities would be deferred (but will continue to
compound monthly) by Best Buy Capital during any such extended interest payment
period. In the event that Best Buy exercises this right, neither Best Buy nor
any majority-owned subsidiary of Best Buy shall declare or pay any dividend on,
or redeem, purchase, otherwise acquire or make a liquidation payment with
respect to, any of its common or preferred stock or make any guarantee payment
with respect to the foregoing (other than payments under the Guarantee or
dividend or guarantee payments to Best Buy from a majority-owned subsidiary),
during any such extended period and until all dividend arrearages have been paid
in full. No extended interest payment period may extend the stated maturity of
the Subordinated Debentures. See "Description of Securities Offered -
Description of the Subordinated Debentures - Option to Extend Interest Payment
Period." Should an extended interest payment period occur, Best Buy Capital,
except in very limited circumstances, will continue to accrue income for United
States federal income tax purposes which will be allocated, but not distributed,
to holders of record of Preferred Securities. As a result, such holders will
include such interest in gross income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash related
to such income if such a holder disposes of its Preferred Securities prior to
the record date for payment of dividends. See "Certain Federal Income Tax
Considerations - Original Issue Discount."
In the event such a deferral continues for more than 15 months, the holders
of a majority of the aggregate liquidation preference of the Preferred
Securities then outstanding may cause the exchange of all of the Preferred
Securities for Depositary Shares representing interests in Best Buy Series A
Preferred Stock at the Exchange Price.
11
<PAGE>
For a discussion of the taxation of such an exchange to holders, including
the possibility that holders who exchange their Preferred Securities for
Depositary Shares may be subject to additional income tax to the extent accrued
but unpaid interest on the Subordinated Debentures is converted into accumulated
and unpaid dividends on the Best Buy Series A Preferred Stock represented by
Depositary Shares received in exchange for the Preferred Securities, see
"Certain Federal Income Tax Considerations - Exchange of Preferred Securities
for Best Buy Stock."
EXPIRATION OF CONVERSION RIGHTS
On and after , 1997, Best Buy Capital may, subject to certain
conditions, at its option, cause the conversion rights of holders of Preferred
Securities to expire. See "Description of Securities Offered - Preferred
Securities - Expiration of Conversion Rights."
POTENTIAL COVENANT RESTRICTIONS
Certain covenants under one or more outstanding debt instruments of Best Buy
may restrict the amount of dividends that may be declared by Best Buy Capital on
the Preferred Securities and, if issued, by Best Buy on the Depositary Shares
representing the Best Buy Series A Preferred Stock. Monthly dividends declared
by Best Buy Capital will, until paid, constitute debt of Best Buy, the
incurrence of which is subject to a limitation on consolidated debt of Best Buy
under one of its indentures. In the event of an exchange of the Preferred
Securities for Depositary shares representing the Best Buy Series A Preferred
Stock, the payment of dividends by Best Buy on the Best Buy Series A Preferred
Stock will be subject to a separate limitation on restricted payments by the
Company and its subsidiaries. For a discussion of these limitations, see
"Description of Securities Offered - Preferred Securities - Dividends" and
"Description of Securities Offered - Description of Best Buy Series A Preferred
Stock."
COMPETITION
Retailing in each of the principal product categories offered by Best Buy is
highly competitive. Best Buy competes in most of its markets against Sears and
Montgomery Ward and in an increasing number of markets against Circuit City and
Incredible Universe (owned by Tandy Corp.). It also competes against computer
superstores such as Computer City (owned by Tandy Corp.) and CompUSA and
entertainment software superstores operated by Musicland, Tower Records and
Blockbuster Entertainment. Certain of these competitors have significantly
greater financial resources than Best Buy. The Company also competes against
independent dealers, discount stores, wholesale clubs, office products
superstores and mass merchandisers. The Company anticipates increased
competition with national competitors in several of the Company's new and
current markets. See "Business - Competition."
QUARTERLY FLUCTUATIONS AND SEASONALITY
Similar to most retailers, Best Buy's business is seasonal, with revenues
and earnings being generally lower during the first half of each fiscal year and
greater during the second half of the fiscal year, which includes the year-end
holiday season. In addition, Best Buy's working capital needs are seasonal, with
the Company's greatest working capital requirements occurring during the second
half of each fiscal year. Accordingly, the Company's operating results may be
affected by holiday spending patterns, as well as the timing of new store
openings and general economic conditions.
12
<PAGE>
USE OF PROCEEDS
Best Buy Capital will invest the proceeds from the Offering in the
Subordinated Debentures. Best Buy, after payment of the Underwriters'
Compensation (as defined under "Underwriting") and other expenses of the
Offering, will use the net proceeds of $ ($ if the Underwriters'
over-allotment option is exercised in full) from the sale of the Subordinated
Debentures to Best Buy Capital to support its expansion plans, including to fund
initial new store inventories, to acquire store fixtures and make leasehold
improvements, to remodel and expand existing stores, to pay the cost of land
acquisition and construction pending sale and leaseback of the property, and to
continue to improve its management information systems, as well as for other
general corporate purposes. See "Business - Store Locations and Expansion" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." Pending application for the
foregoing purposes, the net proceeds will be used to reduce short-term
borrowings and the excess, if any, will be invested in short-term, investment
grade or government securities.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
Best Buy at August 27, 1994, and as adjusted to reflect the Offering, assuming
no exercise of the Underwriters' over-allotment option. The table should be read
in conjunction with the financial statements of Best Buy elsewhere in this
Prospectus and those incorporated by reference herein. See "Use of Proceeds,"
"Selected Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Description of
Securities Offered - Preferred Securities."
<TABLE>
<CAPTION>
AUGUST 27, 1994
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term debt).......................... $ 104,144 $ 9,144
----------- ------------
----------- ------------
Long-term debt:
Capitalized lease obligations (5.3% to 10.5%)........................................ $ 15,097 $ 15,097
Equipment loans (5.3% to 11.5%)...................................................... 24,012 24,012
Subordinated notes (8.6% to 9.9%).................................................... 171,904 171,904
----------- ------------
Total long-term debt............................................................... 211,013 211,013
Convertible preferred securities of subsidiary......................................... -- 200,000
Shareholders' equity:
Preferred Stock, $1.00 par value per share; 400,000 shares authorized; none
outstanding......................................................................... -- --
Common Stock, $.10 par value per share; 120,000,000 shares authorized; 42,067,290
shares outstanding (1).............................................................. 4,207 4,207
Additional paid-in capital........................................................... 226,330 226,330
Retained earnings.................................................................... 97,109 97,109
----------- ------------
Total shareholders' equity......................................................... 327,646 327,646
----------- ------------
Total capitalization............................................................. $ 538,659 $ 738,659
----------- ------------
----------- ------------
<FN>
- --------------
(1) Does not include 7,755,851 shares reserved for issuance pursuant to the
Company's stock option plans as of August 27, 1994, or 26,100 shares
reserved for issuance pursuant to outstanding stock options not granted
under such plans.
</TABLE>
13
<PAGE>
MARKET PRICES OF BEST BUY COMMON STOCK
Best Buy Common Stock is traded on the NYSE under the symbol "BBY." At
August 27, 1994, there were 1,401 holders of record of Best Buy Common Stock and
42,067,290 shares outstanding. The following table sets forth the high and low
sale prices, as adjusted for stock splits, for Best Buy Common Stock, as
reported by the NYSE, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1993:
1st Quarter ended May 30, 1992........................................................... $ 9 11/32 $ 5 7/32
2nd Quarter ended August 29, 1992......................................................... 6 3/8 4 23/32
3rd Quarter ended November 28, 1992...................................................... 11 27/32 5 1/2
4th Quarter ended February 27, 1993...................................................... 15 23/32 10 25/32
FISCAL 1994:
1st Quarter ended May 29, 1993........................................................... $ 16 5/32 $ 11 7/32
2nd Quarter ended August 28, 1993......................................................... 16 1/2 10 27/32
3rd Quarter ended November 27, 1993...................................................... 31 7/16 16 3/32
4th Quarter ended February 26, 1994...................................................... 27 11/16 18 13/16
FISCAL 1995:
1st Quarter ended May 28, 1994........................................................... $ 37 1/2 $ 28 5/8
2nd Quarter ended August 27, 1994......................................................... 36 5/8 22 1/8
3rd Quarter (through September 29, 1994)................................................. 39 7/8 34 1/2
</TABLE>
The stock market generally and the stocks of companies in the retailing
industry in particular have, from time to time, experienced substantial price
and volume fluctuations. These fluctuations may be unrelated to the operating
performance of particular companies. Various factors and events, such as
announcements by Best Buy or its competitors of monthly sales figures and
comparable store sales results, expansion plans, the loss of a major supplier or
other factors, may also contribute to stock price volatility. Most retailers,
including Best Buy, derive a significant portion of their revenues and earnings
during the year-end holiday season, and the price of the Best Buy Common Stock
may be subject to fluctuation based upon general expectations for holiday
spending levels and patterns.
DIVIDEND POLICY
Best Buy historically has not paid cash dividends on its Common Stock and
does not presently intend to pay any dividends on its Common Stock for the
foreseeable future. Best Buy's bank line of credit and certain financing
agreements restrict its ability to pay dividends on its Common Stock. See Notes
3 and 4 to the Financial Statements. Best Buy and its majority-owned
subsidiaries would also be prohibited from paying dividends on Best Buy Common
Stock at any time during an extended interest payment period with respect to the
Subordinated Debentures, when there is an Event of Default (as defined under
"Description of Securities Offered - Description of the Subordinated Debentures
- - Events of Default") under the Subordinated Debentures or when Best Buy has
failed to make a payment required under the Guarantee. See "Description of
Securities Offered - Description of the Guarantee - Certain Covenants of Best
Buy."
14
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table presents selected financial, operating and balance sheet
data for each of the five fiscal periods set forth below which are derived from
the Company's audited financial statements. The financial data for the six
months ended August 28, 1993 and August 27, 1994 have been derived from the
Company's unaudited financial statements, which, in the opinion of management,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results of operations and financial position for the
periods and as of the dates presented. The results of operations for the six
months ended August 27, 1994 are not necessarily indicative of results to be
anticipated for the entire fiscal year. The table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the notes thereto contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL PERIODS ENDED (1) ENDED
---------------------------------------------------------------- ------------
MARCH 3, MARCH 2, FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, AUGUST 28,
1990 1991(2) 1992 1993 1994(3) 1993
---------- ---------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.................................. $ 512,850 $ 664,823 $ 929,692 $1,619,978 $3,006,534 $ 1,004,899
Cost of goods sold........................ 392,509 523,166 748,630 1,335,944 2,549,609 836,225
---------- ---------- ------------ ------------ ------------ ------------
Gross profit.............................. 120,341 141,657 181,062 284,034 456,925 168,674
Selling, general and administrative
expenses................................. 107,194 130,681 162,286 248,126 379,747 151,910
---------- ---------- ------------ ------------ ------------ ------------
Operating income.......................... 13,147 10,976 18,776 35,908 77,178 16,764
Interest expense, net..................... 3,674 3,586 3,415 3,883 8,800 1,949
---------- ---------- ------------ ------------ ------------ ------------
Earnings before taxes and cumulative
effect of accounting change.............. 9,473 7,390 15,361 32,025 68,378 14,815
Income taxes.............................. 3,790 2,850 5,760 12,170 26,668 5,705
---------- ---------- ------------ ------------ ------------ ------------
Earnings before cumulative effect of
accounting change........................ 5,683 4,540 9,601 19,855 41,710 9,110
Cumulative effect of accounting change.... -- (13,997) -- -- (425) (425)
---------- ---------- ------------ ------------ ------------ ------------
Net earnings (loss)....................... $ 5,683 $ (9,457) $ 9,601 $ 19,855 $ 41,285 $ 8,685
---------- ---------- ------------ ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------ ------------
Per share amounts:
Earnings before cumulative effect of
accounting change...................... $ .23 $ .18 $ .33 $ .57 $ 1.01 $ .23
Cumulative effect of accounting
change................................. -- (.56) -- -- (.01) (.01)
---------- ---------- ------------ ------------ ------------ ------------
Net earnings (loss)..................... $ .23 $ (.38) $ .33 $ .57 $ 1.00 $ .22
---------- ---------- ------------ ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------ ------------
Primary weighted average shares
outstanding (000s)....................... 24,798 24,852 28,848 34,776 41,336 39,292
OPERATING DATA:
Comparable store sales increase (4)....... 0.3% 1.0% 14.0% 19.4% 26.9% 21.4%
Number of stores (end of period).......... 49 56 73 111 151 124
Average revenues per store (5)............ $ 11,500 $ 12,400 $ 14,300 $ 17,600 $ 22,600 $ 19,200
Gross profit percentage................... 23.5% 21.3% 19.5% 17.5% 15.2% 16.8%
Selling, general and administrative
expenses percentage...................... 20.9% 19.7% 17.5% 15.3% 12.6% 15.1%
Operating income percentage............... 2.6% 1.6% 2.0% 2.2% 2.6% 1.7%
Inventory turns (6)....................... 3.7x 4.5x 5.1x 4.8x 5.0x 5.0x
Ratio of earnings to combined fixed
charges and preferred dividends (7)...... 2.27x 1.79x 2.46x 3.35x 3.87x 2.84x
BALANCE SHEET DATA (END OF PERIOD):
Merchandise inventories................... $ 92,991 $ 95,684 $ 135,838 $ 249,991 $ 637,950 $ 468,963
Working capital........................... 78,398 64,623 126,817 118,921 362,582 241,251
Property and equipment, net............... 27,359 39,572 58,250 126,442 172,724 101,695
Total assets.............................. 156,787 185,528 337,218 439,142 952,494 672,647
Long-term debt, including current
portion.................................. 35,283 35,695 52,980 53,870 219,710 57,233
Total liabilities......................... 90,637 128,787 179,650 256,859 641,050 395,165
Shareholders' equity...................... 66,150 56,741 157,568 182,283 311,444 277,482
<CAPTION>
AUGUST 27,
1994
------------
<S> <C>
STATEMENT OF EARNINGS DATA:
Revenues.................................. $ 1,782,575
Cost of goods sold........................ 1,531,439
------------
Gross profit.............................. 251,136
Selling, general and administrative
expenses................................. 221,791
------------
Operating income.......................... 29,345
Interest expense, net..................... 9,775
------------
Earnings before taxes and cumulative
effect of accounting change.............. 19,570
Income taxes.............................. 7,729
------------
Earnings before cumulative effect of
accounting change........................ 11,841
Cumulative effect of accounting change.... --
------------
Net earnings (loss)....................... $ 11,841
------------
------------
Per share amounts:
Earnings before cumulative effect of
accounting change...................... $ .27
Cumulative effect of accounting
change................................. --
------------
Net earnings (loss)..................... $ .27
------------
------------
Primary weighted average shares
outstanding (000s)....................... 43,226
OPERATING DATA:
Comparable store sales increase (4)....... 26.4%
Number of stores (end of period).......... 168
Average revenues per store (5)............ $ 25,200
Gross profit percentage................... 14.1%
Selling, general and administrative
expenses percentage...................... 12.4%
Operating income percentage............... 1.6%
Inventory turns (6)....................... 4.7x
Ratio of earnings to combined fixed
charges and preferred dividends (7)...... 1.89x
BALANCE SHEET DATA (END OF PERIOD):
Merchandise inventories................... $ 863,500
Working capital........................... 318,487
Property and equipment, net............... 235,126
Total assets.............................. 1,270,905
Long-term debt, including current
portion.................................. 220,157
Total liabilities......................... 943,259
Shareholders' equity...................... 327,646
<FN>
- ------------------
(1) The fiscal period ended March 3, 1990 had approximately 11 months because
Best Buy changed its fiscal year to a 52/53 week period ending on the
Saturday closest to the last day in February each year.
(2) During fiscal 1991, Best Buy changed its method of accounting for extended
service plans, resulting in a cumulative effect adjustment of ($14.0
million), or ($.56) per share. Profit recognized from the sale of extended
service plans under this accounting method was $10.8 million (on a pro
forma basis), $12.3 million, $11.8 million, $12.0 million and $12.5 million
in fiscal years 1990 through 1994, respectively, and was $6.1 million and
$7.4 million for the six months ended August 28, 1993 and August 27, 1994,
respectively. This profit is before any allocation of selling, general and
administrative expenses, except for direct selling expenses, primarily
commissions.
(3) During fiscal 1994, the Company changed its method of accounting for
incomes taxes resulting in a cumulative effect adjustment of ($425,000), or
($.01) per share. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 7 to the Financial
Statements.
(4) Comparable stores are stores open at least 14 full months.
(5) Average revenues per store are based upon total revenues for the trailing
12-month period divided by the weighted average number of stores open
during such 12-month period.
(6) Inventory turns are calculated based upon a rolling 12-month average of
inventory balances.
(7) For purposes of determining the ratio of earnings to combined fixed charges
and preferred dividends, earnings are defined as income before income taxes
plus fixed charges other than capitalized interest. Fixed charges consist
of interest costs (including the amortization of deferred debt issuance
costs and capitalized interest), the portion of rental expense that is
representative of an interest factor and preferred dividends.
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Financial Statements
and notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 28, 1993 AND AUGUST 27, 1994
Earnings for the first six months of fiscal 1995 were $11.8 million, or $.27
per share, compared to $9.1 million, or $.23 per share, in the first six months
of fiscal 1994. Earnings for the six month period in fiscal 1994 are before the
cumulative effect of a change in accounting for income taxes which reduced
earnings by $425,000 ($.01 per share). This earnings increase of 30% over the
prior year included an improvement in operating income of 75% which was offset
by interest expense on short-and long-term borrowings used to finance store
growth and increased inventory levels.
Revenues for the first six months of fiscal 1995 of $1.8 billion were 77%
above the first half of last year. The increased revenues were the result of the
opening of 44 stores during the past twelve months and a comparable store sales
increase of 26% in the current year. The new stores opened in the past year
included entry into the major markets of Detroit, Atlanta and Phoenix in the
second half of fiscal 1994, the entry into new markets in Florida, Ohio and the
Carolinas in the current fiscal year and the addition of stores in existing
markets. Comparable store sales increases in the current fiscal year are on top
of a 21% increase in the first half of last year. Management believes that the
Company's improving merchandise in-stock position, which has contributed to the
increases in revenues, will continue to be an important factor in revenue
growth. However, in light of the strong comparable store sales increases
reported in the second half of last year and the strong sales results posted in
the major metropolitan markets entered last year, it is expected that the
comparable store sales increases for the remainder of the current fiscal year
could be less than those experienced to date.
Gross profit margin was 14.1% for the first six months of fiscal 1995
compared to 16.8% for the comparable period last year. Competition in most of
the Company's product lines and promotional pricing has led to the change in
gross profit margin. Competition has increased in the past year as the Company
has entered new, more competitive markets and new competitors have entered
existing markets. Gross profit margins in the second quarter were consistent
with the margins reported in the first quarter of this fiscal year and the last
quarter of fiscal 1994, suggesting that margins have begun to stabilize.
Management does expect, however, that margins in the second half of fiscal 1995
could be slightly lower than the first half as the impact of promotional pricing
associated with the entry into new major markets and the traditional decline in
margins during the holiday selling season is realized.
Revenues from the sale of extended service plans were 1% or less of total
sales in the first six months of both fiscal 1994 and 1995. Profit from extended
service plans in the first half of 1995, before the allocation of selling,
general and administrative ("SG&A") expenses, other than direct selling
expenses, was $7.4 million compared to $6.1 million in the comparable period of
fiscal 1994.
SG&A expenses were 12.4% of sales for the first six months of fiscal 1995,
representing an improvement of 2.7% of sales compared to the 15.1% reported for
the same period last year. The improvement in this ratio indicates that the
earnings generated by the Company's revenue growth from new stores and
comparable store sales increases continue to outpace the growth in operating
costs. Greater efficiencies in advertising expenditures were achieved as more
stores were added to existing markets, revenues per store increased and the
Company reduced the size of some of its weekly newspaper inserts. SG&A expenses
were impacted in the second quarter of the current year by the costs associated
with opening two new distribution facilities and preparing to open a greater
number of stores as compared to the prior year.
16
<PAGE>
Net interest expense for the first six months of the current fiscal year
increased by $7.8 million compared to the prior year due to interest on the $150
million Senior Subordinated Notes issued in October 1993 and a higher level of
bank borrowings used to support the growth in inventories. Additionally, the
proceeds of the Company's $86 million common stock offering and a $44 million
sale/leaseback transaction in the first quarter of last year were temporarily
invested in short-term investments resulting in higher levels of investment
income in the first half of last year. The Company's effective tax rate for
fiscal 1995 is 39.5%, up slightly from the rate in fiscal 1994 mainly due to a
lower level of tax exempt interest income.
FISCAL YEARS ENDED FEBRUARY 29, 1992, FEBRUARY 27, 1993 AND FEBRUARY 26, 1994
In the past two fiscal years, Best Buy has more than doubled the number of
retail locations it operates, revenues have increased by 223% and earnings have
increased by 334%. The fiscal year ended February 26, 1994 was highlighted by
the opening of 40 new stores, including entries into the major markets of
Atlanta, Detroit and Phoenix. These new stores, combined with a full year of
operations at the 38 stores opened in the prior year and substantial increases
in computer sales, were the most significant factors in generating revenues of
$3.0 billion in fiscal 1994, an increase of 86% compared to $1.6 billion in
fiscal 1993. Revenues in fiscal 1993 were 74% above the $930 million reported in
fiscal 1992.
Operating income as a percentage of sales increased in fiscal 1994 to 2.6%
compared to 2.2% in fiscal 1993 and 2.0% in fiscal 1992. The increase in
revenues and leveraging of the Company's SG&A expenses more than offset lower
gross profit margins. Earnings more than doubled for the third year in a row,
increasing 110% in fiscal 1994 to $41.7 million. Fiscal 1993 earnings of $19.9
million were 107% higher than the $9.6 million reported in fiscal 1992. Earnings
per share, which reflect a three-for-two stock split in fiscal 1994 and a
subsequent two-for-one stock split in April 1994, rose 77% to $1.01 as compared
to $.57 in fiscal 1993 and $.33 in fiscal 1992. The earnings noted for fiscal
1994 are before a cumulative effect adjustment related to adopting the
provisions of FAS 109 "Accounting for Income Taxes."
REVENUES
The following table presents the Company's revenues, percentage increases in
revenues, comparable store sales increases, average revenues per store and
number of stores open for each of the last three fiscal years.
<TABLE>
<CAPTION>
1992 1993 1994
------------- --------------- ---------------
($ AMOUNTS IN 000)
<S> <C> <C> <C>
Revenues........................................................ $ 929,692 $ 1,619,978 $ 3,006,534
Percentage increase in revenues................................. 40% 74% 86%
Comparable store sales increase................................. 14% 19% 27%
Average revenues per store...................................... $ 14,300 $ 17,600 $ 22,600
Number of stores open at end of year............................ 73 111 151
</TABLE>
Sales levels achieved at stores in the new markets Best Buy entered in
fiscal 1994 have been higher on average than the Company's existing markets,
which is particularly significant in light of well established competition in
the new markets. Increasing consumer confidence, improving economic conditions,
increasing market share and expanded product lines contributed to the year over
year increases in sales at existing stores. Strong comparable store sales gains
were achieved for the third year in a row despite a very competitive retail
environment. The comparable store sales growth in fiscal 1994 was driven by a
significant increase in sales of computers which experienced a comparable store
sales increase of 69% over fiscal 1993. Sales of home office products, which
include computers and related equipment, increased to $1.0 billion compared to
$434 million in fiscal 1993 and $203 million in fiscal 1992. In fiscal 1994, the
Company significantly expanded its selection of computer products to include
such name brands as Apple, Compaq, Hewlett Packard and Toshiba. The home office
product category was 35% of total Company sales in fiscal 1994, up from 27% in
fiscal 1993. Sales in the entertainment software category, which includes
compact discs, computer software and prerecorded
17
<PAGE>
cassettes and videos, increased to 12% of total sales in fiscal 1994 from 9% in
fiscal 1993. Management expects that the growth in the home office and
entertainment software categories will continue to exceed the growth in other
categories and that computers will represent an increasing percentage of total
Company sales.
The 74% increase in revenues in fiscal 1993 compared to fiscal 1992 was the
result of the addition of 38 stores and a comparable store sales increase of
19%. The Company opened 14 stores in the Chicago market in fiscal 1993 and added
another 10 stores to this market in fiscal 1994.
The conversion of stores to the Concept II store format was completed in
fiscal 1994 with the conversion of the remaining 23 traditional stores. All 151
stores operated by the Company at the end of fiscal 1994 used the
non-commissioned format the Company introduced in fiscal 1990. In addition,
during fiscal 1994, the Company increased its prototype store sizes to 36,000
and 45,000 square feet, compared to mainly 28,000 square foot stores in prior
years. This increased space has enabled the Company to offer a greater product
selection and generate higher sales volume per store. In particular, the
additional space has been used to accommodate the growing home office and
entertainment software product categories.
In June 1993, the Company introduced its private label credit card program
and expanded its offerings of consumer financing alternatives. These financing
options include combinations of no interest and deferred payments, depending on
the length of the financing term. At February 26, 1994, there were over 700,000
cardholders with available credit exceeding $1.5 billion. Management believes
that the availability of these financing offers and the increased store size
have contributed to the comparable store sales increases and the success of the
new stores.
Revenues from extended service plans declined to .7% of total revenues in
fiscal 1994 compared to 1.3% in fiscal 1993 and 2.2% in fiscal 1992. The decline
is due not only to increasing product sales but to the Company's decision to
reduce its emphasis on the sale of these plans. The Company also sells these
plans at prices substantially below its competitors and has occasionally
included these plans as promotional items with selected product sales.
The Company's expansion plan for fiscal 1995 includes the opening of 53 new
stores. New markets to be entered are primarily in the eastern and southeastern
United States, along with Los Angeles and Las Vegas. In addition to the new
markets that the Company will be entering, approximately 15 of the new stores
will be added to existing markets to maximize the return on advertising costs
and other fixed costs of operation. The prototype store size for most of the
stores to be opened in fiscal 1995 is approximately 45,000 square feet.
Management expects that changing technology, in particular in the home office
market for multimedia computer systems and software, coupled with new product
introductions, including direct broadcast satellite systems, will be factors in
increasing sales volume at existing and future stores.
COMPONENTS OF EARNINGS
The following table sets forth selected operating results as a percentage of
revenues for each of the last three fiscal years.
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Gross profit............................................................... 19.5% 17.5% 15.2%
Selling, general and administrative expenses............................... 17.5 15.3 12.6
Operating income........................................................... 2.0 2.2 2.6
Earnings before accounting change.......................................... 1.0 1.2 1.4
</TABLE>
Gross profit margin over the past three fiscal years has been impacted by
promotional pricing associated with the entry into several new competitive
markets, the change in sales mix towards lower margin computer products, the
reduced emphasis on the sale of higher margin extended service plans and the
increased competition in most of the Company's product categories. While
competition in the new markets entered during fiscal 1994 and 1993 resulted in
lower product margins, sales in these
18
<PAGE>
markets have exceeded initial expectations as the Company believes its retail
format and marketing programs have quickly provided it with significant market
share. An increase in inventory shrink also impacted profit margins in fiscal
1994. Profit from extended service plans, before allocation of any SG&A
expenses, was $12.5 million in fiscal 1994, up from $12.0 million in fiscal 1993
and $12.3 million in fiscal 1992.
Management expects that competition in all product categories will remain
strong in the coming year and pressure on margins will continue although the
annual rate of decline is expected to slow. Management believes that its full
service capabilities, financing alternatives and low operating expenses are
distinct advantages over other retailers which will result in increasing market
share. Management also anticipates that the increased sales volume will enable
the Company to purchase merchandise at more favorable prices, somewhat
mitigating the impact of price competition.
SG&A expenses declined to 12.6% of sales in fiscal 1994, compared to 15.3%
and 17.5% in fiscal 1993 and 1992, respectively. The decline in this ratio has
more than offset the reduction in gross profit margin. As the Company added
stores and generated increased sales volume per store, the ability to leverage
those fixed costs of operations has increased. The addition of stores within
markets also increases the cost effectiveness of the Company's advertising
expenditures. Sales per employee have increased over each of the last three
years as the corporate and support functions handle increased volumes without
proportionally increasing costs. The transition to a non-commissioned sales
environment has also reduced the operating expense ratio. Pre-opening costs
totaled $7.3 million in fiscal 1994 compared to $6.2 million in fiscal 1993 and
$2.3 million in fiscal 1992. Management expects that SG&A expenses will continue
to decline as a percentage of sales.
Interest expense in fiscal 1994 increased over the prior two years as a
result of the financing used for store development and higher inventories to
support the sales growth. Interest on the Company's senior subordinated notes,
issued in October 1993, was the principal reason for the higher interest expense
in 1994.
The Company's effective tax rate in fiscal 1994 increased to 39.0%
principally as a result of the increase in the federal statutory rate to 35%.
Changes in the mix of states in which the Company does business and the level of
tax-exempt investment income have also impacted the Company's effective tax rate
in the last three years. The Company adopted the provisions of FAS 109
'Accounting for Income Taxes,' effective as of the beginning of fiscal 1994. The
effect of the adoption was a charge to net earnings of $425,000, or $.01 per
share. At February 26,1994, the Company had deferred tax assets of $20 million
which are expected to be recovered through future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Best Buy has financed its growth over the last two fiscal years primarily
through the use of capital raised in the public markets. Funds from operations
and other financing transactions have also been used to support the significant
growth. Since November 1991, the Company has raised approximately $175 million
through the issuance of Common Stock, including $86 million in net proceeds of a
7.02 million share public offering in May 1993. The Company's issuance of $150
million senior subordinated notes in October 1993 resulted in proceeds to the
Company of $146 million, after underwriting costs. The sale and leaseback of 17
stores in April 1993 also generated $44 million in cash.
Proceeds from these financing transactions were used for the development of
stores and to increase inventories to the level required to support the higher
sales volumes reported in the last two fiscal years. In the past two years the
Company more than doubled the number of stores it operates, opening 38 new
stores in fiscal 1993, followed by 40 stores in fiscal 1994. Capital
expenditures of $101 million in fiscal 1994 and $75 million in fiscal 1993
included new store site acquisition and development costs of approximately $50
million. In addition to new stores, the Company undertook remodeling and
expansion projects to complete the conversion of its stores to the Concept II
store format in fiscal 1994. These renovations provide the additional space
necessary for the increasing
19
<PAGE>
selection of computers and entertainment software. In those locations where
expansion was not practical, the Company relocated stores to a larger location.
Management expects this trend of relocation of selected stores to higher sales
volume locations and expansion of selling space at existing stores to continue
in locations where economic conditions warrant.
At August 27, 1994, the Company had working capital of $318 million compared
to $363 million at the end of the prior fiscal year. The change in working
capital is the result of the use of working capital, on a short-term basis, to
finance current year store development. During the last six months, inventories
increased $226 million as a result of the opening of 17 new stores and the
Company's new distribution centers in Minnesota and Virginia and the expansion
of the Oklahoma distribution facility, as well as a greater emphasis on
achieving an improved merchandise in-stock position. Management believes that
the increased inventories in the stores have contributed to the comparable store
sales growth. Inventory turns of 4.7 times for the trailing 12 months are
expected to increase to approximately 5.0 times by the end of fiscal 1995 as
seasonally higher sales volume and the opening of additional stores improve this
ratio. The growth in inventories was financed principally through vendor
financing and borrowings under the Company's revolving credit facility.
Management expects that the seasonal increase in inventories and the opening of
additional stores and a California distribution center in the third quarter will
result in increasing levels of inventory through that period. The stores opened
in the first half of the year and those scheduled to be opened in the second
half are larger stores, generally 45,000 or 58,000 square feet, and feature a
larger selection of products, resulting in higher inventory levels in the
stores. In addition to the new stores, the Company is expanding or relocating
approximately 30 stores to the larger store format in the current year.
In July 1994, the Company entered into a new revolving credit facility which
increased the seasonal borrowing availability to $400 million. The facility
expires in June 1996 and provides for a one year extension at the option of the
participating lenders. Borrowings under the facility are subject to a limitation
of $50 million once each year for approximately one month. In August 1994, the
Company entered into a master lease program under which the lessor will develop,
and the Company will lease, approximately 16 newly constructed stores and the
Virginia distribution center and related equipment. In addition, the Company
owns certain retail locations, the majority of which are subject to commitments
for sale/leaseback that will generate in excess of $40 million in the third
quarter. As the Company's policy is to lease rather than own its retail
locations, it intends to enter into sale/leasebacks for those remaining
locations not currently subject to commitments. In August 1994, the Company also
completed the financing on the $4.5 million expansion of the Oklahoma
distribution center.
The Company expects that capital spending for the remainder of the fiscal
year, net of amounts expected to be recovered through sale/leasebacks, will
approximate $50 million. The Company's introduction of its new, larger store
format is expected to result in the continuation of the Company's practice of
expanding or relocating stores where appropriate.
Management believes that the proceeds from the sale of the Subordinated
Debentures to Best Buy Capital, together with working capital from the Company's
new revolving credit facility, vendor financing and long-term financing for real
estate development, will be adequate to support the Company's operations and
planned growth for the immediate future.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations. Prices for many of its products have decreased due to
technological advances and increased competition. Products which have increased
in cost have generally done so in line with the overall inflation rate and the
Company believes it has been successful in improving its purchased cost of most
products due to larger volume purchases from a reduced number of suppliers.
QUARTERLY RESULTS AND SEASONALITY
Similar to most retailers, the Company's business is seasonal. Revenues and
earnings are lower during the first half of each fiscal year and are greater
during the second half, which includes the year-
20
<PAGE>
end holiday selling season. The timing of new store openings and general
economic conditions may affect future quarterly results of the Company. The
Company's unaudited quarterly operating results for each quarter of fiscal 1994
and the first two quarters of fiscal 1995 were as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
---------------------------------------------------- ----------------------
MAY 29, AUGUST 28, NOVEMBER 27, FEBRUARY 26, MAY 28, AUGUST 27,
1993(1) 1993 1993 1994 1994 1994
--------- ----------- -------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 441,919 $ 562,980 $ 808,476 $1,193,159 $ 849,403 $ 933,172
Gross profit...................... 74,476 94,198 121,108 167,143 118,952 132,184
Operating income.................. 3,674 13,090 20,849 39,565 11,686 17,659
Net earnings...................... 1,091 7,594 11,161 21,439 4,241 7,600
Net earnings per share............ .03 .18 .26 .50 .10 .18
<FN>
- ------------------
(1) Includes the cumulative effect of a change in accounting for income taxes
that reduced net earnings by $425 ($.01 per share).
</TABLE>
21
<PAGE>
BUSINESS
GENERAL
Best Buy is one of the nation's fastest growing specialty retailers. The
Company offers a wide selection of name brand consumer electronics, home office
equipment, entertainment software and appliances. The Company commenced business
in 1966 as an audio component systems retailer and in the early 1980s, with the
introduction of the video cassette recorder, expanded into video products. In
1983, the Company changed its marketing strategy to use mass merchandising
techniques for a wider variety of products, and began to operate its stores with
a "superstore" format. In 1989, Best Buy dramatically changed its method of
retailing by introducing its "Concept II" store format, a self-service,
non-commissioned, discount style sales environment designed to give the customer
more control over the purchasing process. The Company determined that an
increasing number of customers had become knowledgeable enough to select
products without the assistance of a commissioned salesperson and preferred to
make purchases in a more convenient and customer friendly manner. With its
innovative retail format, the Company has achieved significant success, moving
it into a leading position nationally in all of its principal product
categories. Since the beginning of fiscal 1993, the Company has added 103
stores, primarily in the central United States, and has added four new
distribution centers. The Company anticipates opening a total of 53 stores in
fiscal 1995, including new markets primarily in the east and southeast, as well
as Los Angeles and Las Vegas. By the end of this fiscal year, the Company
expects to operate 204 stores.
During the past year, the Company has been developing a strategy to further
enhance its store format. The strategy, known as "Concept III," features a
larger, redesigned store format created to produce a more informative and
exciting shopping experience for the customer. Through focus group interviews
and other research, the Company determined that customers wanted more product
information and a larger product selection. In order to meet these evolving
consumer preferences, the Company has developed interactive Answer Centers
featuring touch screen monitors from which customers and sales personnel can
immediately access product information. These Answer Centers, to be stationed
throughout the store, will utilize proprietary technology providing audio and
video presentations designed, by the Company, to enable users to compare
products and better understand the features and benefits of product options. The
enhanced store format will also feature more hands-on demonstrations allowing
customers to, among other things, experience audio and video products such as
"surround sound" systems and sample featured compact discs at approximately 100
private listening stations. Finally, these larger stores, generally 45,000
square feet with some as large as 58,000 square feet, will accommodate a larger
product selection intended to be as good as or better than the largest selection
offered by most of Best Buy's competitors in each of its principal product
categories. By the end of this fiscal year, approximately 10% of the Company's
stores will incorporate all of the Concept III enhancements, with most of the
remaining stores anticipated to be converted over the next three to four years.
BUSINESS STRATEGY
The Company's business strategy is to offer consumers an enjoyable and
convenient shopping experience while maximizing its profitability. Best Buy
believes it offers consumers meaningful advantages in store environment, product
value, selection and service. An objective of this strategy is to achieve a
dominant share of the markets Best Buy serves and the Company currently holds a
leading, and in some cases dominant, share in its markets. The Company's
recently introduced Concept III store format will feature an expanded product
selection and will use interactive technology to enhance the customer's shopping
experience. As part of its overall strategy, the Company:
- Offers a self-service, discount style store format, featuring easy to
locate product groupings, emphasizing customer choice and product
information and providing assistance from non-commissioned product
specialists and, in the Concept III stores, touch screen Answer Centers
designed to give customers easy access to product information in both
audio and video format.
22
<PAGE>
- Provides a large selection of brand name products comparable to retailers
that specialize in each of the Company's four principal product categories
and seeks to ensure a high level of product availability for customers.
- Seeks to provide customers with the best product value available in the
market area through active comparison shopping programs, daily price
changes, lowest price guarantees and special promotions, including
interest-free financing, reasonably priced extended warranties and free
home delivery.
- Provides a variety of meaningful services not offered by certain
competitors, including convenient financing programs, product delivery and
installation, computer training and post-sale repair and warranty services
including computer upgrades.
- Establishes stores at sites that are easily accessible from major highways
and thoroughfares and seeks to create sufficient concentrations of stores
in major markets to maximize the leverage on fixed costs including
advertising and operations management.
- Controls costs and enhances operating efficiency by centrally controlling
all buying, merchandising and distribution, and vertically integrating
certain support functions such as advertising.
Best Buy's store format is a key component of its business strategy. The
Company believes that because customers are familiar with most consumer
electronics products and are accustomed to discount shopping formats, they
increasingly resist efforts to direct their choice of product and appreciate
controlling the purchase decision. In addition, the Company believes that its
competitors' use of directional, commissioned sales staffs and showrooms are
inefficient methods of completing a sale.
Best Buy continuously evaluates the retail environment and regularly uses
focus groups to assess customer preferences. Through these processes, Best Buy
concluded that customers want access to more product information in order to be
more confident about their purchase decisions. As a result, Best Buy's new
Concept III store format features Answer Centers enabling customers to access
product information from touch screen monitors that display informative and
entertaining full motion videos. The videos will allow customers to experience
and compare product features. Initially, approximately 12 of these Answer
Centers will be stationed throughout each Concept III store. The Answer Centers
will also enable store personnel to provide information on product availability
and specifications to customers desiring sales assistance. The new store format
will also feature more hands-on demonstrations of products. For example, each of
the Concept III stores will have a demonstration area for television "surround
sound" systems so that customers can see for themselves how different
configurations of audio components will enhance sound quality. Each Concept III
store will also have a simulated, life-size car display that will demonstrate
differences in car stereo sound resulting from different speaker configurations,
approximately 100 private listening posts where customers can sample featured
music software and a "Fun & Games" area where customers and their children can
try the latest video games. Best Buy believes that these enhancements to its
existing store format will further differentiate it from competing retailers and
will also provide an advantage for the Company relative to potential future
competitors such as catalog and on-line services and television shopping
networks.
The Company's stores are in large, open buildings with high ceilings. Most
of Best Buy's existing stores contain approximately 28,000 to 45,000 square
feet. Concept III stores will feature specialty areas such as larger viewing
rooms for large screen and projection televisions, larger speaker rooms, a
separate department for movie videos, a working kitchen for appliance
demonstrations and an expanded and consolidated accessories department. To
accommodate its expanding product selection, as well as these specialty
features, the majority of the stores which the Company plans to open in fiscal
1995 will have approximately 45,000 square feet, with stores in selected
locations having approximately 58,000 square feet.
Best Buy's merchandising strategy differs from most other retailers selling
comparable merchandise. Best Buy's merchandise is displayed at eye level next to
signs identifying the products' major features, with the boxed products
available above or below the display model. The Company's salaried
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<PAGE>
product specialists, who are knowledgeable about the operation and features of
the merchandise on display, are dedicated to a particular product area for
customers who desire assistance. This convenient self service format allows the
customer to carry merchandise directly to the check-out lanes, pay for it and
leave the store. This system avoids the time-consuming process used at
traditional superstores and catalog showrooms. Many of the Company's competitors
with the traditional superstore format use commissioned sales staffs and have
only display models on the selling floor with boxed merchandise stored in a back
room. This traditional superstore design allows sales personnel to direct the
customer to products selected by the salesperson. In this situation, a
salesperson typically will promote products yielding the greatest sales
commissions. In addition, unlike Best Buy, these traditional superstores
generally stress the sale of extended service plans and have trained their sales
staffs to maximize the sale of these plans. The Company offers extended service
plans, generally at lower prices than its competitors.
The Company believes that its advertising strategy has greatly contributed
to its overall success. Best Buy spends approximately 3% of store sales on
advertising, including the distribution of about 18 million newspaper inserts
weekly. The Company has vertically integrated advertising and promotion
capabilities and operates its own in-house advertising agency. This capability
allows the Company to respond rapidly to competitors in a cost effective manner.
In many of its markets, the Company is able to secure and deliver merchandise to
its stores and to create, produce and run an advertisement all within a period
of less than one week.
Print advertising consists of four-color weekly inserts of up to 20 pages
that emphasize a variety of product categories and feature extensive name brand
selection and price range. The Company also produces all of its television and
radio commercials, each with a specific marketing message. Television
commercials and radio spots account for approximately 35% of total advertising
expenditures. The Company is reimbursed by vendors for a substantial portion of
advertising expenditures through cooperative advertising arrangements.
Product service and repair are important aspects of Best Buy's marketing
strategy, providing the opportunity to differentiate itself from warehouse clubs
and other discount stores which generally provide no such service. Virtually all
products sold by the Company carry manufacturers' warranties. The Company offers
to service and repair almost all of the products it sells, except major
appliances in certain markets, and has been designated by most of its suppliers
as an authorized service center. The Company contracts with outside factory
service organizations to service and repair major appliances and is expanding
its own in-home appliance repair service. In addition, the Company conducts
computer software training classes at selected stores and makes its technical
support staff available to assist customers with the custom configuration of
personal computers and peripheral products. The Company also delivers and
installs major appliances and large electronics products and installs car
stereos, cellular phones and security systems.
PRODUCT SELECTION AND MERCHANDISING
Best Buy provides a broad selection of name brand models within each product
line in order to provide customers with greater choice. The Company currently
offers approximately 4,000 products, exclusive of entertainment software titles
and accessories, in its four principal product categories. In addition, the
Company has recently expanded its selection of accessories, which typically
yield a higher margin than most of the Company's other products. The Company
believes that this expanded assortment of accessories will also build customer
traffic for its other products. The Company also aggressively promotes and
displays a large selection of lower priced, high volume items, such as blank
audio and video tapes, portable audio equipment and photographic equipment.
The home office category, now Best Buy's largest product category, includes
personal computers and related peripheral equipment, telephones, cellular
phones, answering machines, fax machines, copiers and calculators. The Company
was among the first consumer electronics retailers to carry an extensive
assortment of personal computer products and related software. The Company
believes that it
24
<PAGE>
is well positioned to withstand increased competition in the retail market for
personal computer products, traditionally low margin items, due to its early
entry and experience in the market, its broad product lines, including those
that generate higher profit margins, and its relatively low cost structure. In
addition, the Company believes that the related services it offers, such as
computer training, configuration, maintenance and upgrade, are distinct
advantages compared to other discount and mail order computer retailers. The
Company also believes that the changing technology and consumer demand for
access to on-line information will continue to generate increased demand for
computers and related products in the future. The Company's home office products
category includes brand names such as Acer, Apple, AT&T, Canon, Compaq, Epson,
Hewlett Packard, IBM, Motorola, NEC, Packard Bell, Panasonic, Sharp and Toshiba.
Best Buy's second largest product category is consumer electronics,
consisting of video and audio equipment. Video products include televisions,
video cassette recorders, camcorders and the popular new satellite dishes that
receive direct broadcast satellite television. Audio products include audio
components, audio systems, portable audio equipment, car stereos and security
systems. The Company has recently expanded its product selection in consumer
electronics by offering higher end products and components that have greater
appeal to audio and video enthusiasts. Further, the Company anticipates that
with the availability of better picture and sound quality through direct
broadcast satellite, it will have more opportunities to sell higher end
equipment such as home theaters, surroundsound systems and in-wall components.
The Company sells consumer electronics with brand names such as Aiwa, Bose,
General Electric, Infinity, JBL, JVC, Magnavox, Panasonic, Pioneer, RCA, Sanyo,
Samsung, Sharp, Sony, Technics and Toshiba.
Best Buy's entertainment software category includes compact discs,
pre-recorded audio and video cassettes and computer software. The Company is one
of the few large consumer electronics retailers that sells a broad selection of
entertainment software in all of its stores. The Company generally offers
between 25,000 and 55,000 titles in its stores and intends to offer
approximately 80,000 titles in its largest Concept III stores. In addition, Best
Buy utilizes local personnel to customize a portion of the music software
assortment for a particular store. The Company believes that it has
substantially increased customer traffic by offering this wide and customized
assortment of entertainment software.
The major appliance category includes microwave ovens, washing machines,
dryers, air conditioners, dishwashers, refrigerators, freezers, ranges and
vacuum cleaners. Products in this category include brand names such as Eureka,
Frigidaire, Hoover, Maytag, Sharp, Whirlpool and White-Westinghouse.
The following table sets forth the approximate percentages of store sales
from each of Best Buy's principal product lines.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------- SIX MONTHS ENDED
FEBRUARY 29, 1992 FEBRUARY 27, 1993 FEBRUARY 26, 1994 AUGUST 27, 1994
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Home Office...................... 22% 27% 35% 35%
Consumer Electronics:
Video.......................... 28 26 22 21
Audio.......................... 22 20 16 14
Entertainment Software........... 7 9 12 14
Major Appliances................. 13 11 9 10
Extended Service Plans........... 2 1 1 1
Other (1)........................ 6 6 5 5
--- --- --- ---
Total........................ 100% 100% 100% 100%
--- --- --- ---
--- --- --- ---
<FN>
- --------------
(1) Primarily photographic equipment, blank audio and video tapes, video games,
furniture and accessories.
</TABLE>
25
<PAGE>
STORE LOCATIONS AND EXPANSION
The Company's strategy generally has been to enter major metropolitan areas
with the simultaneous opening of several stores and then to expand into
contiguous non-metropolitan markets. Currently, approximately one-third of the
Company's stores are in non-metropolitan markets. The entry into a new market is
preceded by a detailed market analysis which includes a review of competitors,
demographics and economic data. Best Buy's store location strategy enables it to
maximize the effectiveness of advertising expenditures and to create a high
level of consumer awareness. In addition, the clustering of stores allows the
Company to maintain more effective management control, enhance asset
utilization, and utilize its distribution facilities more efficiently.
When entering a new metropolitan market, the Company establishes a district
office, service center and major appliance warehouse. Each new store requires
approximately $3.0 to $3.6 million of working capital, depending on the size of
the store, for merchandise inventory (net of vendor financing), leasehold
improvements, fixtures and equipment. Additional pre-opening costs are incurred
in hiring and training new employees and in advertising. Pre-opening costs of
approximately $200,000 per store are expensed in the year the store is opened.
Best Buy is continuing its national market expansion strategy. The Company
believes it has the necessary distribution and management information systems as
well as management experience and depth to support its expansion plans. During
the last fiscal year, the Company opened 40 stores, a 36% increase in its store
base. The Company intends to open a total of 53 stores during the current fiscal
year, including entry into the major markets of Baltimore/Washington, D.C.,
Charlotte, Cleveland, Las Vegas, Los Angeles and Orlando. In addition, the
Company intends to remodel or relocate approximately 30 of its stores during the
current fiscal year, generally increasing the size of these stores to
approximately 45,000 or 58,000 square feet. In fiscal 1996, the Company
anticipates opening approximately 50 additional stores.
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<PAGE>
The following table presents the number and location of stores operated by
the Company at the end of each of the last three fiscal years and the number of
stores the Company expects to open during the current fiscal year.
<TABLE>
<CAPTION>
NUMBER OF STORES
AT FISCAL YEAR END NUMBER OF STORES
------------------------------------- PLANNED TO BE OPENED IN
1992 1993 1994 FISCAL 1995
----------- ----------- ----------- -----------------------
<S> <C> <C> <C> <C>
Illinois........................................... 7 20 30 2
Texas.............................................. 15 26 28 4
Minnesota.......................................... 14 14 15 1
Michigan........................................... -- -- 10 4
Ohio............................................... -- -- 2 10
Wisconsin.......................................... 11 11 11 --
Missouri........................................... 10 10 10 --
Georgia............................................ -- -- 7 2
Arizona............................................ -- -- 6 1
California......................................... -- -- -- 7
Indiana............................................ -- 7 7 --
Colorado........................................... 5 6 6 --
Iowa............................................... 5 5 5 --
Kansas............................................. 3 3 4 1
Virginia........................................... -- -- -- 5
Maryland........................................... -- -- -- 4
Arkansas........................................... -- 1 2 1
Florida............................................ -- -- -- 3
Nebraska........................................... 2 3 3 --
North Carolina..................................... -- -- -- 3
Oklahoma........................................... -- 3 3 --
South Carolina..................................... -- -- -- 3
Kentucky........................................... -- -- -- 1
Nevada............................................. -- -- -- 1
New Mexico......................................... -- 1 1 --
South Dakota....................................... 1 1 1 --
-- --
--- ---
Total............................................ 73 111 151 53
-- --
-- --
--- ---
--- ---
<CAPTION>
ESTIMATED NUMBER OF
STORES TO BE OPEN AT
END OF FISCAL 1995
---------------------
<S> <C>
Illinois........................................... 32
Texas.............................................. 32
Minnesota.......................................... 16
Michigan........................................... 14
Ohio............................................... 12
Wisconsin.......................................... 11
Missouri........................................... 10
Georgia............................................ 9
Arizona............................................ 7
California......................................... 7
Indiana............................................ 7
Colorado........................................... 6
Iowa............................................... 5
Kansas............................................. 5
Virginia........................................... 5
Maryland........................................... 4
Arkansas........................................... 3
Florida............................................ 3
Nebraska........................................... 3
North Carolina..................................... 3
Oklahoma........................................... 3
South Carolina..................................... 3
Kentucky........................................... 1
Nevada............................................. 1
New Mexico......................................... 1
South Dakota....................................... 1
---
Total............................................ 204
---
---
</TABLE>
SUPPLIERS, PURCHASING AND DISTRIBUTION
The Company's marketing strategy depends, in part, upon its ability to offer
a wide selection of name brand products to its customers and is, therefore,
dependent upon satisfactory and stable supplier relationships. In fiscal 1994,
Best Buy's 25 largest suppliers accounted for approximately 70% of the
merchandise purchased by the Company, with five suppliers, Hewlett-Packard, IBM,
Packard Bell, RCA and Sony, accounting for approximately 29% of the Company's
total purchases. The loss of or disruption of supply from any one of these major
suppliers could have a material adverse effect on the Company's sales. While
certain suppliers have at times limited or discontinued their supply of products
to the Company, the Company's operations have not been materially adversely
impacted by any limitation on or loss of supply. Best Buy has no written
contracts with its suppliers but has not received any indication that any
suppliers will discontinue selling merchandise to the Company. The Company has
not experienced difficulty in maintaining satisfactory sources of supply, and
management believes that adequate sources of supply will continue to exist for
the types of merchandise sold in its stores.
Best Buy's centralized buying staff purchases substantially all of the
Company's merchandise. The buying staff is responsible for overall inventory
management, including promotion planning, pricing and replenishment of store
inventory. Generally, with the exception of certain entertainment software,
there are no agreements with suppliers for the return of unsold inventory.
Merchandise remaining at the time of new product introduction is generally sold
on a close-out basis. When vendors introduce new product
27
<PAGE>
models and reduce their prices on current models, the Company has historically
received credits from the vendors sufficient to compensate the Company for its
reduced selling prices. Historically, revenues from the sale of close-out
merchandise have been insignificant.
The Company has made product availability a high priority and has made
significant investments in facilities, personnel and systems to assure that its
in-stock position will be among the highest in the industry. The Company
utilizes an automatic replenishment system for restocking its stores and is able
to deliver products to its stores as required. Replenishment of store
inventories is based on inventory levels, historical and projected sales trends,
promotions and seasonality. The Company utilizes an extensive merchandise
planning and daily inventory monitoring system to manage inventory turns.
The majority of the Company's merchandise, except for major appliances, is
shipped directly from manufacturers to the Company's distribution centers in
California, Minnesota, Oklahoma and Virginia. During the last twelve months, the
Company increased its permanent distribution space for hard goods from
approximately 500,000 square feet to over 1,800,000 square feet. In addition,
the Company recently opened a dedicated distribution center for entertainment
software in Minnesota and will be installing a state-of-the-art sortation system
for music software during the next year. Major appliances are shipped to
satellite warehouses in each of the Company's major markets. In order to respond
to increased customer demand for certain computer and entertainment software
products, the Company has increased the volume of merchandise shipped directly
to the stores from manufacturers and distributors. The Company is, however,
still dependent upon the distribution centers for inventory storage and shipment
of merchandise to stores. The Company primarily uses contract carriers to ship
merchandise from its distribution centers to its stores. The Company believes
that its distribution centers can most effectively service stores within a 600
to 700 mile radius and that its five distribution centers can accommodate the
Company's expansion plans for the next year. The Company plans to continue
investing in developing new systems and purchasing material handling equipment
to reduce labor costs, improve accuracy in filling orders and enhance space
utilization.
MANAGEMENT INFORMATION SYSTEMS
Best Buy has invested significant resources to develop proprietary software
that provides daily information on sales, gross margins and inventory levels by
store and by stockkeeping unit. These systems allow the Company to compare
current performance against historical performance and the current year's
budget. The systems have been designed to integrate all major aspects of the
Company's business including sales, warehousing, distribution, purchasing,
inventory control, merchandise planning and replenishment, as well as various
financial systems. Best Buy uses point-of-sale bar code scanning from which
sales information is polled at the end of each day. The Company's MIS group, in
conjunction with the advertising department, has also developed the proprietary
technology to be used in the touch screen Answer Centers. The Company uses EDI
(Electronic Data Interchange) with selected suppliers for the more efficient
transmittal of purchase orders, shipping notices and invoices. The Company
believes that the systems it has developed have the ability to continue to
improve customer service, operational efficiency, and management's ability to
monitor critical performance factors. The systems have been designed to support
the growth and expansion of the Company for the foreseeable future. Best Buy is
continuing to make investments in designing new systems, modifying existing
systems and increasing processing capacity, particularly with respect to
distribution, inventory management and store operations.
STORE OPERATIONS
Best Buy has developed a standardized and detailed system for operating its
stores. The system includes procedures for inventory management, transaction
processing, customer relations, store administration and merchandise display.
The Company's store operations are organized into three regions. Each region is
divided into districts and is under the supervision of a senior vice president
who oversees the operation through several regional managers, each of whom has
responsibility for a number of districts within the region. District managers
monitor store operations closely and meet
28
<PAGE>
regularly with store managers to discuss merchandising and new product
introductions, sales promotions, customer feedback and requests, store operating
performance and other matters. Similar meetings are conducted at the corporate
level with regional management. Each district also has a loss prevention
manager, with product security controllers employed at each store to control
inventory shrinkage. Advertising, pricing and inventory policies are controlled
at corporate headquarters. The Company's training, consumer affairs, human
resources and store merchandising functions are also centralized at corporate
headquarters.
The Company's stores are open seven days and six evenings a week. A store is
typically staffed by one manager, two or three assistant managers, and an
average staff ranging from 70 to 140 persons depending on store size.
Approximately 60% of a store's staff, which includes product specialists and a
support staff of cashiers and customer service and stock handling employees, is
employed on a part-time basis. Store managers are paid a salary and have the
opportunity to earn bonuses if their stores exceed sales and gross margin
quotas, meet certain budget criteria in controlling expenses, and achieve
certain administrative goals.
The Company has an extensive in-house education program to train new
employees, keep current employees informed of changes and modifications to its
operating procedures and demonstrate new products. The training program includes
classes for employees and the use of detailed store manuals and training video
tapes produced in-house. Best Buy also provides its store personnel with
in-store training in the demonstration and operation of the Company's
merchandise, which is enhanced using tests that are administered through the
Company's mainframe computer system. The Company also conducts an 11-week course
of classroom instruction combined with on-the-job training for future management
candidates. The Company's policy is to staff store management positions with
personnel promoted from within each store and to staff new stores from its pool
of trained managers. However, as Best Buy expands into new markets, it also
recruits local management personnel who have valuable knowledge about the new
market.
CREDIT POLICY
The Company has significantly expanded the use of special financing offers
and considers them an important part of its marketing strategy. Generally, the
special financing offers allow customers to defer all payments interest-free for
90 days or six months, depending on the price of the product, or to defer
interest payments for one year on the purchase of selected products.
Approximately 35% of store revenues are paid for in cash, with the remaining 65%
paid for by either major credit cards or the Best Buy private label credit card.
The special financing offers are provided to customers who qualify for Best
Buy's private label credit card. The private label credit card allows these
customers to obtain financing on purchases of merchandise at Best Buy stores
through arrangements between the Company and independent banks and consumer
credit programs. The Company is generally able to qualify a new customer for
credit on the spot, typically in less than five minutes. Receivables from
private label credit card sales are sold, without recourse to the Company, to
unaffiliated third party institutions. The Company receives payment from these
institutions within 2 to 3 days following the sale.
COMPETITION
Retailing in each of the Company's product categories is highly competitive.
While overall consumer electronics sales have grown relatively slowly in recent
years, the concentration of sales among the top retailers in the industry has
increased significantly. The industry's consolidation has been evidenced in the
last two years by the liquidation of Highland Superstores, the closing of 97
Silo stores in many of the markets where the Company competes and the closing of
110 McDuff/Video Concepts (owned by Tandy Corp.) stores in states such as Texas,
Colorado and Missouri. The relatively slow sales growth is due to market
saturation for many consumer electronics products and the general absence of new
products in the market. In addition, the Company believes that consumers have
become more knowledgeable and value conscious, thereby putting pressure on
profit margins. Management believes
29
<PAGE>
that its store format distinguishes the Company from most of its competitors by
offering customers a friendlier and less pressured shopping experience. In
addition, the Company competes by aggressively advertising and emphasizing
product selection, low prices and service.
Best Buy competes in most of its markets against Sears and Montgomery Ward
and in an increasing number of markets against Circuit City and Incredible
Universe (owned by Tandy Corp.). It also competes against computer superstores
such as Computer City (owned by Tandy Corp.) and CompUSA and entertainment
software superstores operated by Musicland, Tower Records and Blockbuster
Entertainment. Certain of these competitors have significantly greater financial
resources than the Company. The Company also competes against independent
dealers, discount stores, wholesale clubs, office products superstores and mass
merchandisers. Over half of the Company's stores compete in markets with Circuit
City. This percentage will increase in fiscal 1995 with the Company's entry into
markets in the eastern, southeastern and western United States and with Circuit
City's entry into the Minneapolis/St. Paul and Kansas City markets.
EMPLOYEES
As of August 27, 1994, the Company employed approximately 18,700 persons, of
whom 9,500 were part-time employees. The Company has never experienced a strike
or work stoppage, and management believes that its employee relations are good.
There are currently no collective bargaining agreements covering any of the
Company's employees.
PROPERTIES
The Company's stores, most of which are leased, include sales space,
inventory storage, management offices and employee areas. All of the leases
provide for a fixed minimum rent with scheduled escalation dates and amounts.
Leases for 11 of the stores have a percentage rent provision equal to from .75%
to 4% of gross sales at each location in excess of certain specified sales
amounts. Currently, percentage rent is paid for only six stores. The initial
terms of the leases range from 5 to 25 years and generally allow the Company to
renew for up to three additional five-year terms. The terms of a majority of the
leases, including renewal options, extend beyond the year 2020.
The Company leases a 425,000 square foot distribution center in Bloomington,
Minnesota, and a 440,000 square foot distribution center in Ardmore, Oklahoma.
In the current fiscal year, the Company has added a 700,000 square foot
distribution center in Staunton, Virginia, a 310,000 square foot distribution
center in Ontario, California, and a 240,000 square foot software distribution
center in Edina, Minnesota. The Company also operates leased satellite
warehouses for major appliances in all of its major markets and uses a satellite
warehouse operated by a third party in Kansas City. The Company's corporate
offices are located in a 260,000 square foot facility it owns in Eden Prairie,
Minnesota.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of Best Buy are as follows:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE POSITION WITH COMPANY COMPANY
- -------------------------- ----------- ------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
Richard M. Schulze 53 Founder, Chairman, Chief Executive Officer and Director (1) 28
Bradbury H. Anderson 45 President, Chief Operating Officer and Director (1) 21
Allen U. Lenzmeier 51 Executive Vice President and Chief Financial Officer 10
Lee H. Schoenfeld 42 Senior Vice President -- Marketing 16
Randall K. Zanatta 36 Senior Vice President -- Merchandising 14
Wade R. Fenn 36 Senior Vice President -- Sales 14
George S. Fouts 56 Senior Vice President -- Sales 8
Kenneth R. Weller 46 Senior Vice President -- Sales 1
Steven R. Anderson 47 Senior Vice President -- MIS and Chief Information Officer 7
Robert C. Fox 44 Senior Vice President -- Finance and Treasurer 9
James P. Mixon 50 Senior Vice President -- Distribution and Transportation *
Elliot S. Kaplan 57 Secretary and Director (3) 23
Frank D. Trestman 60 Director (2) (3) (4) 10
Culver Davis, Jr. 55 Director (3) (4) 8
David Stanley 59 Director (2) 4
James C. Wetherbe 46 Director (2) (4) 1
<FN>
- --------------
* Less than one year
(1) Member of Personnel Committee.
(2) Member of Compensation Committee.
(3) Member of Lease Committee.
(4) Member of Audit Committee.
</TABLE>
RICHARD M. SCHULZE is a founder of the Company. He has served as an officer
and director of the Company from its inception in 1966 and currently serves as
its Chairman and Chief Executive Officer. As of August 27, 1994, Mr. Schulze
beneficially owned 8,972,256 shares of the Company's Common Stock, or 21.1%,
consisting of 8,367,566 outstanding shares; 316,848 outstanding shares
registered in his name and held by him as custodian for the benefit of his
children (Mr. Schulze has disclaimed beneficial ownership of such shares); 6,217
shares registered in the name of Wilmington Trust Company, and held by it as
trustee of the Company's Retirement Savings Plan for the benefit of Mr. Schulze;
and options granted to Mr. Schulze, available to exercise within 60 days, to
purchase 281,625 shares.
BRADBURY H. ANDERSON has been the Company's President and Chief Operating
Officer since April 1991, having served as Executive Vice President Marketing of
the Company from February 1986. He has been employed in various other capacities
with the Company since 1973, including retail salesperson, store manager and
sales manager. Mr. Anderson has served as a director of the Company since August
1986.
ALLEN U. LENZMEIER was promoted to his present position in April 1991 after
having served as Senior Vice President Finance and Operations and Treasurer of
the Company from 1986. Mr. Lenzmeier joined the Company in 1984, and has also
served as its Vice President Finance and Operations and Treasurer.
LEE H. SCHOENFELD was promoted to his present position in July 1993. Mr.
Schoenfeld joined the Company in 1978 as a salesperson and has served most
recently as Vice President -- Marketing.
31
<PAGE>
RANDALL K. ZANATTA was promoted to his present position in April 1994. Mr.
Zanatta joined the Company in 1980 as a salesperson and was promoted to store
manager. He subsequently joined the Company's Marketing Department, becoming a
Vice President -- Marketing in 1986.
WADE R. FENN was promoted to his present position in April 1991, having
served as Regional Vice President of the Company from 1987. Mr. Fenn joined the
Company in 1980 as a salesperson and has also been employed by the Company as a
store and district manager.
GEORGE S. FOUTS was promoted to his present position in April 1991, having
served as Regional Vice President of the Company from 1987. Mr. Fouts joined the
Company in 1986 as Sales Manager after being employed by RCA Corporation for
nineteen years, most recently as Vice President of RCA Sales Corporation.
KENNETH R. WELLER joined the Company in May 1993. Since 1986, he was Vice
President of Sales in The Good Guys!, a San Francisco-based consumer electronics
retailer where he had worked since 1982.
STEVEN R. ANDERSON was promoted to his present position in April 1994, after
having served as Vice President -- MIS since July 1990. Mr. Anderson joined the
Company in 1986 as Director of Management Information Systems.
ROBERT C. FOX was promoted to his present position in April 1994, after
having served as Vice President -- Accounting since 1987 and Treasurer since
1993. Mr. Fox joined the Company in 1985 as Controller.
JAMES P. MIXON joined Best Buy in April 1994 as Senior Vice President --
Transportation and Distribution. Prior to joining the Company, Mr. Mixon held
various distribution management positions with several national retailers, most
recently with Marshalls Stores, Inc.
ELLIOT S. KAPLAN has served as a director and Secretary of the Company since
1971. Since 1961, Mr. Kaplan has been an attorney with the law firm of Robins,
Kaplan, Miller & Ciresi, which serves as general counsel to the Company. Mr.
Kaplan is also a director of American Business Information, Inc.
FRANK D. TRESTMAN has served as a director of the Company since December
1984. He is President of Trestman Enterprises, an investment and business
development firm. He had been a consultant to McKesson Corporation and is the
former Chairman of the Board and Chief Executive Officer of Mass Merchandisers,
Inc., a distributor of nonfood products to retailers in the grocery business and
a subsidiary of McKesson Corporation. Mr. Trestman is also a director of
Insignia Systems, Inc.
CULVER DAVIS, JR. has served as a director of the Company since August 1986.
He has been employed by CUB Foods, a warehouse style supermarket chain, since
1968, became its President and Chief Executive Officer in 1985, and since 1992
has been its Chairman and Chief Executive Officer.
DAVID STANLEY has been a director of the Company since August 1990. He is
Chairman of the Board of Directors and Chief Executive Officer of Payless
Cashways, Inc., a building materials specialty retailer, where he has been an
officer since 1980. Mr. Stanley is also a director of Piper Jaffray Inc. and
Digi International, Inc.
JAMES C. WETHERBE has served as a director of the Company since July 1993.
He has been a professor at the University of Minnesota since 1980 and is
currently Professor of Management Information Systems and Director of the
University of Minnesota MIS Research Center. In addition, he has been Fedex
Professor and Director of the Center for Cycle Time Research at the University
of Memphis since August 1993.
32
<PAGE>
BEST BUY CAPITAL
Best Buy Capital is a special purpose limited partnership formed under the
laws of the State of Delaware. All of its partnership interests (other than the
Preferred Securities and any interests of any Special General Partner) are and
will be beneficially owned directly or indirectly by Best Buy. Best Buy is the
sole general partner in Best Buy Capital (in such capacity, the "General
Partner"). Best Buy Financial Corporation, a Delaware corporation and a
wholly-owned subsidiary of Best Buy ("Best Buy Financial"), initially will be
the sole limited partner in Best Buy Capital. Upon issuance of the Preferred
Securities, which securities represent limited partnership interests in Best Buy
Capital, the holders of such Preferred Securities will become limited partners
in Best Buy Capital and Best Buy Financial will withdraw as a limited partner.
The General Partner will agree to contribute capital to the extent required to
ensure that its capital contributions are equal to at least 21% of all capital
contributed to Best Buy Capital. The General Partner will invest 99% of the
total contributions in Best Buy Capital in the Subordinated Debentures and the
remaining 1% in Eligible Investments as provided in the Amended and Restated
Limited Partnership Agreement of Best Buy Capital (the "Limited Partnership
Agreement"). Best Buy Capital will exist for a maximum term of 45 years, unless
earlier dissolved. The Limited Partnership Agreement provides that the General
Partner will have liability for the debts and obligations of Best Buy Capital
(including tax obligations other than withholding taxes, but excluding
obligations to holders of Preferred Securities in their capacities as holders,
such obligations being separately guaranteed pursuant to the Guarantee). Under
Delaware law, a limited partner in a Delaware limited partnership such as Best
Buy Capital (i.e., a holder of the Preferred Securities) will not be personally
liable for the debts, obligations and liabilities of such limited partnership,
whether arising in contract, tort or otherwise, solely by reason of being a
limited partner of such limited partnership (subject to any obligation such a
holder may have to repay any funds that may have been wrongfully distributed to
it). All of Best Buy Capital's business and affairs will be conducted by the
General Partner. The location of the principal executive offices of the General
Partner is 7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344, telephone
number (612) 947-2000. Best Buy Capital exists for the purpose of issuing the
Preferred Securities and investing the proceeds thereof, together with
substantially all of the capital contributed by the General Partner, in the
Subordinated Debentures.
DESCRIPTION OF SECURITIES OFFERED
The securities offered hereby are % Convertible Monthly Income Preferred
Securities of Best Buy Capital with a liquidation preference of $50 per
security. The Preferred Securities are convertible at any time prior to the
Conversion Expiration Date, at the option of the holder and in the manner
described herein, into shares of Best Buy Common Stock at an initial conversion
rate of shares of Best Buy Common Stock for each Preferred Security
(equivalent to a conversion price of $ per share of Best Buy Common
Stock), subject to adjustment in certain circumstances. The Preferred Securities
are guaranteed, to the extent described herein, by Best Buy as to dividends, the
Redemption Price and cash and other distributions payable on liquidation. In
certain circumstances, the holders of a majority of the aggregate liquidation
preference of the Preferred Securities then outstanding can direct the
Conversion Agent to exchange all of the Preferred Securities for all of the
Subordinated Debentures and immediately thereafter to exchange the Subordinated
Debentures, on behalf of such holders, for Depositary Shares, each representing
a 1/100th interest in a share of Best Buy Series A Preferred Stock.
The following is a description of the material terms of the Preferred
Securities; the Best Buy Series A Preferred Stock and the Depositary Shares
representing such stock for which the Preferred Securities may be exchanged; the
Guarantee pursuant to which Best Buy will guarantee, to the extent described
therein, certain payments with respect to the Preferred Securities; the
Subordinated Debentures and the Indenture pursuant to which the Subordinated
Debentures will be issued (the "Indenture"); and the Best Buy Common Stock into
which the Preferred Securities may be converted.
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PREFERRED SECURITIES
THE FOLLOWING SUMMARY OF THE PRINCIPAL TERMS AND PROVISIONS OF THE PREFERRED
SECURITIES DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE LIMITED PARTNERSHIP AGREEMENT, A COPY OF WHICH
IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS
A PART.
GENERAL
All of the partnership interests in Best Buy Capital other than the
Preferred Securities offered hereby (and any interests of any Special General
Partner) will be owned directly by Best Buy at all times while the Preferred
Securities are outstanding. The Limited Partnership Agreement authorizes and
creates the Preferred Securities, which represent limited partnership interests
in Best Buy Capital. The limited partnership interests represented by the
Preferred Securities will have a preference with respect to cash distributions
and amounts payable on liquidation and redemption over the other partnership
interests in Best Buy Capital. The Limited Partnership Agreement does not permit
the issuance of other partnership interests without the prior approval of
holders of not less than 66 2/3% of the aggregate liquidation preference of the
Preferred Securities then outstanding.
Holders of Preferred Securities will have no preemptive rights.
Holders of the Preferred Securities will not have the right to remove or
replace the General Partner.
DIVIDENDS
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions from Best Buy Capital, accruing from the date of original
issuance and payable monthly in arrears on the last day of each calendar month
of each year, commencing , 1994 ("dividends"). The dividends payable
on each Preferred Security will be fixed at a rate per annum of $ , or
% of the liquidation preference of $50. The amount of dividends payable for
any period will be computed on the basis of twelve 30-day months and a 360-day
year and, for any period shorter than a full month, will be computed on the
basis of the actual number of days elapsed in such period. Payment of dividends
is limited to the funds held by Best Buy Capital and legally available for
distribution. See "- Description of the Subordinated Debentures - Interest" and
"- Description of the Guarantee - General."
Dividends on the Preferred Securities must be declared monthly and paid on
the last day of each calendar month to the extent that Best Buy Capital has
funds legally available for the payment of such dividends and cash on hand
sufficient to make such payments. It is anticipated that Best Buy Capital's
funds will be limited principally to payments received under the Subordinated
Debentures in which Best Buy Capital will invest the proceeds from this
Offering. If Best Buy fails to make interest payments on the Subordinated
Debentures, Best Buy Capital would not have sufficient funds to pay dividends on
the Preferred Securities. The payment of dividends (if and to the extent
declared) is guaranteed by Best Buy as and to the extent set forth under
"Description of the Guarantee." The Guarantee is a full and unconditional
guarantee from the time of its issuance, but does not apply to any payment of
dividends unless and until such dividends are declared. See "- Description of
the Subordinated Debentures."
Best Buy has the right under the Subordinated Debentures to extend, from
time to time, the interest payment periods on the Subordinated Debentures for up
to 60 months. Monthly dividends on the Preferred Securities would be deferred
(but Additional Dividends would continue to accrue monthly) by Best Buy Capital
during any such extended interest payment period. See "Investment Considerations
- - Option to Extend Payment Periods," "- Additional Dividends" and "- Description
of the Subordinated Debentures - Option to Extend Interest Payment Period." The
failure of holders of Preferred Securities to receive dividends in full for 15
consecutive months would trigger the right of holders of a majority of the
aggregate liquidation preference of the Preferred Securities then outstanding,
voting as a class at a special partnership meeting called for such purpose or by
written consent, to direct the conversion and exchange agent for the Preferred
Securities (the "Conversion Agent") to exchange all of the Preferred Securities
then outstanding for all Subordinated Debentures then outstanding, and
immediately thereafter, to exchange the Subordinated Debentures, on behalf of
the holders, for Depository Shares, each
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representing 1/100th of a share of Best Buy Series A Preferred Stock, at the
Exchange Price. "Exchange Price" means one Depositary Share for each $50
principal amount of Subordinated Debentures (which rate of exchange is
equivalent to each of (i) one Depositary Share for each Preferred Security, (ii)
one share of Best Buy Series A Preferred Stock for each $5,000 principal amount
of Subordinated Debentures and (iii) one share of Best Buy Series A Preferred
Stock for each 100 Preferred Securities). See "- Optional Exchange for
Depositary Shares."
Dividends declared on the Preferred Securities will be payable to the
holders thereof as they appear on the books and records of Best Buy Capital on
the relevant record dates, which will be one Business Day (as defined below)
prior to the relevant payment dates. Subject to any applicable laws and
regulations and the Limited Partnership Agreement, each such payment will be
made as described under "- Book-Entry-Only Issuance - The Depository Trust
Company" below. In the event that any date on which dividends are payable on the
Preferred Securities is not a Business Day, then payment of the dividend payable
on such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay). If such
Business Day is in the next succeeding calendar year, however, the payment will
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" means any day other
than a day on which banking institutions in The City of New York are authorized
or obligated by law or executive order to close.
Certain covenants under the indenture for Best Buy's 8 5/8% Senior
Subordinated Notes due 2000 may restrict the amount of dividends on the
Preferred Securities that may be declared by Best Buy Capital. Monthly dividends
declared by Best Buy Capital, which are guaranteed by Best Buy, will until paid
constitute debt of Best Buy for purposes of this indenture, the incurrence of
which is subject to a limitation on consolidated indebtedness of Best Buy. In
general, under this limitation Best Buy may not incur debt unless it maintains a
minimum ratio of consolidated cash flow available for fixed charges to the sum
of consolidated interest expense and one-third of operating lease payments
("consolidated cash flow ratio") on a pro forma basis of 2:1 for four full
fiscal quarters preceding the incurrence of such debt. Best Buy's consolidated
cash flow ratio for the four fiscal quarters ended August 27, 1994, was 2.92:1.
ADDITIONAL DIVIDENDS
Best Buy Capital shall be required to declare and pay additional dividends
on the Preferred Securities upon any dividend arrearages in respect of the
Preferred Securities in order to provide, in effect, monthly compounding on such
dividend arrearages. (The amounts payable to effect such monthly compounding on
dividend arrearages in respect of the Preferred Securities being referred to
herein as "Additional Dividends").
CERTAIN RESTRICTIONS ON BEST BUY CAPITAL
If accumulated and unpaid dividends have not been paid in full on the
Preferred Securities, Best Buy Capital may not:
(i) pay, or declare and set aside for payment, any dividends on any
other partnership interests; or
(ii) redeem, purchase, or otherwise acquire any other partnership
interests;
until, in each case, such time as all accumulated and unpaid dividends on all of
the Preferred Securities shall have been paid in full for all dividend periods
terminating on or prior to the date of such payment or the date of such
redemption, purchase, or acquisition, as the case may be.
If accumulated and unpaid dividends have been paid in full on the Preferred
Securities for all prior whole dividend periods, then holders of Preferred
Securities will not be entitled to receive or share in any dividends paid,
declared or set aside for payment on any other partnership interest in Best Buy
Capital.
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CONVERSION RIGHTS
GENERAL. The Preferred Securities will be convertible at any time prior to
the Conversion Expiration Date, at the option of the holder thereof and in the
manner described below, into shares of Best Buy Common Stock at an initial
conversion rate of shares of Best Buy Common Stock for each Preferred
Security (equivalent to a conversion price of $ per share of Best Buy
Common Stock), subject to adjustment as described under "- Conversion Price
Adjustments" below. A holder of a Preferred Security wishing to exercise its
conversion right shall surrender such Preferred Security, together with an
irrevocable conversion notice, to the Conversion Agent which shall, on behalf of
such holder, exchange the Preferred Security for a portion of the Subordinated
Debentures and immediately convert such Subordinated Debentures into Best Buy
Common Stock. Conversion rights will terminate at the close of business on the
Conversion Expiration Date.
Holders of Preferred Securities at the close of business on a dividend
payment record date will be entitled to receive the dividend payable on such
securities on the corresponding dividend payment date notwithstanding the
conversion of such Preferred Securities following such dividend payment record
date. Except as provided in the immediately preceding sentence, Best Buy Capital
will make no payment or allowance for accumulated and unpaid dividends, whether
or not in arrears, on converted Preferred Securities. Best Buy will make no
payment or allowance for dividends on the shares of Best Buy Common Stock issued
upon such conversion. Each conversion will be deemed to have been effected
immediately prior to the close of business on the day on which notice was
received by Best Buy Capital.
No fractional shares of Best Buy Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid in cash.
EXPIRATION OF CONVERSION RIGHTS. On and after , 1997, and
provided that Best Buy Capital is current in the payment of dividends on the
Preferred Securities, Best Buy Capital may, at its option, cause the conversion
rights of holders of Preferred Securities to expire. Best Buy Capital may
exercise this option only if for 20 trading days within any period of 30
consecutive trading days, including the last trading day of such period, the
last sale price of Best Buy Common Stock, as reported on the NYSE Composite
Transaction Tape, exceeds 120% of the conversion price of the Preferred
Securities, subject to adjustment in certain circumstances. In order to exercise
its conversion expiration option, Best Buy Capital must issue a press release
announcing the Conversion Expiration Date prior to the opening of business on
the second trading day after a period in which the condition in the preceding
sentence has been met, but in no event prior to , 1997.
Notice of the expiration of conversion rights will be given by mail to the
holders of the Preferred Securities not more than four business days after Best
Buy Capital issues the press release. The Conversion Expiration Date will be a
date selected by Best Buy Capital not less than 30 nor more than 60 days after
the date on which Best Buy Capital issues the press release announcing its
intention to terminate conversion rights of Preferred Security holders. In the
event that Best Buy Capital does not exercise its conversion expiration option,
the Conversion Expiration Date will be the earlier of the date of an Exchange
Election referred to below under "- Optional Exchange for Depositary Shares,"
and two business days preceding the date set for mandatory redemption of the
Preferred Securities.
CONVERSION PRICE ADJUSTMENTS - GENERAL. The conversion price will be
subject to adjustment in certain events including, without duplication: (i) the
payment of dividends (and other distributions) payable in Best Buy Common Stock
on any class of capital stock of Best Buy; (ii) the issuance to all holders of
Best Buy Common Stock of rights or warrants entitling holders of such rights or
warrants to subscribe for or purchase Best Buy Common Stock at less than the
current market price; (iii) subdivisions and combinations of Best Buy Common
Stock; (iv) the payment of dividends (and other distributions) to all holders of
Best Buy Common Stock consisting of evidences of indebtedness of Best Buy,
securities or capital stock, cash, or assets (including securities, but
excluding those rights, warrants, dividends, and distributions referred to in
clause (iii) and dividends and distributions paid exclusively in cash); (v) the
payment of dividends (and other distributions) on Best Buy Common Stock paid
exclusively in cash, excluding (A) cash dividends that do not exceed the per
share amount of the
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immediately preceding regular cash dividend (as adjusted to reflect any of the
events referred to in clauses (i) through (vi) of this sentence), or (B) cash
dividends if the annualized per share amount thereof does not exceed 15% of the
last sale price of Best Buy Common Stock, as reported on the NYSE Composite
Transaction Tape, on the trading day immediately preceding the date of
declaration of such dividend; and (vi) payment in respect of a tender or
exchange offer (other than an odd-lot offer) by Best Buy or any subsidiary of
Best Buy for Best Buy Common Stock in excess of 10% of the current market price
of Best Buy Common Stock on the trading day next succeeding the last date
tenders or exchanges may be made pursuant to such tender or exchange offer.
Best Buy from time to time may reduce the conversion price by any amount
selected by Best Buy for any period of at least 20 days, in which case Best Buy
shall give at least 15 days' notice of such reduction. Best Buy may, at its
option, make such reductions in the conversion price, in addition to those set
forth above, as the Board of Directors deems advisable to avoid or diminish any
income tax to holders of Best Buy Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain Federal Income Tax Considerations -
Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Best Buy Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of Best Buy
and the investment of additional optional amounts in shares of Best Buy Common
Stock under any such plan, or the issuance of any shares of Best Buy Common
Stock or options or rights to purchase such shares pursuant to any present or
future employee benefit plan or program of Best Buy or pursuant to any option,
warrant, right, or exercisable, exchangeable or convertible security outstanding
as of the date the Preferred Securities were first designated. There shall also
be no adjustment of the conversion price in case of the issuance of any Best Buy
Common Stock (or securities convertible into or exchangeable for Best Buy Common
Stock), except as specifically described above. If any action would require
adjustment of the conversion price pursuant to more than one of the
anti-dilution provisions, only one adjustment shall be made and such adjustment
shall be the amount of adjustment that has the highest absolute value to holders
of the Preferred Securities. No adjustment in the conversion price will be
required unless such adjustment would require an increase or decrease of at
least 1% of the conversion price, but any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
CONVERSION PRICE ADJUSTMENTS - MERGER, CONSOLIDATION OR SALE OF ASSETS OF
BEST BUY. In the event that Best Buy is a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the assets of Best Buy, recapitalization or reclassification of Best Buy Common
Stock or any compulsory share exchange (each of the foregoing being referred to
as a "Transaction")), in each case, as a result of which shares of Best Buy
Common Stock shall be converted into the right (i) in the case of any
Transaction other than a Transaction involving a Common Stock Fundamental Change
(as defined below), to receive securities, cash or other property, each
Preferred Security shall thereafter be convertible into the kind and amount of
securities, cash and other property receivable upon the consummation of such
Transaction by a holder of that number of shares of Best Buy Common Stock into
which a Preferred Security was convertible immediately prior to such
Transaction, or (ii) in the case of a Transaction involving a Common Stock
Fundamental Change, to receive common stock of the kind received by holders of
Best Buy Common Stock (but in each case after giving effect to any adjustment
discussed below relating to a Fundamental Change if such Transaction constitutes
a Fundamental Change).
If any Fundamental Change occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Preferred
Security shall be convertible solely into common stock of the kind received by
holders of Best Buy Common Stock as a result of such Common Stock Fundamental
Change.
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The conversion price in the case of any transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below),
the conversion price of the Preferred Security will thereupon become the
lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments, and (B) the result obtained by multiplying the greater of the
Applicable Price (as defined below) or the then applicable Reference Market
Price (as defined below) by a fraction of which the numerator will be $50
and the denominator will be an amount per Preferred Security determined by
the General Partner in its sole discretion, after consultation with an
investment banking firm, to be the equivalent of the hypothetical redemption
price that would have been applicable if the Preferred Securities had been
redeemable during such period; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Securities in effect immediately prior to such Common
Stock Fundamental Change, but after giving effect to any other prior
adjustments, will thereupon be adjusted by multiplying such conversion price
by a fraction of which the numerator will be the Purchaser Stock Price (as
defined below) and the denominator will be the Applicable Price; provided,
however, that in the event of a Common Stock Fundamental Change in which (A)
100% of the value of the consideration received by a holder of Best Buy
Common Stock is common stock of the successor, acquiror, or other third
party (and cash, if any, is paid only with respect to any fractional
interests in such common stock resulting from such Common Stock Fundamental
Change) and (B) all of the Best Buy Common Stock will have been exchanged
for, converted into, or acquired for common stock (and cash with respect to
fractional interests) of the successor, acquiror, or other third party, the
conversion price of the Preferred Securities in effect immediately prior to
such Common Stock Fundamental Change will thereupon be adjusted by
multiplying such conversion price by a fraction of which the numerator will
be one and the denominator will be the number of shares of common stock of
the successor, acquiror, or other third party received by a holder of one
share of Best Buy Common Stock as a result of such Common Stock Fundamental
Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Preferred Security would become convertible into the
securities, cash, or property receivable by a holder of the number of shares of
Best Buy Common Stock into which such Preferred Security was convertible
immediately prior to such Transaction. This change could substantially lessen or
eliminate the value of the conversion privilege associated with the Preferred
Securities. For example, if Best Buy were acquired in a cash merger, each
Preferred Security would become convertible solely into cash and would no longer
be convertible into securities whose value would vary depending on the future
prospects of Best Buy and other factors.
The foregoing conversion price adjustments are designed, in "Fundamental
Change" transactions where all or substantially all the Best Buy Common Stock is
converted into securities, cash, or property and not more than 50% of the value
received by the holders of Best Buy Common Stock consists of stock listed or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the National Market System of the National Association of
Securities Dealers, Inc. (a "Non-Stock Fundamental Change," as defined below),
to increase the securities, cash, or property into which each Preferred Security
is convertible.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Best Buy Common Stock (measured as described in the
definition of Applicable Price below) is lower than the then applicable
conversion price of a Preferred Security but greater than or equal to the
"Reference Market Price" (initially $ but subject to adjustment in certain
events as described below), the conversion price will be adjusted as described
above with the effect that each Preferred Security will be convertible into
securities, cash or property of the same type received by the holders of Best
Buy Common Stock in the transaction but in an amount per Preferred Security
determined by Best Buy in its
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sole discretion, after consultation with an investment banking firm, to be the
equivalent of the hypothetical redemption price that would have been applicable
if the Preferred Securities had been redeemable during such period.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Best Buy Common Stock (measured as described in the
definition of Applicable Price) is lower than both the Applicable Conversion
Price of a Preferred Security and the Reference Market Price, the conversion
price will be adjusted as described above but calculated as though such initial
value had been the Reference Market Price.
In a Fundamental Change transaction where all or substantially all the Best
Buy Common Stock is converted into securities, cash, or property and more than
50% of the value received by the holders of Best Buy Common Stock consists of
listed or National Market System traded common stock (a "Common Stock
Fundamental Change," as defined below), the foregoing adjustments are designed
to provide in effect that (a) where Best Buy Common Stock is converted partly
into such common stock and partly into other securities, cash, or property, each
Preferred Security will be convertible solely into a number of shares of such
common stock determined so that the initial value of such shares (measured as
described in the definition of "Purchaser Stock Price" below) equals the value
of the shares of Best Buy Common Stock into which such Preferred Security was
convertible immediately before the transaction (measured as aforesaid) and (b)
where Best Buy Common Stock is converted solely into such common stock, each
Preferred Security will be convertible into the same number of shares of such
common stock receivable by a holder of the number of shares of Best Buy Common
Stock into which such Preferred Security was convertible immediately before such
transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of the Best Buy Common Stock receive only cash, the
amount of cash received by the holder of one share of Best Buy Common Stock and
(ii) in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Prices for the Best Buy Common
Stock during the ten trading days prior to and including the record date for the
determination of the holders of Best Buy Common Stock entitled to receive such
securities, cash, or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no such
record date, the date upon which the holders of the Best Buy Common Stock shall
have the right to receive such securities, cash, or other property (such record
date or distribution date being hereinafter referred to as the "Entitlement
Date"), in each case as adjusted in good faith by Best Buy to appropriately
reflect any of the events referred to in clauses (i) through (vi) of the first
paragraph of this subsection.
The term "Closing Price" means on any day the reported last sales price on
such day or in case no sale takes place on such day, the average of the reported
closing bid and asked prices in each case on the NYSE Composite Transaction Tape
or, if the stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such stock is listed or admitted
to trading or if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by any
NYSE member firm, selected by the General Partner for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of Best Buy) of the consideration received by holders of Best Buy
Common Stock consists of common stock that for each of the ten consecutive
trading days prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the National Market System of the National Association of
Securities Dealers, Inc.; provided, however, that a Fundamental Change shall not
be a Common Stock Fundamental Change unless either (i) Best Buy continues to
exist after the occurrence of such Fundamental Change and the outstanding
Preferred Securities continue to exist as outstanding Preferred Securities or
(ii) not later than the occurrence of such Fundamental Change, the outstanding
Preferred Securities are converted into or exchanged for shares
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of convertible preferred stock of an entity succeeding to the business of Best
Buy, which convertible preferred stock has powers, preferences, and relative,
participating, optional, or other rights, and qualifications, limitations, and
restrictions, substantially similar to those of the Preferred Securities.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Best Buy Common Stock shall be exchanged for, converted into, acquired for,
or constitute solely the right to receive securities, cash, or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one such
transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all of
the Best Buy Common Stock shall be exchanged for, converted into, or acquired
for or constitute solely the right to receive securities, cash, or other
property, but the adjustment shall be based upon the highest weighted average
per share consideration that a holder of Best Buy Common Stock could have
received in such transaction or event as a result of which more than 50% of the
Best Buy Common Stock shall have been exchanged for, converted into, or acquired
for or constitute solely the right to receive securities, cash, or other
property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
Best Buy to appropriately reflect any of the events referred to in clauses (i)
through (vi) of the first paragraph of this subsection.
The term "Reference Market Price" shall initially mean $ (which is
an amount equal to 66 2/3% of the reported last sale price for the Best Buy
Common Stock on the NYSE Composite Transaction Tape on , 1994), and
in the event of any adjustment to the conversion price other than as a result of
a Non-Stock Fundamental Change, the Reference Market Price shall also be
adjusted so that the ratio of the Reference Market Price to the conversion price
after giving effect to any such adjustment shall always be the same as the ratio
of $ to the initial conversion price of the Preferred Securities.
OPTIONAL EXCHANGE FOR DEPOSITARY SHARES
Upon the occurrence of an Exchange Event (as defined below), the holders of
a majority of the aggregate liquidation preference of Preferred Securities then
outstanding, voting as a class at a special partnership meeting called for such
purpose or by written consent, may, at their option, direct the Conversion Agent
to exchange all (but not less than all) of the Preferred Securities for all (but
not less than all) of the Subordinated Debentures and to immediately exchange
the Subordinated Debentures, on behalf of such holders, for Depositary Shares,
each representing ownership of 1/100th of a share of Best Buy Series A Preferred
Stock at the Exchange Price.
Each Depositary Share will entitle the holder thereof to all proportional
rights and preferences of the Best Buy Series A Preferred Stock (including
dividend, voting, conversion, redemption and liquidation rights and
preferences). The Best Buy Series A Preferred Stock issued upon any such
exchange will have terms substantially similar to the terms of the Preferred
Securities (adjusted proportionately per Depositary Share), except that, among
other things, the holders of Best Buy Series A Preferred Stock will have the
right to elect two additional directors of Best Buy whenever dividends on the
Best Buy Series A Preferred Stock are in arrears for 18 months (including for
this purpose any arrearage with respect to the Preferred Securities) and will
not be subject to mandatory redemption. See "- Description of Best Buy Series A
Preferred Stock" and "- Description of Depositary Shares." The terms of the Best
Buy Series A Preferred Stock provide that all accumulated and unpaid dividends
(including any Additional Dividends) on the Preferred Securities that are not
paid at the time of making an Exchange Election shall be treated as accumulated
and unpaid dividends on the Best Buy Series A Preferred Stock. See "-
Description of
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the Guarantee." For a discussion of the taxation of such an exchange to holders,
including the possibility that holders who exchange their Preferred Securities
for Depositary Shares representing Best Buy Series A Preferred Stock may be
subject to additional income tax to the extent accrued but unpaid interest on
the Subordinated Debentures is converted into accumulated and unpaid dividends
on the Best Buy Series A Preferred Stock represented by the Depositary Shares
received in exchange for the Preferred Securities, see "Certain Federal Income
Tax Considerations - Exchange of Preferred Securities for Depositary Shares."
The failure of holders of Preferred Securities to receive, for 15
consecutive months, the full amount of dividend payments on the Preferred
Securities, will constitute an "Exchange Event". As soon as practicable, but in
no event later than 30 days after the occurrence of an Exchange Event, the
General Partner will convene a meeting of the holders of Preferred Securities
(an "Exchange Election Meeting") for the purpose of acting on the matter of
whether to cause the Conversion Agent to exchange all Preferred Securities then
outstanding for Depositary Shares representing Best Buy Series A Preferred Stock
in the manner described above. If the General Partner fails to convene such
Exchange Election Meeting within such 30-day period, the holders of at least 10%
of the outstanding Preferred Securities will be entitled to convene such
Exchange Election Meeting. Upon the affirmative vote of the holders of Preferred
Securities representing not less than a majority of the aggregate liquidation
preference of the Preferred Securities then outstanding at an Exchange Election
Meeting or, in the absence of such meeting, upon receipt by Best Buy Capital of
written consents signed by the holders of a majority of the aggregate
liquidation preference of the outstanding Preferred Securities, an election to
exchange all outstanding Preferred Securities on the basis described above (an
"Exchange Election") will be deemed to have been made.
Holders of Preferred Securities, by purchasing such Preferred Securities,
will be deemed to have agreed to be bound by these optional exchange provisions
in regard to the exchange of such Preferred Securities for Depositary Shares
representing Best Buy Series A Preferred Stock on the terms described above.
REDEMPTION
If at any time following the Conversion Expiration Date, less than 5% of the
Preferred Securities offered hereby remain outstanding, such Preferred
Securities shall be redeemable at the option of Best Buy Capital at a redemption
price of $50 per Preferred Security together with accumulated and unpaid
dividends (whether or not earned or declared) (the "Redemption Price"). In
addition, the Preferred Securities are subject to mandatory redemption by Best
Buy Capital on the 30th anniversary of the date of original issuance at the
Redemption Price.
Upon repayment by Best Buy of the Subordinated Debentures, including as a
result of the acceleration of the Subordinated Debentures upon the occurrence of
an "Event of Default" described under "Description of Securities Offered -
Description of the Subordinated Debentures - Events of Default," the proceeds
from such repayment will be applied to redeem the Preferred Securities at the
Redemption Price.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution, or
winding-up of Best Buy Capital, the holders of Preferred Securities at the time
outstanding will be entitled to receive a liquidation preference of $50 per
Preferred Security plus all accumulated and unpaid dividends (whether or not
earned or declared), including any Additional Dividends thereon, to the date of
payment (the "Liquidation Distribution") out of the assets of Best Buy Capital
legally available for distribution to partners prior to any distribution by Best
Buy Capital on its other partnership interests.
If, upon any liquidation of Best Buy Capital, the holders of Preferred
Securities are paid in full the aggregate Liquidation Distribution to which they
are entitled, then such holders will not be entitled to receive or share in any
other assets of Best Buy Capital thereafter available for distribution to any
other holders of partnership interests in Best Buy Capital.
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Pursuant to the Limited Partnership Agreement, Best Buy Capital shall be
dissolved and its affairs shall be wound up upon the earliest to occur of: (i)
the expiration of the term of Best Buy Capital; (ii) any bankruptcy, dissolution
or insolvency of the General Partner; (iii) upon the entry of a decree of a
judicial dissolution; or (iv) upon the written consent of all partners of Best
Buy Capital.
MERGER, CONSOLIDATION OR SALE OF ASSETS OF BEST BUY CAPITAL
The General Partner is authorized and directed to conduct its affairs and to
operate Best Buy Capital in such a way that Best Buy Capital will not be deemed
to be an "investment company" required to be registered under the Investment
Company Act of 1940 (the "1940 Act") or taxed as a corporation for federal
income tax purposes and so that the Subordinated Debentures will be treated as
indebtedness of Best Buy for federal income tax purposes. In this connection,
the General Partner is authorized to take any action not inconsistent with
applicable law, the Certificate of Limited Partnership of Best Buy Capital or
the Limited Partnership Agreement that does not adversely affect the interests
of the holders of the Preferred Securities and that the General Partner
determines in its discretion to be necessary or desirable for such purposes.
Best Buy Capital may not consolidate, merge with or into, or be replaced by,
or convey, transfer or lease its properties and assets substantially as an
entirety to any entity, except as described below. Best Buy Capital may, for
purposes of changing its state of domicile in order to avoid federal income tax
or 1940 Act consequences adverse to Best Buy or Best Buy Capital or to the
holders of the Preferred Securities, without the consent of the holders of the
Preferred Securities, consolidate, merge with or into, or be replaced by a
limited partnership or trust organized as such under the laws of any state of
the United States of America; provided, that (i) such successor entity either
(x) expressly assumes all of the obligations of Best Buy Capital under the
Preferred Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank, with respect
to participation in the profits or assets of the successor entity, at least as
high as the Preferred Securities rank with respect to participation in the
profits or assets of Best Buy Capital, (ii) Best Buy expressly acknowledges such
successor entity as the holder of the Subordinated Debentures, (iii) such
merger, consolidation, or replacement does not cause the Preferred Securities
(or any Successor Securities) to be delisted by any national securities exchange
or other organization on which the Preferred Securities are then listed, (iv)
such merger, consolidation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation or replacement does not adversely affect the powers, preferences
and other special rights of the holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity), (vi) prior to such
merger, consolidation or replacement Best Buy has received an opinion of
nationally recognized independent counsel to Best Buy Capital experienced in
such matters to the effect that (x) such successor entity will be treated as a
partnership for federal income tax purposes, (y) following such merger,
consolidation or replacement, Best Buy and such successor entity will be in
compliance with the 1940 Act without registering thereunder as an investment
company and (z) such merger, consolidation or replacement will not adversely
affect the limited liability of the holders of the Preferred Securities.
VOTING RIGHTS
Except as provided below and under "- Description of the Guarantee -
Amendments and Assignment" and as otherwise required by law and the Limited
Partnership Agreement, the holders of the Preferred Securities will have no
voting rights.
If (i) Best Buy Capital fails to pay dividends in full on the Preferred
Securities for 15 consecutive months (other than as a result of a determination
by Best Buy to defer interest payments on the Subordinated Debentures as
described under "Description of Securities Offered - Description of the
Subordinated Debentures - Option to Extend Interest Payment Period"); (ii) an
Event of Default (as defined under "Description of Securities Offered -
Description of the Subordinated Debentures - Events of Default") occurs and is
continuing with respect to the Subordinated Debentures; or (iii) Best Buy is in
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default under any of its payment obligations under the Guarantee (as described
under "- Description of the Guarantee"), then the holders of the Preferred
Securities will be entitled to appoint and authorize a special general partner
(a "Special General Partner") to enforce Best Buy Capital's rights under the
Subordinated Debentures, enforce the rights of the holders of Preferred
Securities under the Guarantee and declare dividends on the Preferred
Securities. For purposes of determining whether Best Buy Capital has failed to
pay dividends in full for 15 consecutive months, dividends shall be deemed to
remain in arrears, notwithstanding any partial payments in respect thereof,
until all accumulated and unpaid dividends have been or contemporaneously are
paid. Not later than 30 days after such right to appoint a Special General
Partner arises, the General Partner will convene a meeting to elect a Special
General Partner. If the General Partner fails to convene such meeting within
such 30-day period, the holders of 10% of the aggregate liquidation preference
of the Preferred Securities then outstanding will be entitled to convene such
meeting. In the event that, at any such meeting, holders of less than a majority
in aggregate liquidation preference of Preferred Securities entitled to vote for
the appointment of a Special General Partner vote for such appointment, no
Special General Partner shall be appointed. Any Special General Partner so
appointed shall vacate office immediately if Best Buy Capital (or Best Buy
pursuant to the Guarantee) shall have paid in full all accumulated and unpaid
dividends on the Preferred Securities or such Event of Default or default, as
the case may be, shall have been cured. Notwithstanding the appointment of any
such Special General Partner, Best Buy will retain all rights as obligor under
the Subordinated Debentures, including the right to extend the interest payment
period as provided under "- Description of the Subordinated Debentures - Option
to Extend Interest Payment Period," and any such extension would not constitute
a default under the Indenture or enable a holder of Preferred Securities to
require the payment of a dividend that has not theretofor been declared.
If any proposed amendment to the Limited Partnership Agreement provides for,
or the General Partner otherwise proposes to effect, (x) any action that would
materially adversely affect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Limited Partnership
Agreement or otherwise (including, without limitation, the authorization or
issuance of any additional limited partnership interests in Best Buy Capital),
or (y) the dissolution, winding-up or termination of Best Buy Capital (other
than in connection with the exchange of Depositary Shares representing Best Buy
Series A Preferred Stock for Preferred Securities upon the occurrence of an
Exchange Event or as described under "- Merger, Consolidation or Sale of Assets
of Best Buy Capital"), then the holders of outstanding Preferred Securities will
be entitled to vote on such amendment or action of the General Partner (but not
on any other amendment or action), and such amendment or action shall not be
effective except with the approval of the holders of at least 66 2/3% or more of
the aggregate liquidation preference of the Preferred Securities then
outstanding; provided, however, that no such approval shall be required if the
dissolution, winding-up or termination of Best Buy Capital is proposed or
initiated pursuant to the Limited Partnership Agreement.
The rights attached to the Preferred Securities will be deemed to be
materially adversely affected by the creation or issue of, and a vote of the
holders of Preferred Securities will be required for the creation or issue of,
any partnership interests in Best Buy Capital other than the interests
represented by the Preferred Securities, the interests of the General Partner
and the interests of any Special General Partner.
So long as any Subordinated Debentures are held by Best Buy Capital, the
General Partner shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Special General Partner (as
defined under "Description of Securities Offered - Description of the
Subordinated Debentures"), or exercising any trust or power conferred on the
Special General Partner with respect to the Subordinated Debentures, (ii) waive
any past default, which is waivable under the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the
Subordinated Debentures shall be due and payable, (iv) consent to any amendment,
modification or termination of the Subordinated Debentures or of the Indenture
without, in each case, obtaining the prior approval of the holders of at least
66% or more of the aggregate liquidation preference of the Preferred Securities
then outstanding, provided, however, that where a consent under the Subordinated
Debentures would require the consent of each holder affected thereby, no such
consent shall be given by the General
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Partner without the prior consent of each holder of the Preferred Securities.
The General Partner shall not revoke any action previously authorized or
approved by a vote of Preferred Securities, without the approval of the holders
of Preferred Securities representing 66 2/3% or more of the aggregate
liquidation preference of the Preferred Securities then outstanding. The General
Partner shall notify all holders of Preferred Securities of any notice of
default received from the Trustee with respect to the Subordinated Debentures.
Any required approval of holders of Preferred Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. Best Buy Capital will cause a notice of any meeting at which holders of
Preferred Securities are entitled to vote, or of any matter upon which action by
written consent of such holders is to be taken, to be mailed to each holder of
record of Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any matter on which such holders are entitled
to vote or of such matter upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
BOOK-ENTRY-ONLY ISSUANCE - THE DEPOSITORY TRUST COMPANY
DTC will act as securities depository for the Preferred Securities. The
information in this section concerning DTC and DTC's book-entry system is based
upon information obtained from DTC. The Preferred Securities will be issued only
as fully-registered securities registered in the name of Cede & Co. (as nominee
for DTC). One or more fully-registered global Preferred Security certificates
will be issued, representing in the aggregate the total number of Preferred
Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants").
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
a Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct or Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in Preferred Securities are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Preferred Securities, except upon a resignation of DTC,
upon the occurrence of an Event of Default under the Subordinated Debentures or
upon a decision by Best Buy Capital to discontinue the book-entry system for the
Preferred Securities.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices with respect to the Preferred Securities shall be sent to
Cede & Co.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to Best Buy Capital as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Dividend payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, Best Buy Capital or Best Buy, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of dividends to DTC is the responsibility of Best Buy Capital,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
Best Buy Capital. Under such circumstances, in the event that a successor
securities depository is not obtained, certificates representing the Preferred
Securities will be printed and delivered. If an Event of Default occurs under
the Subordinated Debentures or if Best Buy Capital decides to discontinue use of
the system of book-entry transfers through DTC (or a successor depository),
certificates representing the Preferred Securities will be printed and
delivered.
TRANSFER AGENT, REGISTRAR AND PAYING, CONVERSION AND EXCHANGE AGENT
will act as Transfer Agent, Registrar and Paying,
Conversion and Exchange Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be affected without
charge by or on behalf of Best Buy Capital, but upon payment (with the giving of
such indemnity as Best Buy Capital may require) in respect of any tax or other
government charges which may be imposed in relation to it.
DESCRIPTION OF BEST BUY SERIES A PREFERRED STOCK
AS DESCRIBED UNDER "- PREFERRED SECURITIES - OPTIONAL EXCHANGE FOR
DEPOSITARY SHARES" ABOVE, THE PREFERRED SECURITIES MAY BE EXCHANGED IN CERTAIN
CIRCUMSTANCES (FOLLOWING A PRIOR EXCHANGE FOR SUBORDINATED DEBENTURES HELD BY
BEST BUY CAPITAL) FOR DEPOSITARY SHARES REPRESENTING BEST BUY SERIES A PREFERRED
STOCK. THE FOLLOWING DESCRIPTION OF THE PRINCIPAL TERMS OF THE BEST BUY SERIES A
PREFERRED STOCK DOES NOT PURPORT TO BE COMPLETE OR TO GIVE FULL EFFECT TO THE
PROVISIONS OF STATUTORY OR OTHER LAW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE BEST BUY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AS
AMENDED (THE "RESTATED ARTICLES") AND THE CERTIFICATE OF DESIGNATION OF THE BEST
BUY SERIES A PREFERRED STOCK (THE "CERTIFICATE OF DESIGNATION"), WHICH ARE FILED
AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Board of Directors of Best Buy has designated, and Best Buy will keep
available, 40,000 shares (46,000 shares if the Underwriters' over-allotment
option is exercised in full) of Best Buy Series A Preferred Stock for issuance
upon exchange of the Preferred Securities for Depositary Shares, each
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representing 1/100th of a share of Best Buy Series A Preferred Stock (as
described under "- Preferred Securities - Optional Exchange for Depositary
Shares" above). At the time the Preferred Securities are issued, all corporate
action required in connection with the issuance of the Best Buy Series A
Preferred Stock and the deposit thereof with the Depositary (as hereinafter
defined) upon the making of an Exchange Election will have been taken. The terms
of the Best Buy Series A Preferred Stock are substantially similar to those of
the Preferred Securities (adjusted proportionately per Depositary Share) with
the following principal exceptions:
(a) Accumulated and unpaid dividends (including any Additional Dividends
thereon) on the Preferred Securities, if any, at the time of the making of
an Exchange Election will become accumulated and unpaid dividends on the
Best Buy Series A Preferred Stock;
(b) If dividends are not paid on the Best Buy Series A Preferred Stock
for 18 monthly dividend periods (including for this purpose any arrearage
with respect to the Preferred Securities), the number of directors of Best
Buy shall be increased by two persons and the holders of the Best Buy Series
A Preferred Stock will be entitled to elect the persons to fill such
positions;
(c) Dividends on the Best Buy Series A Preferred Stock need not be
declared even if Best Buy has funds legally available therefor and cash on
hand sufficient to pay dividends. However, if Best Buy fails to declare such
dividends, no dividends would be payable on any other securities of Best Buy
ranking PARI PASSU with or junior to the Best Buy Series A Preferred Stock;
and
(d) The Best Buy Series A Preferred Stock will not be subject to
mandatory redemption.
The Best Buy Series A Preferred Stock will rank senior to the Best Buy
Common Stock with respect to the payment of dividends and amounts upon
liquidation, dissolution and winding-up.
In the event of a voluntary or involuntary bankruptcy, liquidation,
dissolution or winding-up of Best Buy, the holders of Best Buy Series A
Preferred Stock are entitled to receive out of the net assets of Best Buy, but
before any distribution is made on any class of securities ranking junior to the
Best Buy Series A Preferred Stock, $50 per 1/100th share in cash plus
accumulated and unpaid dividends (whether or not earned or declared) to the date
of final distribution to such holders. After payment of the full amount of the
liquidation distribution to which they are entitled, the holders of shares of
Best Buy Series A Preferred Stock will not be entitled to any further
participation in any distribution of assets of Best Buy. In the event that the
assets available for distribution are insufficient to pay in full the
liquidation preference to the holders of the Best Buy Series A Preferred Stock
and any PARI PASSU preferred stock, the holders of such preferred stock will
share in the remaining assets, based on the proportion of their liquidation
preference to the entire amount of unpaid liquidation preference.
So long as the Subordinated Debentures are exchangeable for the Depositary
Shares representing the Best Buy Series A Preferred Stock, Best Buy may not
authorize or issue any other preferred stock ranking senior to the Best Buy
Series A Preferred Stock without the approval of the holders of not less than
66% of the aggregate liquidation preference of the Preferred Securities then
outstanding. However, no such vote shall be required for the issuance by Best
Buy of additional preferred stock ranking PARI PASSU or junior to the Best Buy
Series A Preferred Stock as to the payment of dividends and amounts upon
liquidation, dissolution and winding-up.
The amount of dividends that may be declared by Best Buy on the Series A
Preferred Stock may be limited as a restricted payment under the indenture for
Best Buy's 8 5/8% Senior Subordinated Notes due 2000. Best Buy would not be
permitted to make any restricted payments if it did not maintain a minimum
consolidated cash flow ratio of 2:1, if an event of default existed under the
indenture, or if the aggregate of all restricted payments from the date of the
indenture exceeded a defined amount. In general, the amount available under this
restriction will be increased (or decreased) by an amount equal to 50% of
consolidated net income (or 100% of consolidated net loss) before adjustment for
extraordinary items and certain other accounting adjustments and increased by
the aggregate net proceeds from
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the issuance of capital stock of Best Buy. The issuance of the Preferred
Securities will not increase the amount available under the restriction. At
August 27, 1994, $16.6 million was available to pay dividends under such
restriction.
DESCRIPTION OF DEPOSITARY SHARES
THE FOLLOWING SUMMARY OF THE TERMS OF THE DEPOSIT AGREEMENT (AS DEFINED
BELOW), DEPOSITARY SHARES AND DEPOSITARY RECEIPTS (AS DEFINED BELOW), DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY, THE
PROVISIONS OF THE DEPOSIT AGREEMENT, A COPY OF WHICH IS FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
Best Buy will cause to be issued receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent 1/100th of a share of Series A
Preferred Stock. The shares of Series A Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement (the "Deposit
Agreement") among Best Buy, (the "Depositary") and the holders from
time to time of the Depositary Receipts. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Share will be entitled, in proportion to
the applicable fraction of a share of Series A Preferred Stock represented by
such Depositary Share, to all the rights and preferences of the Series A
Preferred Stock represented thereby (including dividend, voting, conversion and
liquidation rights and preferences). The proportionate liquidation preference of
each Depositary Share will be $50 plus accumulated and unpaid dividends to the
date of payment, subject to certain limitations.
GENERAL
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Upon an Exchange Election by the holders of a
majority in aggregate liquidation preference of the Preferred Securities and
immediately following (i) the exchange by the Conversion Agent of all (but not
less than all) outstanding Preferred Securities for all (but not less than all)
outstanding Subordinated Debentures, (ii) the issuance of the Series A Preferred
Stock by Best Buy and (iii) the delivery of such Series A Preferred Stock to the
Depositary, Best Buy will cause the Depositary to issue, on behalf of Best Buy,
the Depositary Shares to the Conversion Agent, for the account of the holders,
in exchange for such Subordinated Debentures. Following an Exchange Election,
copies of the forms of Deposit Agreement and Depositary Receipt may be obtained
from Best Buy or the Depositary, upon request, at the principal office of the
Depositary at which at any particular time its depositary business may be
administered (the "Depositary's Office"), which on the date hereof is
.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all dividends or other cash distributions
received in respect of the Series A Preferred Stock to the record holders of
Depositary Shares in such amounts of such dividend or distribution as are
applicable to the number of such Depositary Shares owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Depositary.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto in such amounts, as nearly as practicable, of such property
(including securities) received by it as are applicable to the number of such
Depositary Shares owned by such holders, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Depositary, unless the Depositary determines that it
is not feasible to make such distribution, in which case the Depositary may,
with the approval of Best Buy, sell such property and distribute the net
proceeds from such sale to such holders.
WITHDRAWAL OF SERIES A PREFERRED STOCK
Upon surrender of the Depositary Receipts representing at least 100
Depositary Shares at the Depositary's Office, a holder is entitled to delivery
at such office, to or upon his order, of the number of whole shares of the
Series A Preferred Stock and any money or other property represented by such
Depositary Shares. Holders of Depositary Shares will be entitled to receive
whole shares of the Series A Preferred Stock on the basis of one share of Series
A Preferred Stock for each 100 Depositary Shares,
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but holders of such whole shares of Series A Preferred Stock will not thereafter
be entitled to receive Depositary Shares therefor. If the Depositary Receipts
delivered by the holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of whole shares of Series A
Preferred Stock to be withdrawn, the Depositary will deliver to such holder at
the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
VOTING THE SERIES A PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Series A
Preferred Stock are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Shares relating to Series A Preferred Stock. Each record holder of such
Depositary Shares on the record date (which will be the same date as the record
date for the Series A Preferred Stock) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the amount of
Series A Preferred Stock (or fraction thereof) represented by such holder's
Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote
the amount of Series A Preferred Stock (or fractions thereof) represented by
such Depositary Shares in accordance with such instructions, and Best Buy will
agree to take all reasonable action that may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting shares of Series A Preferred Stock to the extent it does not
receive specific instructions from the holders of Depositary Shares representing
those shares of Series A Preferred Stock.
CONVERSION OF SERIES A PREFERRED STOCK
The Depositary Shares are not convertible into the Common Stock or any other
securities or property of Best Buy. Nevertheless, the Depositary Receipts may be
surrendered by holders thereof to the Depositary at the Depositary's Office or
at such other office or to such agents as the Depositary may designate for such
purpose with written instructions to the Depositary to instruct Best Buy to
cause conversion of the whole or fractional shares of Series A Preferred Stock
represented by the Depositary Shares evidenced by such Receipts into whole
shares of Common Stock, and Best Buy has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
delivery of (i) a certificate or certificates evidencing the number of whole
shares of Common Stock into which the Series A Preferred Stock represented by
the Depositary Shares evidenced by such Depositary Receipt or Receipts have been
converted, and (ii) any money or other property to which the holder is entitled.
If the Depositary Shares represented by a Depositary Receipt are to be converted
in part only, a new Depositary Receipt or Receipts will be issued for any
Depositary Shares not to be converted. See "Description of Series A Preferred
Stock - Conversion Rights."
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between Best Buy and the Depositary. However, any amendment that materially and
adversely alters the rights of the holders of Depositary Shares will not be
effective unless such amendment has been approved by the holders of at least 66%
of the Depositary Shares then outstanding. Each holder of a Depositary Share at
the time any amendment becomes effective will be deemed to have consented and
agreed to such amendment.
The Deposit Agreement may be terminated by Best Buy or by the Depositary if
(i) all outstanding Depositary Shares have been redeemed, (ii) there has been a
final distribution in respect of the Series A Preferred Stock in connection with
any liquidation, dissolution or winding up of Best Buy and such distribution has
been distributed to the holders of Depositary Receipts or (iii) each share of
Series A Preferred Stock shall have been converted into shares of Common Stock.
CHARGES OF DEPOSITARY
Best Buy will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Depositary arrangements, the initial
deposit of the Series A Preferred Stock, the redemption of shares of Series A
Preferred Stock and the issuance of shares of Common Stock upon
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conversion. Best Buy will pay the fees and expenses of the Depositary in
connection with the performance of its duties under the Deposit Agreement.
Holders of Depositary Receipts will pay any other transfer or other taxes and
governmental charges. If, at the request of a holder of Depositary Receipts, the
Depositary incurs charges or other expenses for which it is not otherwise liable
under the Deposit Agreement, such holder will be liable for such charges and
expenses.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to Best Buy notice of
its election to do so, and Best Buy may at any time remove the Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary, which successor Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50 million.
MISCELLANEOUS
The Depositary will, with the approval of Best Buy, appoint a Registrar for
registration of the Receipts or Depositary Shares in accordance with any
requirements of any applicable stock exchange in which the Receipts or the
Depositary Shares are listed. The Registrar will maintain books at the
Depositary's Office for the registration and registration of transfer of
Depositary Receipts or at such other place as is approved by Best Buy and of
which the holders of Depositary Receipts are given reasonable notice.
Best Buy will deliver to the Depositary and the Depositary will forward to
holders of Depositary Shares all notices and reports required by law, the rules
of any national securities exchange upon which the Series A Preferred Stock, the
Depositary Shares or the Depositary Receipts are listed or by Best Buy's Amended
and Restated Articles of Incorporation (including the Certificate of
Designation) or By-laws to be furnished by Best Buy to holders of Series A
Preferred Stock.
Neither the Depositary nor Best Buy will be liable if either is by law or
certain other circumstances beyond its control prevented from or delayed in
performing its obligations under the Deposit Agreement. Neither the Depositary
nor any agent of the Depositary nor Best Buy assumes any obligation or will be
subject to any liability under the Deposit Agreement to holders of Depositary
Receipts other than to use its best judgment and act in good faith in the
performance of such duties as are specifically set forth in the Deposit
Agreement. Neither Best Buy nor the Depositary will be obligated to appear in,
prosecute or defend any legal proceeding in respect of any Depositary Shares or
any Series A Preferred Stock unless satisfactory indemnity is furnished. Best
Buy and the Depositary may rely on advice of counsel or accountants, or
information provided by persons presenting Series A Preferred Stock for deposit,
holders of Depositary Shares or other persons believed to be authorized or
competent and on documents believed to be genuine.
DESCRIPTION OF THE GUARANTEE
THE FOLLOWING IS A DESCRIPTION OF THE PRINCIPAL TERMS AND PROVISIONS OF THE
GUARANTEE AGREEMENT (THE "GUARANTEE"), WHICH WILL BE EXECUTED AND DELIVERED BY
BEST BUY FOR THE BENEFIT OF THE HOLDERS FROM TIME TO TIME OF THE PREFERRED
SECURITIES. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH AGREEMENT, A COPY OF THE FORM OF WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
GENERAL
Pursuant to the Guarantee, Best Buy will irrevocably and unconditionally
agree, on a subordinated basis and to the extent set forth therein, to pay in
full to the holders of the Preferred Securities, the Guarantee Payments (as
defined below) (except to the extent previously paid by Best Buy Capital), as
and when due, regardless of any defense, right of set-off or counterclaim that
Best Buy Capital may have or assert. The following payments, to the extent not
paid by Best Buy Capital, are the "Guarantee Payments": (a) any accumulated and
unpaid dividends (including any Additional Dividends thereon) that have been
theretofore declared on the Preferred Securities from monies legally available
therefor; (b) the Redemption Price payable with respect to Preferred Securities
called for redemption by Best Buy Capital out of funds legally available
therefor; and (c) upon a liquidation of Best Buy Capital, the lesser of
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(i) the Liquidation Distribution and (ii) the amount of assets of Best Buy
Capital available for distribution to holders of Preferred Securities in
liquidation of Best Buy Capital. Best Buy's obligation to make a Guarantee
Payment may be satisfied by Best Buy's direct payment of the required amounts to
the holders of Preferred Securities or by Best Buy's causing Best Buy Capital to
pay such amounts to such holders.
If Best Buy fails to make interest payments on the Subordinated Debentures
purchased by Best Buy Capital, Best Buy Capital will have insufficient funds to
pay dividends on the Preferred Securities. The Guarantee does not cover payment
of dividends when Best Buy Capital does not have sufficient funds to pay such
dividends.
Best Buy's obligations under the Guarantee will constitute a guarantee of
payment and not of collection. A holder of Preferred Securities may enforce such
obligations directly against Best Buy, and Best Buy waives any right or remedy
to require that any action be brought against Best Buy Capital or any other
person or entity before proceeding against Best Buy. Such obligations will not
be discharged except by payment of the Guarantee Payments in full.
CERTAIN COVENANTS OF BEST BUY
In the Guarantee, Best Buy will covenant and agree that, so long as any
Preferred Securities are outstanding, neither Best Buy nor any majority owned
subsidiary of Best Buy shall declare or pay any dividend or distribution on, or
redeem, purchase or otherwise acquire or make a liquidation payment with respect
to, any of its capital stock or make any guarantee payments with respect to the
foregoing (other than payments under the Guarantee or dividends or guarantee
payments to Best Buy by a majority owned subsidiary), if at such time Best Buy
has exercised its option to extend the interest payment period on the
Subordinated Debentures and such extension is continuing, Best Buy is in default
with respect to its payment or other obligations under the Guarantee or there
shall have occurred any event that, with the giving of notice or the lapse of
time or both, would constitute an Event of Default under the Subordinated
Debentures. Best Buy will covenant to take all actions necessary to ensure the
compliance of its subsidiaries with the above covenant.
Best Buy will also covenant that, so long as any Preferred Securities are
outstanding, it will (a) maintain direct 100% ownership of the partnership
interests in Best Buy Capital other than the Preferred Securities (except as
permitted in the Limited Partnership Agreement), (b) cause at least 21% of the
total value of Best Buy Capital and at least 21% of all interest in the capital,
income, gain, loss, deduction and credit of Best Buy Capital to be held by Best
Buy, as General Partner, (c) not voluntarily dissolve, wind-up or liquidate
itself or Best Buy Capital, (d) remain the General Partner and timely perform
all of its duties as General Partner of Best Buy Capital (including the duty to
cause Best Buy Capital to declare and pay dividends on the Preferred
Securities), unless a permitted successor General Partner is appointed, and (e)
subject to the terms of the Preferred Securities, use reasonable efforts to
cause Best Buy Capital to remain a Delaware limited partnership and otherwise
continue to be treated as a partnership for United States federal income tax
purposes.
As a part of the Guarantee, Best Buy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Best Buy Common Stock or Depositary Shares
representing Best Buy Series A Preferred Stock, as described in "Description of
Securities Offered - Preferred Securities - Conversion Rights," and "- Optional
Exchange for Depositary Shares."
SUBORDINATION
Best Buy's obligations under the Guarantee to make Guarantee Payments will
constitute an unsecured obligation of Best Buy that will rank (i) subordinate
and junior in right of payment to all Senior Indebtedness (as defined under
"Description of the Subordinated Debentures - Subordination" below) of Best Buy,
and (ii) PARI PASSU with the most senior preferred shares now or hereafter
issued by Best Buy and with any guarantee now or hereafter entered into by Best
Buy in respect of any preferred or preference stock of any affiliate of Best Buy
and (iii) senior to Best Buy Common Stock and any other
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class or series of capital stock issued by Best Buy or any of its affiliates
which by its express terms ranks junior in the payment of dividends and amounts
on liquidation, dissolution, and winding-up to the Preferred Securities ("Junior
Stock").
AMENDMENTS AND ASSIGNMENT
The terms of the Guarantee may be amended only with the prior approval of
the holders of not less than 66 2/3% of the aggregate liquidation preference of
the Preferred Securities then outstanding. The manner of obtaining any such
approval of holders of the Preferred Securities will be as set forth in "-
Preferred Securities - Voting Rights." All provisions contained in the Guarantee
will bind the successors, assigns, receivers, trustees and representatives of
Best Buy and will inure to the benefit of the holders of the Preferred
Securities. Except in connection with any merger or consolidation of Best Buy
with or into another entity or any sale, transfer or lease of Best Buy's assets
to another entity complying with the provisions under "- Consolidation, Merger
or Sale of Assets" below, Best Buy may not assign its rights or delegate its
obligations under the Guarantee without the prior approval of the holders of not
less than 66 2/3% of the aggregate liquidation preference of the Preferred
Securities then outstanding.
TERMINATION
Best Buy's obligation to make Guarantee Payments under the Guarantee will
terminate as to each holder of Preferred Securities and be of no further force
and effect upon (a) full payment of the Redemption Price of such holder's
Preferred Securities, (b) full payment of the amounts payable to such holder
upon liquidation of Best Buy Capital, (c) the distribution of Best Buy Common
Stock to such holder in respect of the conversion of all of such holder's
Preferred Securities into Best Buy Common Stock or (d) the distribution of
Depositary Shares representing Best Buy Series A Preferred Stock to such holder
in respect of the exchange of the Subordinated Debentures for Best Buy Series A
Preferred Stock. Notwithstanding the foregoing, Best Buy's obligation to make
Guarantee Payments will continue to be effective or will be reinstated, as the
case may be, as to a holder if at any time such holder must restore payment of
any sums paid under the Preferred Securities or under the Guarantee for any
reason whatsoever. Best Buy will indemnify each holder and hold it harmless from
and against any loss it may suffer in such circumstances.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Guarantee provides that Best Buy may merge or consolidate with or into
another entity, may permit another entity to merge or consolidate with or into
Best Buy and may sell, transfer or lease all or substantially all of its assets
to another entity if (i) at such time no Event of Default (as defined in the
Indenture) shall have occurred and be continuing, or would occur as a result of
such merger, consolidation or sale, transfer or lease and (ii) the survivor of
such merger or consolidation or entity to which Best Buy's assets are sold,
transferred or leased is an entity organized under the laws of the United States
or any state thereof, becomes the General Partner, assumes all of Best Buy's
obligations under the Guarantee and has a net worth equal to at least 10% of the
total contributions to Best Buy Capital.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
THE FOLLOWING SUMMARY OF PRINCIPAL TERMS AND PROVISIONS OF THE SUBORDINATED
DEBENTURES IN WHICH BEST BUY CAPITAL WILL INVEST THE PROCEEDS OF THE ISSUANCE
AND SALE OF THE PREFERRED SECURITIES AND SUBSTANTIALLY ALL OF THE CAPITAL
CONTRIBUTED TO BEST BUY CAPITAL BY THE GENERAL PARTNER (THE "GENERAL PARTNER
PAYMENT") DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE INDENTURE AMONG BEST BUY, BEST BUY CAPITAL AND , AS
TRUSTEE (THE "TRUSTEE"), A FORM OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. ALL OF THE
SUBORDINATED DEBENTURES WILL BE ISSUED UNDER THE INDENTURE.
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GENERAL
The Subordinated Debentures will be limited in aggregate principal amount to
the sum of the aggregate amount of the proceeds received by Best Buy Capital
from the Offering and the General Partner Payment less 1% of such sum.
The entire principal amount of the Subordinated Debentures will become due
and payable, together with any accrued and unpaid interest thereon, including
Additional Interest (as defined below), on the earliest of , 2024 or
the date upon which Best Buy Capital is dissolved, wound-up, liquidated or
terminated.
The Subordinated Debentures will be issued only in fully registered form,
without coupons, in denominations of $50 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Subordinated Debentures, but Best Buy may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
INTEREST
The Subordinated Debentures will bear interest at the rate of % per
annum from the original date of issuance, payable monthly in arrears on the last
day of each calendar month of each year (each an "Interest Payment Date"),
commencing , 1994. Interest will compound monthly and will accrue at
the annual rate of % on any interest installment not paid when due.
The amount of interest payable for any period will be computed on the basis
of twelve 30-day months and a 360-day year and, for any period shorter than a
full monthly interest period, will be computed on the basis of the actual number
of days elapsed in such period. In the event that any date on which interest is
payable on the Subordinated Debentures is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay). If such Business Day is in the next succeeding calendar year,
however, such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in The
City of New York are authorized or required by law to close.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Best Buy shall have the right at any time and from time to time during the
term of the Subordinated Debentures to extend interest payment periods for up to
60 months during which period interest will compound monthly (provided that an
extended interest payment period may not extend the stated maturity of the
Subordinated Debentures) and during which Best Buy shall have the right to make
partial payments of interest or at the end of which period Best Buy shall pay
all interest then accrued and unpaid (together with Additional Interest);
PROVIDED THAT, during any such extended interest payment period neither Best Buy
nor any majority-owned subsidiary of Best Buy shall declare or pay any dividend
on, or redeem, purchase, acquire for value or make a liquidation payment with
respect to, any of its common or preferred stock or make any guarantee payments
with respect to the foregoing (other than payments under the Guarantee or
dividend payments to Best Buy from a majority-owned subsidiary). Prior to the
termination of any such extended interest payment period, Best Buy may further
extend the interest payment period, provided that such extended interest payment
period together with all such further extensions thereof may not exceed 60
months. The failure by Best Buy to make interest payments during an extended
interest payment period would not constitute a default or an event of default
under Best Buy's currently outstanding indebtedness. Best Buy shall give the
holders of the Subordinated Debentures and the Trustee notice of its selection
of an extended interest payment period at least one Business Day prior to the
first scheduled Interest Payment Date on which the scheduled interest payment
shall be deferred pursuant to such selection. In addition, any time when
Preferred Securities are outstanding, Best Buy shall give Best Buy Capital
notice of its selection of an extended interest payment period at least one
Business Day prior to the earlier of (i) the date the related dividends are
payable or (ii) the date Best Buy Capital is required to give notice of the
record or payment date of such related dividend to the
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NYSE or other applicable self-regulatory organization or to holders of the
Preferred Securities, but in any event not less than two Business Days prior to
such record date. The General Partner shall give notice of Best Buy's selection
of an extended interest payment period to the holders of the Preferred
Securities.
ADDITIONAL INTEREST
Best Buy shall be required to pay any interest upon interest that has not
been paid on the Subordinated Debentures monthly. Accordingly, in such
circumstance, Best Buy will pay interest upon interest in order to provide for
monthly compounding on the Subordinated Debentures (the amounts of interest
payable to effect monthly compounding on the Subordinated Debentures being
referred to herein as "Additional Interest").
MANDATORY PREPAYMENT
If Best Buy Capital redeems Preferred Securities in accordance with the
terms thereof, the Subordinated Debentures will become due and payable in a
principal amount equal to the aggregate stated liquidation preference of the
Preferred Securities so redeemed, together with any accrued and unpaid interest
thereon, including Additional Interest, if any. Any payment pursuant to this
provision shall be made prior to 12:00 noon, New York City time, on the date of
such redemption or at such other time on such earlier date as the parties
thereto shall agree. The Subordinated Debentures are not entitled to the benefit
of any sinking fund or, except as set forth above, any other provision for
mandatory prepayment.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinate and
junior in right of payment to all Senior Indebtedness (as defined below) of Best
Buy.
Upon any payment or distribution of assets of the Company to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash of all amounts
due on or to become due on or in respect of all Senior Indebtedness, before the
holders of the Subordinated Debentures are entitled to receive any payment
(including any payment to holders of the Subordinated Debentures made in respect
of any other debt subordinated to the Subordinated Debentures) on account of the
principal of or interest on the Subordinated Debentures or on account of any
purchase, redemption or other acquisition of the Subordinated Debentures by the
Company.
The Company may not make any payments on the account of the Subordinated
Debentures or account of the purchase or redemption or other acquisition of the
Subordinated Debentures, if there has occurred and is continuing a default in
the payment of the principal of (or premium, if any) or interest on any Senior
Indebtedness (a "Senior Payment Default"). In addition, if any default (other
than a Senior Payment Default), or any event which after notice or lapse of time
(or both) would become a default, with respect to certain Senior Indebtedness,
permitting after notice or lapse of time (or both) the holders thereof (or a
trustee or agent on behalf of the holders thereof) to accelerate the maturity
thereof has occurred and is continuing (a "Senior Nonmonetary Default"), and the
Company and the Trustee have received written notice thereof from the holder of
such certain Senior Indebtedness, then the Company may not make any payments on
the account of the Subordinated Debentures or account of the purchase or
redemption or other acquisition of the Subordinated Debentures, for a period (a
"blockage period") commencing on the date the Company and the Trustee receive
such written notice and ending on the earlier of (i) 179 days after such date
and (ii) the date, if any, on which the Senior Indebtedness to which such
default relates is discharged or such default is waived in writing or otherwise
cured or ceases to exist and any acceleration of certain Senior Indebtedness to
which such Senior Nonmonetary Default relates is rescinded or annulled.
In any event, not more than one blockage period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no blockage period
is in effect. Following the commencement of a blockage
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period, the holders of such certain Senior Indebtedness will be precluded from
commencing a subsequent blockage period until the conditions set forth in the
preceding sentence are satisfied. No Senior
Nonmonetary Default that existed or was continuing on the date of commencement
of any blockage period with respect to such certain Senior Indebtedness
initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
for a period of not less than 90 consecutive days.
By reason of such subordination, in the event of any proceeding of the type
described in the preceding paragraph involving Best Buy, creditors of Best Buy
who are holders of Senior Indebtedness and general unsecured creditors of Best
Buy may recover more, ratably, than the holder or holders of the Subordinated
Debentures.
The term "Senior Indebtedness" is defined to mean the principal of, premium,
if any, interest on, and any other payment due pursuant to any of the following,
whether Incurred (as defined in the Indenture) on or prior to the date of
execution of the Indenture or thereafter Incurred:
(a) all obligations of Best Buy for money borrowed (including
obligations under Best Buy's revolving bank credit facility);
(b) all obligations of Best Buy evidenced by notes, debentures, bonds or
other securities, including obligations Incurred in connection with the
acquisition of property, assets or businesses;
(c) all capitalized lease obligations of Best Buy;
(d) all reimbursement obligations of Best Buy with respect to letters of
credit, bankers acceptance or similar facilities issued for the account of
Best Buy;
(e) all obligations of Best Buy issued or assumed as the deferred
purchase price of property or services, including all obligations under
master lease transactions pursuant to which Best Buy or any of its
subsidiaries have agreed to be treated as owner of the subject property for
federal income tax purposes (but excluding trade accounts payable, accrued
liabilities resulting from the sale of extended service plans, or accrued
liabilities arising in the ordinary course of business);
(f) all payment obligations of Best Buy under interest rate swap or
similar agreements or foreign currency hedge, exchange or similar agreements
at the time of determination, including any such obligations Incurred by
Best Buy solely to act as a hedge against increases in interest rates that
may occur under the terms of other outstanding variable or floating rate
Indebtedness of Best Buy;
(g) all obligations of Best Buy under secured inventory financing credit
lines;
(h) all obligations of the type referred to in clauses (a) through (g)
above of another person and all dividends of another person, the payment of
which, in either case, Best Buy has assumed or guaranteed, or for which Best
Buy is responsible or liable, directly or indirectly, jointly or severally,
as obligor, guarantor or otherwise; and
(i) all amendments, modifications, renewals, extensions, refinancings,
replacements and refundings by Best Buy of any such Indebtedness (as defined
in the Indenture) referred to in clauses (a) through (h) above (and of any
such amended, modified, renewed, extended, refinanced, refunded or replaced
indebtedness or obligations);
PROVIDED, HOWEVER, that the following shall not constitute the Senior
Indebtedness: (a) any Indebtedness owed to a Subsidiary of Best Buy, (b) any
Indebtedness which by the terms of the instrument creating or evidencing the
same expressly provides that such Indebtedness is not superior in right of
payment to the Subordinated Debentures or (c) any Indebtedness Incurred in
violation of the Indenture. Such Senior Indebtedness shall continue to be Senior
Indebtedness and entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness.
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As of August 27, 1994, Senior Indebtedness of Best Buy aggregated
approximately $392 million. The Indenture does not limit Best Buy's ability to
incur Senior Indebtedness.
CERTAIN COVENANTS OF BEST BUY
Best Buy will also covenant in the Indenture that neither it nor any
majority owned subsidiary of Best Buy will declare or pay any dividend on, or
redeem, purchase, acquire for value or make a liquidation payment with respect
to, any of its capital stock or make any guarantee payments with respect to the
foregoing if at such time (i) there shall have occurred any event that, with the
giving of notice or the lapse of time or both would constitute an Event of
Default (as defined below) under the Subordinated Debentures, (ii) Best Buy
shall be in default with respect to its payment or other obligations under the
Guarantee or (iii) Best Buy shall have given notice of its selection of an
extended interest payment period as provided in the Subordinated Debentures and
such period or any extension thereof shall be continuing. Best Buy will also
covenant (i) to remain the General Partner of Best Buy Capital, provided that
any permitted successor of Best Buy under the Limited Partnership Agreement may
succeed to Best Buy's duties as General Partner, (ii) to cause at least 21% of
the total value of Best Buy Capital and at least 21% of all interests in the
capital, income, gain, loss, deduction and credit of Best Buy Capital to be held
by Best Buy as General Partner, (iii) not to voluntarily dissolve, wind-up or
liquidate Best Buy Capital, (iv) to perform timely all of its duties as General
Partner (including the duty to pay dividends on the Preferred Securities as
described under "- Description of the Guarantee - General"), (v) to maintain
direct ownership of all partnership interests of Best Buy Capital other than the
Preferred Securities, (vi) to use its reasonable efforts to cause Best Buy
Capital to remain a limited partnership and otherwise to continue to be treated
as a partnership for United States federal income tax purposes and (vii) to
deliver Depositary Shares representing shares of Best Buy Series A Preferred
Stock or Best Buy Common Stock upon an election by the holders of the Preferred
Securities to exchange or convert the Subordinated Debentures.
EVENTS OF DEFAULT
If one or more of the following events (each an "Event of Default") shall
occur and be continuing:
(a) failure to pay any principal of the Subordinated Debentures when
due;
(b) failure to pay any interest on the Subordinated Debentures,
including any Additional Interest, when due and such failure continues for a
period of 10 days; provided that a valid extension of the interest payment
period by Best Buy shall not constitute a default in the payment of interest
for this purpose;
(c) failure by Best Buy to deliver shares of Best Buy Series A Preferred
Stock or Best Buy Common Stock upon an election by holders of Preferred
Securities to exchange or convert such Preferred Securities;
(d) failure by Best Buy to perform in any material respect any other
covenant in the Indenture for the benefit of the holders of Subordinated
Debentures continued for a period of 60 days after written notice to Best
Buy from any holder of Subordinated Debentures or Preferred Securities;
(e) the dissolution, winding-up, liquidation or termination of Best Buy
Capital; or
(f) certain events of bankruptcy, insolvency or liquidation of Best
Buy;
then either the Trustee or the holders of at least 25% in aggregate principal
amount of the Subordinated Debentures then outstanding will have the right to
declare the principal of and the interest on the Subordinated Debentures
(including any Additional Interest) and any other amounts payable under the
Subordinated Debentures to be forthwith due and payable and to enforce the
holders' other rights as creditors with respect to the Subordinated Debentures;
PROVIDED, HOWEVER, that after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
of outstanding Subordinated Debentures may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal, have been cured or waived as provided in the
Indenture. For information as to waiver of defaults, see "Modification
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and Waiver." Additionally, under the terms of the Preferred Securities, the
holders of outstanding Preferred Securities will have the rights described above
under "- Preferred Securities - Voting Rights," including the right to appoint a
Special General Partner, which Special General Partner shall be authorized to
exercise the right of the Trustee or the holders of at least 25% aggregate
principal amount of the Subordinated Debentures to accelerate the principal
amount of the Subordinated Debentures and accrued interest (including any
Additional Interest) thereon and to enforce the other rights of Holders of the
Subordinated Debentures as creditors under the Subordinated Debentures.
Subject to the provision of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holders of Subordinated Debentures,
unless such holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the holders
of a majority in aggregate principal amount of the Subordinated Debentures then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
No holder of any Subordinated Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default and, if Best Buy Capital is not the sole holder of
Subordinated Debentures, unless also the holders of at least 25% in aggregate
principal amount of the Subordinated Debentures then outstanding shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as trustee, and the Trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding
Subordinated Debentures a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a holder of a Subordinated
Debenture for enforcement of payment of the principal of or interest on such
Subordinated Debenture on or after the respective due dates expressed in such
Subordinated Debenture or of the right to convert such Subordinated Debenture in
accordance with the Indenture.
Best Buy will be required to furnish to the Trustee annually a statement as
to the performance by Best Buy of certain of its obligations under the Indenture
and as to any default of such performance.
CONVERSION OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures will be convertible into Best Buy Common Stock
at the option of the holders of the Subordinated Debentures at any time on or
before the close of business on the maturity date thereof at the initial
conversion price set forth on the cover page of this Prospectus subject to the
conversion price adjustments described under "- Preferred Securities -
Conversion Rights." Upon surrender of Preferred Securities to the Conversion
Agent for conversion, Best Buy Capital will distribute $50 principal amount of
the Subordinated Debentures to the Conversion Agent on behalf of the holder of
every Preferred Security so converted, whereupon the Conversion Agent will
convert such Subordinated Debentures to Best Buy Common Stock on behalf of such
holder. Best Buy's delivery to the holders of the Subordinated Debentures
(through the Conversion Agent) of the fixed number of shares of Best Buy Common
Stock into which the Subordinated Debentures are convertible (together with the
cash payment, if any, in lieu of fractional shares) will be deemed to satisfy
Best Buy's obligation to pay the principal amount of the Subordinated
Debentures, and the accrued and unpaid interest attributable to the period from
the last date to which interest has been paid or duly provided for.
EXCHANGE OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures will be exchangeable for Depository Shares
representing Best Buy Series A Preferred Stock upon an Exchange Event on or
before the close of business on the maturity date thereof at the rate of 1/100th
of a share of Best Buy Series A Preferred Stock for each $50 principal amount of
the Subordinated Debentures (equivalent to an exchange rate of one Depositary
Share for
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each $50 principal of amount of the Subordinated Debentures). Accrued and unpaid
interest (including Additional Interest) on the Subordinated Debentures will be
treated as accumulated and unpaid dividends on the Best Buy Series A Preferred
Stock.
MODIFICATION OF THE INDENTURE
The Indenture may be amended by Best Buy and the Trustee with the consent of
the holders of 66 2/3% in aggregate principal amount of the outstanding
Subordinated Debentures PROVIDED, that no such modification or amendment may,
without the consent of the holder of each outstanding Subordinated Debenture
affected thereby, (a) change the Maturity of the principal of, or any
installment of interest on, any Subordinated Debenture, (b) reduce the principal
amount of, or interest on, any Subordinated Debenture, (c) change the place or
currency of payment of principal of, or interest on, any Subordinated Debenture,
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any Subordinated Debenture, (e) adversely affect the right to
convert Subordinated Debentures, (f) modify the subordination provisions in a
manner adverse to the holders of the Subordinated Debentures, (g) reduce the
above-stated percentage of outstanding Subordinated Debentures necessary to
modify or amend the Indenture or (h) reduce the percentage of aggregate
principal amount of outstanding Subordinated Debentures necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults; AND PROVIDED FURTHER that, so long as any of the Preferred Securities
remain outstanding, no such amendment may be made that adversely affects the
holders of Preferred Securities, and no termination of the Indenture may occur,
and no Event of Default or compliance with any covenant under the Indenture may
be waived by the holders of the Subordinated Debentures, without the prior
consent of the holders of at least 66 2/3% of the aggregate liquidation
preference of the Preferred Securities then outstanding unless and until the
Subordinated Debentures and all accrued and unpaid interest thereon have been
paid in full.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by, and
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee
should it become a creditor of Best Buy, to obtain payment of claims in certain
cases, or to realize for its own account on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in certain other transactions; however, if it acquires any conflicting
interest and there is a default under the Subordinated Debentures, it must
eliminate such conflict or resign.
Best Buy and Best Buy Capital have agreed in the Indenture to indemnify and
hold harmless the Trustee against any losses or damages it may suffer as
Trustee.
, the Trustee under the Indenture, has from time to
time engaged in transactions with, or performed services for, Best Buy in the
ordinary course of business.
DESCRIPTION OF BEST BUY CAPITAL STOCK
COMMON STOCK
Best Buy is authorized to issue 120,000,000 shares of Common Stock, $.10 par
value per share. Each share of Common Stock is entitled to participate pro rata
in distributions upon liquidation, subject to the rights of holders of Preferred
Stock, and to one vote on all matters submitted to a vote of shareholders. The
holders of Common Stock may receive cash dividends as declared by the Board of
Directors out of funds legally available therefor, subject to the rights of any
holders of Preferred Stock. See "Dividend Policy" for a description of certain
restrictions on the payment of cash dividends. The outstanding shares of Common
Stock are, and the shares offered hereby when issued will be, fully paid and
nonassessable. Holders of Common Stock have no preemptive or similar equity
preservation rights, and cumulative voting of shares in the election of
directors is prohibited. The holders of more than 50% of
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the outstanding shares of Common Stock have the voting power to elect all
directors and, except as is discussed at "Certain Best Buy Charter and By-law
Provisions," to approve mergers, sales of assets and other corporate
transactions.
The transfer agent and registrar for Best Buy's Common Stock is Harris Trust
and Savings Bank of Chicago.
PREFERRED STOCK
Best Buy is authorized to issue up to 400,000 shares of Preferred Stock,
$1.00 par value per share. The Company's Articles of Incorporation provide that
shares of Preferred Stock may be issued from time to time, in one or more
series, with such designations, relative rights, preferences, limitations,
dividend rights, redemption prices, liquidation prices, conversion rights,
sinking or purchase fund rights or other privileges as the Company's Board of
Directors may establish. Pursuant to this authority, the Board of Directors has
designated 46,000 shares of Preferred Stock as Series A Preferred Stock (the
"Series A Preferred Stock"). No other series of Preferred Stock has been
designated by the Board of Directors. For a description of the Series A
Preferred Stock, see "Description of Securities Offered - Description of Best
Buy Series A Preferred Stock."
The issuance of Preferred Stock could affect the rights of holders of Common
Stock. For example, issuance of the Preferred Stock could result in a class of
securities outstanding that will have preferences with respect to dividends and
in liquidation over the Common Stock and could (upon conversion or otherwise)
enjoy all of the rights appurtenant to Common Stock. There are no issued and
outstanding shares of Preferred Stock. Except as provided herein, there are no
agreements or understandings for the issuance of Preferred Stock, and the
Company has no present intent to issue Preferred Stock.
CERTAIN BEST BUY CHARTER AND BY-LAW PROVISIONS
Best Buy's Articles of Incorporation and By-laws contain certain
"anti-takeover" provisions that could have the effect of delaying or preventing
certain changes in control of the Company and thereby deprive shareholders of an
opportunity to sell their shares at a premium over prevailing market prices.
Best Buy's directors are elected for two-year, staggered terms, such that
only a portion of its directors are elected in any year. This provision of the
By-laws, together with a provision discussed below that is contained in the
Articles of Incorporation and governs removal of directors, could have the
effect of delaying for a period of one year or more a change in control of the
Company, by delaying a potential acquirer's ability to elect a majority of the
Board of Directors, depending upon the number of directors next up for election
following any such acquisition. Cumulative voting of shares in the election of
directors is prohibited by the Articles of Incorporation.
Best Buy's Articles of Incorporation (i) provide for a "supermajority" vote
requiring 80% shareholder approval of certain business combinations with
"related persons," unless the combination has been approved by a majority of the
Board of Directors; (ii) provide that a "fair price" be paid to all shareholders
by requiring the approval of 66 2/3% of shareholders not including a "related
person" for certain business combinations with the "related person" unless the
transaction is approved by a majority of the Board of Directors or each
shareholder receives cash consideration equal to the highest price paid by the
"related person" in acquiring any shares of the Company; (iii) give the
directors the right to consider non-financial factors of any proposed business
combination; (iv) provide that the provisions described above cannot be amended
without an 80% vote (or 66 2/3% in the case of the "fair price" amendment) of
shareholders; (v) provide for removal of directors only for cause or upon the
vote of 80% of shares entitled to vote at an election of directors; and (vi)
forbid the payment of "greenmail," or the payment of a premium to redeem stock
in the Company accumulated by an investor at the expense of other shareholders
who are not afforded the same opportunity.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain federal income tax considerations
relevant to the purchase, ownership and disposition of the Preferred Securities.
This summary does not address all federal income tax aspects of investing in the
Preferred Securities, or the tax consequences to United States Holders who are
subject to special treatment under the federal income tax laws (for example,
banks, life insurance companies or dealers). This discussion is based upon
current provisions of the internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, judicial decisions and
internal Revenue Service ("IRS") rulings, all of which are subject to change,
which may alter the opinions expressed herein and adversely affect investors in
the Preferred Securities. Unless otherwise indicated, the information below is
directed at United States Holders (as defined below) who purchase Preferred
Securities at original issue for their initial offering price, and that hold
Preferred Securities as capital assets (generally property held for investment.)
For purposes of this discussion, a "United States Holder" is a beneficial owner
of a Preferred Security who or that is (i) a citizen or resident of the United
States, (ii) a domestic corporation, or (iii) otherwise subject to United States
federal income taxation on a net income basis in respect of a Preferred
Security.
PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF PREFERRED SECURITIES, INCLUDING THE
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
The following summary represents the opinion of Robins, Kaplan, Miller &
Ciresi, special federal income tax counsel to Best Buy and Best Buy Capital,
insofar as such summary relates to matters of law and legal conclusions. An
opinion of counsel, however, is not binding on the IRS or the courts, and Best
Buy does not intend to seek a ruling from the IRS that the IRS agrees with the
tax consequences described below. Moreover, these transactions raise a number of
novel tax issues which have not been ruled on by the courts or IRS in similar
transactions. As a result, there can be no assurance that the IRS will not audit
these transactions and in such event, that it will agree with the conclusions
below and the positions taken by Best Buy and Best Buy Capital.
TAX CLASSIFICATION
Robins, Kaplan, Miller & Ciresi is of the opinion that (i) Best Buy Capital
will be classified as a partnership for federal income tax purposes and not as
an association (or as a publicly traded partnership) taxable as a corporation,
and (ii) while the matter is not free from doubt, the Subordinated Debentures
will be classified as indebtedness of Best Buy for federal income tax purposes.
This advice is based upon the terms of the Limited Partnership Agreement, the
Fiscal Agency Agreement and related documents and transactions as described in
this Prospectus (and assumes ongoing compliance with such agreement and
documents).
Under the Code, partnerships in which the interests are publicly traded are
taxable as corporations rather than as partnerships. An exception to this rule
applies in the case of partnerships which receive 90% or more of their gross
income from passive income sources, such as interest and dividends. Assuming
that Best Buy Capital does not file a registration under the Investment Company
Act of 1940, Robins, Kaplan, Miller & Ciresi is of the opinion that Best Buy
Capital will qualify for the exception discussed above and will not be taxable
as a corporation under the publicly traded partnership rules.
Prospective investors and their advisors should be aware, however, that the
proper characterization of the arrangement involving Best Buy Capital, the
Preferred Securities and the Subordinated Debentures has not been completely
resolved and the IRS has recently announced that it will scrutinize and may
challenge certain corporate financing transactions which give a corporation debt
treatment for federal income tax purposes, but equity treatment for rating
agency, regulatory and financial reporting purposes. If, contrary to the opinion
of tax counsel, the IRS successfully argued that Best Buy Capital should be
taxable as a corporation, Best Buy Capital would be subject to federal income
tax at corporate
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rates on its net income (including the income from the Subordinated Debentures)
and distributions to United States Holders of Preferred Securities likely would
be taxable as dividend income to the extent of the earnings and profits of Best
Buy Capital. Similarly, if, contrary to the opinion of tax counsel, the IRS
successfully asserted that the Subordinated Debentures were properly classified
as stock or other equity in Best Buy, then payments on the Subordinated
Debentures would not be deductible by Best Buy as interest, but instead likely
would be treated as distributions to United States Holders taxable as dividends
to the extent of the earnings and profits of Best Buy. Either event could have
adverse tax consequences for certain United States Holders and could result in
substantially reduced amounts payable to United States Holders, as well as
resulting in United States Holders receiving Best Buy Series A Preferred Stock
in a taxable transaction that has other possible adverse tax consequences. See
"- Exchange of Preferred Securities for Best Buy Stock."
Prospective investors should also be aware that the IRS recently issued a
proposed Treasury Regulation under which the IRS can disregard or recast the
form of a transaction if a partnership is formed or availed of in connection
with a transaction (or series of related transactions) "with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability" in a manner inconsistent with the intent of the partnership
provisions of the Code. In the view of Robins, Kaplan, Miller & Ciresi, Best Buy
Capital should not be considered to be formed or availed of with such a purpose
because the transactions involving Best Buy Capital do not result in tax
avoidance, are structured in a manner which is consistent with the underlying
economic arrangement of the parties and, therefore, are not of the type intended
to fall within the scope of such proposed regulation. There can be no assurance,
however, that the IRS will agree with this view. Unless otherwise noted, the
remainder of this summary assumes, in accordance with the opinion of Robins,
Kaplan, Miller & Ciresi, that Best Buy Capital is properly classified as a
partnership and the Subordinated Debentures are properly classified as
indebtedness of Best Buy for income tax purposes.
INCOME FROM PREFERRED SECURITIES
As partners in a partnership, each United States Holder of Preferred
Securities will be required to include in gross income its distributive share of
the net income of Best Buy Capital, which net income generally will be equal to
the amount of interest received or accrued on the Subordinated Debentures. Such
income will not exceed dividends received on a Preferred Security, except in the
limited circumstance of original issue discount. See " -Original Issue Discount"
below. Any amount so included in a United States Holder's gross income will
increase its tax basis in the Preferred Securities, and the amount of
distributions of cash or other property by Best Buy Capital to the United States
Holder will reduce such United States Holder's tax basis in the Preferred
Securities. No portion of the amounts received on the Preferred Securities will
be eligible for the dividends received deduction.
ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations, the stated interest payments on the Subordinated
Debentures will be treated as "original issue discount" because of the option
that Best Buy has, under the terms of the Subordinated Debentures, to extend
interest payment periods for up to 60 months. Under the Code, United States
Holders of debt with original issue discount must include that discount in
income on an economic accrual basis and before the receipt of cash attributable
to the interest regardless of their method of tax accounting. Except to the
extent Best Buy exercises its option to extend interest payment periods, the
characterization of the stated interest on the Subordinated Debentures as
original issue discount will not affect the timing or amount of income
reportable by United States Holders of the Preferred Securities. In the event
that the interest payment period is extended, Best Buy Capital will continue to
accrue income equal to the amount of the interest payment due at the end of the
extended interest payment period on an economic accrual basis over the length of
the extended interest payment period.
Accrued income will be allocated, but not distributed, to United States
Holders of record on the Business Day preceding the last day of each calendar
month. As a result, United States Holders of record during an extended interest
payment period will include interest in gross income in advance of
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the receipt of cash, and any such United States Holder who disposes of Preferred
Securities prior to the record date for the payment of dividends following such
extended interest payment period will include such United States Holder's
allocable share of such interest in gross income but will not receive any cash
related thereto. The tax basis of a Preferred Security will be increased by the
amount of any interest that is included in income without a corresponding
receipt of cash and will be decreased when and if such cash is subsequently
received from Best Buy Capital.
DISPOSITION OF PREFERRED SECURITIES
Generally, capital gain or loss will be recognized on a sale of Preferred
Securities, including a complete redemption for cash, equal to the difference
between the amount realized and the United States Holder's tax basis in the
Preferred Securities sold. Gain or loss recognized by a United States Holder on
the sale or exchange of a Preferred Security held for more than one year
generally will be taxable as long-term capital gain or loss. The adjusted tax
basis of the Preferred Securities sold will equal the amount paid for the
Preferred Securities, plus accrued but unpaid original issue discount, if any,
as described herein allocated to such United States Holder and reduced by any
cash or other property distributed to such United States Holder by Best Buy
Capital. A United States Holder acquiring Preferred Securities at different
prices may be required to maintain a single aggregate adjusted tax basis in
Preferred Securities, and, upon sale or other disposition of some of the
Preferred Securities, allocate a pro rata portion of such aggregate tax basis to
the Preferred Securities sold (rather than maintaining a separate tax basis in
each Preferred Security for purposes of computing gain or loss on a sale of that
Preferred Security).
Best Buy Capital will allocate income to United States Holders of Preferred
Securities on the Business Day preceding the last day of each calendar month. As
a result of such monthly allocation, a United States Holder purchasing Preferred
Securities may be allocated tax items attributable to periods before the
transfer. The use of such monthly allocation may not be permitted under
applicable Treasury Regulations, and, if not allowed, taxable income of Best Buy
Capital may be reallocated among United States Holders of Preferred Securities.
The General Partner is authorized to adjust allocations if necessary to reflect
the economic income of United States Holders or as otherwise required by the
Code.
EXCHANGE OF PREFERRED SECURITIES FOR BEST BUY STOCK
A United States Holder should not recognize gain or loss upon the exchange,
through the Conversion Agent, of Preferred Securities for a proportionate share
of the Subordinated Debentures held by Best Buy Capital. Except to the extent
attributable to accrued but unpaid interest on the Subordinated Debentures, a
United States Holder should not recognize gain or loss upon the conversion,
through the Conversion Agent, of Subordinated Debentures for Best Buy Common
Stock or Depository Shares representing Best Buy Series A Preferred Stock. A
United States Holder will recognize gain, however, upon the receipt of cash in
lieu of a fractional share of Best Buy Common Stock or Depository Shares
representing Best Buy Series A Preferred Stock equal to the amount of cash
received less the United States Holder's tax basis in such fractional share. A
United States Holder's tax basis in the Best Buy Common Stock or the Depository
Shares representing Best Buy Series A Preferred Stock received upon exchange and
conversion should generally be equal to the United States Holder's tax basis in
the Preferred Securities delivered to the Conversion Agent for exchange less the
basis allocated to any fractional share for which cash is received. A United
States Holder's holding period in the Best Buy Common Stock or the Depository
Shares representing Best Buy Series A Preferred Stock received upon exchange and
conversion should generally begin on the date the United States Holder acquired
the Preferred Securities delivered to the Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
Best Buy Capital (and, thus, United States Holders of Preferred Securities) as
having received a constructive distribution from Best Buy in the event the
conversion ratio of the Subordinated Debentures were adjusted if (i) as a result
of such adjustment, the proportionate interest of Best Buy Capital in the assets
or earnings and profits of Best Buy were increased and (ii) the adjustment was
not made pursuant to a bona fide,
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reasonable antidilution formula. An adjustment in the conversion ratio would not
be considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the stock into
which the Subordinated Debentures are convertible. Thus, under certain
circumstances, a reduction in the conversion price for the Subordinated
Debentures is likely to be taxable to Best Buy Capital as a dividend to the
extent of the current or accumulated earnings and profits of Best Buy. The
United States Holders of the Preferred Securities would be required to include
their allocable share of such constructive dividend in gross income but will not
receive any cash related thereto. In addition, the failure to fully adjust the
conversion price of the Subordinated Debentures to reflect distributions of
stock dividends with respect to the Best Buy Common Stock may result in a
taxable dividend to the United States Holders of the Best Buy Common Stock.
Similarly, under Section 305 of the Code, adjustments to the conversion
price of the Best Buy Series A Preferred Stock, which may occur under certain
circumstances, may result in deemed dividend income to United States Holders of
the Depository Shares representing Best Buy Series A Preferred Stock if such
adjustments are not made pursuant to a bona fide, reasonable antidilution
formula, and failure to make such adjustments to the conversion price of the
Best Buy Series A Preferred Stock may result in deemed dividend income to United
States Holders of the Best Buy Common Stock.
BEST BUY CAPITAL INFORMATION RETURNS AND AUDIT PROCEDURES
The General Partner in Best Buy Capital will furnish each United States
Holder with a Schedule K-1 each year setting forth such United States Holder's
allocable share of income for the prior calendar year. The General Partner is
required to furnish such Schedule K-1 as soon as practicable following the end
of the taxable year, but in any event prior to March 15th of each succeeding
year.
Any person who holds Preferred Securities as nominee for another person is
required to furnish to Best Buy Capital (a) the name, address and taxpayer
identification number of the beneficial owner and the nominee; (b) information
as to whether the beneficial owner is (i) a person that is not a United States
person, (ii) a foreign government, an international organization or any wholly
owned agency or instrumentality of either of the foregoing, or owned agency or
instrumentality of either of the foregoing, or (iii) a tax-exempt entity; (c)
the amount and description of Preferred Securities held, acquired or transferred
for the beneficial owner; and (d) certain information including the dates of
acquisitions and transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from sales. Brokers
and financial institutions are required to furnish additional information,
including whether they are United States persons and certain information on
Preferred Securities they acquire, hold or transfer for their own accounts. A
penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is
imposed by the Code for failure to report such information to Best Buy Capital.
The nominee is required to supply the beneficial owners of the Preferred
Securities with the information furnished to Best Buy Capital.
The General Partner, as the tax matters partner, will be responsible for
representing the United States Holders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years since the later of the
filing or the last date for filing of the partnership information returns. Any
adverse determination following an audit of the return of Best Buy Capital by
the appropriate taxing authorities could result in an adjustment of the returns
of the United States Holders, and, under certain circumstances, a United States
Holder may be precluded from separately litigating a proposed adjustment to the
items of the partnership. An adjustment could also result in an audit of a
United States Holder's return and adjustments of items not related to the income
and losses of Best Buy Capital.
FOREIGN HOLDERS
Ownership of Preferred Securities by nonresident aliens, foreign
corporations and other foreign persons raises tax considerations unique to such
persons and may have substantially adverse tax consequences to them. Therefore,
prospective investors who are foreign persons or which are foreign
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entities are urged to consult with their U.S. tax advisors as to whether an
investment in a Preferred Security represents an appropriate investment in light
of those unique tax considerations and possible adverse tax consequences.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments on and
payments of the proceeds of the sale of Preferred Securities, Best Buy Series A
Preferred Stock or Best Buy Common Stock within the United States to
noncorporate United States Holders and "backup withholding" at a rate of 31%
will apply to such payments if the United States Holder fails to provide an
accurate taxpayer identification number.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A UNITED STATES
HOLDER'S PARTICULAR SITUATION. UNITED STATES HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Best Buy
Capital has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Morgan Stanley & Co. Incorporated and William Blair &
Company are acting as representatives, has severally agreed to purchase from
Best Buy Capital, the respective number of Preferred Securities set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF PREFERRED
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
Goldman, Sachs & Co. .......................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................................................
Morgan Stanley & Co. Incorporated...........................................................
William Blair & Company.....................................................................
----------
Total................................................................................... 4,000,000
----------
----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Preferred Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per Preferred Security. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used by Best Buy Capital to purchase the Subordinated
Debentures of Best Buy, the Underwriting Agreement provides that Best Buy will
pay as compensation to the Underwriters ("Underwriters' Compensation"), a
commission of $ per Preferred Security.
Best Buy and Best Buy Capital have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 600,000 additional Preferred Securities solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
Preferred Securities to be purchased by each of them, as shown in the foregoing
table, bears to the Preferred Securities offered.
Best Buy and Best Buy Capital have agreed not to offer, sell, contract to
sell, or otherwise dispose of any shares of Best Buy Common Stock, any other
capital stock of Best Buy, any other security convertible into or exercisable or
exchangeable for Best Buy Common Stock or any such other capital stock or debt
securities substantially similar to the Subordinated Debentures for a period of
180 days after the date of this Prospectus without the prior written consent of
the representatives, except for (a) the Preferred Securities offered hereby, (b)
Best Buy Common Stock or Best Buy Series A Preferred Stock issued or delivered
upon conversion or exchange of the Subordinated Debentures, (c) securities
issued or delivered upon conversion, exchange or exercise of any other
securities of Best Buy outstanding on the date of this Prospectus, (d)
securities issued pursuant to Best Buy's stock option or other benefit or
incentive plans maintained for its officers, directors or employees, (e)
securities issued in connection with mergers, acquisitions or similar
transactions or (f) partnership interests of Best Buy Capital issued to Best Buy
in connection with the sale of the over-allotment shares in order to maintain
Best Buy's 21% interest in the total capital of Best Buy Capital.
64
<PAGE>
Certain of the Underwriters are customers of, or engage in transactions
with, and from time to time have performed services for, Best Buy and its
subsidiaries and associated companies in the ordinary course of business.
Prior to this Offering, there has been no public market for the Preferred
Securities. Application will be made to list the Preferred Securities on the
New York Stock Exchange under the symbol "BBY pfM." In order to meet one of the
requirements for listing the Preferred Securities on the New York Stock
Exchange, the Underwriters will undertake to sell lots of 100 or more Preferred
Securities to a minimum of 2,000 beneficial holders.
Best Buy and Best Buy Capital have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
VALIDITY OF THE SECURITIES
The validity of the Preferred Securities, the Guarantee, the Best Buy Common
Stock and the Best Buy Series A Preferred Stock issuable upon conversion or
exchange of the Subordinated Debentures will be passed upon for Best Buy by
Robins, Kaplan, Miller & Ciresi, Minneapolis, Minnesota, and for the
Underwriters by Sullivan & Cromwell, New York, New York. Additionally, certain
matters as to United States taxation will be passed upon by Robins, Kaplan,
Miller & Ciresi. Sullivan & Cromwell may rely on Robins, Kaplan, Miller & Ciresi
as to all matters of Minnesota law, and Robins, Kaplan, Miller & Ciresi may rely
upon Sullivan & Cromwell as to all matters of New York law. Elliot S. Kaplan, a
member of Robins, Kaplan, Miller & Ciresi, is the Secretary and a Director of
the Company. At September 1, 1994, attorneys at Robins, Kaplan, Miller & Ciresi
beneficially owned 161,986 shares of the Best Buy Common Stock.
EXPERTS
The financial statements of the Company as of February 27, 1993, and
February 26, 1994, and for each of the fiscal years in the three-year period
ended February 26, 1994, included herein and incorporated by reference in this
Prospectus, and the financial statement schedules incorporated by reference
herein from the Company's Annual Report on Form 10-K, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports included
herein and incorporated by reference (which reports express an unqualified
opinion and include an explanatory paragraph regarding a change in accounting
method for income taxes during the year ended February 26, 1994), and have been
included herein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
In August 1994, the Company retained Ernst & Young LLP as its independent
auditors and dismissed Deloitte & Touche LLP. The decision to change accountants
was approved by the Audit Committee of the Company's Board of Directors. The
reports of Deloitte & Touche LLP for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified with
respect to uncertainty, audit scope or accounting principle. During the past two
fiscal years and through the date of dismissal there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of August 28, 1993, and August 27, 1994.................................................. F-2
Statements of Earnings for the six months ended August 28, 1993, and August 27, 1994....................... F-3
Statements of Cash Flows for the six months ended August 28, 1993, and August 27, 1994..................... F-4
Statement of Shareholders' Equity for the six months ended August 27, 1994................................. F-5
Notes to Interim Financial Statements...................................................................... F-6
ANNUAL FINANCIAL STATEMENTS
Independent Auditors' Report............................................................................... F-7
Balance Sheets as of February 27, 1993, and February 26, 1994.............................................. F-8
Statements of Earnings for the fiscal years ended February 29, 1992, February 27, 1993 and February 26,
1994...................................................................................................... F-9
Statements of Cash Flows for the fiscal years ended February 29, 1992, February 27, 1993 and February 26,
1994...................................................................................................... F-10
Statements of Shareholders' Equity for the fiscal years ended February 29, 1992, February 27, 1993 and
February 26, 1994......................................................................................... F-11
Notes to Annual Financial Statements....................................................................... F-12
</TABLE>
F-1
<PAGE>
BEST BUY CO., INC.
BALANCE SHEETS
(UNAUDITED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27,
1993 1994
----------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 43,888 $ 47,427
Receivables......................................................................... 37,606 87,804
Merchandise inventories............................................................. 468,963 863,500
Deferred income taxes............................................................... 9,649 14,157
Prepaid expenses.................................................................... 1,415 5,958
----------- -------------
Total current assets.............................................................. 561,521 1,018,846
PROPERTY AND EQUIPMENT, at cost:
Land and buildings.................................................................. 7,392 75,982
Property under capital leases....................................................... 14,930 21,902
Leasehold improvements.............................................................. 35,821 69,079
Furniture, fixtures and equipment................................................... 94,443 145,449
----------- -------------
152,586 312,412
Less accumulated depreciation and amortization...................................... 50,891 77,286
----------- -------------
Net total property and equipment.................................................. 101,695 235,126
OTHER ASSETS:
Deferred income taxes............................................................... 6,385 8,105
Other assets........................................................................ 3,046 8,828
----------- -------------
Total other assets................................................................ 9,431 16,933
----------- -------------
TOTAL ASSETS.......................................................................... $ 672,647 $ 1,270,905
----------- -------------
----------- -------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Note payable, bank................................................. $ 95,000
Obligations under financing arrangements........................... $ 27,873 23,713
Accounts payable................................................... 229,470 481,440
Accrued salaries and related expenses.............................. 12,963 19,181
Accrued liabilities................................................ 23,166 47,524
Deferred service plan revenue and warranty reserve................. 16,750 20,774
Accrued income taxes............................................... 3,722 3,583
Current portion of long-term debt.................................. 6,326 9,144
--------- ----------
Total current liabilities........................................ 320,270 700,359
Deferred service plan revenue and warranty reserve................... 23,988 31,887
Long-Term Debt....................................................... 50,907 211,013
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized 400,000 shares; none
issued
Common stock, $.10 par value; authorized 120,000,000 shares; issued
and outstanding 41,630,000 and 42,067,000 shares, respectively.... 2,082 4,207
Additional paid-in capital......................................... 222,732 226,330
Retained earnings.................................................. 52,668 97,109
--------- ----------
Total shareholders' equity....................................... 277,482 327,646
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 672,647 $1,270,905
--------- ----------
--------- ----------
</TABLE>
See notes to interim financial statements.
F-2
<PAGE>
BEST BUY CO., INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
AUGUST 28, AUGUST 27,
1993 1994
------------- -------------
<S> <C> <C>
Revenues............................................................................ $ 1,004,899 $ 1,782,575
Cost of goods sold.................................................................. 836,225 1,531,439
------------- -------------
Gross profit........................................................................ 168,674 251,136
Selling, general and administrative expenses........................................ 151,910 221,791
------------- -------------
Operating income.................................................................... 16,764 29,345
Interest expense, net............................................................... 1,949 9,775
------------- -------------
Earnings before income taxes and cumulative effect of change in accounting
principle.......................................................................... 14,815 19,570
Income taxes........................................................................ 5,705 7,729
------------- -------------
Earnings before cumulative effect of change in accounting principle................. 9,110 11,841
Cumulative effect of change in accounting for income taxes.......................... (425)
------------- -------------
Net earnings........................................................................ $ 8,685 $ 11,841
------------- -------------
------------- -------------
Earnings per share:
Earnings before cumulative effect of change in accounting principle............... $ .23 $ .27
Cumulative effect of change in accounting for income taxes........................ (.01)
------------- -------------
Net earnings per share.............................................................. $ .22 $ .27
------------- -------------
------------- -------------
Weighted average common shares outstanding (000).................................... 39,292 43,226
------------- -------------
------------- -------------
</TABLE>
See notes to interim financial statements.
F-3
<PAGE>
BEST BUY CO., INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ IN 000)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
AUGUST 28, AUGUST 27,
1993 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings........................................................................ $ 8,685 $ 11,841
Charges to earnings not affecting cash:
Depreciation and amortization..................................................... 9,369 16,632
(Gain) Loss on disposal of property and equipment................................. 414 (4)
Cumulative effect of change in accounting for income taxes........................ 425
------------ ------------
18,893 28,469
Changes in operating assets and liabilities:
Receivables....................................................................... 362 (22,879)
Merchandise inventories........................................................... (218,972) (225,550)
Prepaid income taxes and expenses................................................. (1,762) (7,298)
Accounts payable.................................................................. 111,132 187,380
Accrued salaries and related expenses............................................. 613 (138)
Other current liabilities......................................................... 2,122 1,659
Deferred service plan revenues and warranty reserve............................... 1,774 5,305
------------ ------------
Total cash used in operating activities......................................... (85,838) (33,052)
INVESTING ACTIVITIES:
Additions to property and equipment................................................. (28,711) (81,983)
Recoverable store development expenditures.......................................... (11,981)
Proceeds from sale/leaseback transactions........................................... 44,460 7,954
Sale of property and equipment...................................................... 46 53
Decrease in other assets............................................................ (1,556) (747)
------------ ------------
Total cash provided by (used in) investing activities............................. 14,239 (86,704)
FINANCING ACTIVITIES:
Common stock issued................................................................. 86,513 4,361
Borrowings on revolving credit line................................................. 59,300 322,800
Payments on revolving credit line................................................... (63,000) (227,800)
Borrowings on long-term debt........................................................ 5,311
Payments on long-term debt.......................................................... (2,777) (4,607)
Increase in obligations under financing arrangements................................ 23,002 12,557
------------ ------------
Total cash provided by financing activities....................................... 108,349 107,311
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 36,750 (12,445)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................................... 7,138 59,872
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................ $ 43,888 $ 47,427
------------ ------------
------------ ------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Leased asset additions............................................................ $ 829 $ 5,054
Cash paid during the period for:
Interest (net of amount capitalized).............................................. $ 1,975 $ 9,423
Income taxes...................................................................... $ 8,685 $ 15,093
</TABLE>
See notes to interim financial statements.
F-4
<PAGE>
BEST BUY CO., INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 27, 1994
(UNAUDITED)
($ IN 000)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance, February 26, 1994...................... $2,087 $ 224,089 $ 85,268
Stock options exercised......................... 31 4,330
Effect of two-for-one stock split............... 2,089 (2,089)
Net earnings for the six months ended August 27,
1994........................................... 11,841
------ ---------- --------
Balance, August 27, 1994........................ $4,207 $ 226,330 $ 97,109
------ ---------- --------
------ ---------- --------
</TABLE>
See notes to interim financial statements.
F-5
<PAGE>
BEST BUY CO., INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The balance sheets as of August 28, 1993, and August 27, 1994, the related
statements of earnings and cash flows for the six month periods ended August 28,
1993, and August 27, 1994, and the statement of changes in shareholders' equity
for the six months ended August 27, 1994, are unaudited; in the opinion of
management all adjustments necessary for a fair presentation of such financial
statements have been included and were normal and recurring in nature. Interim
results are not necessarily indicative of results for a full year. The financial
statements and notes thereto should be read in conjunction with the financial
statements and notes included in the Company's annual report to shareholders for
the fiscal year ended February 26, 1994.
2. INCOME TAXES:
Income taxes are provided based upon management's estimate of the annual
effective tax rate.
3. STOCK SPLIT:
The Company effected a two-for-one stock split in the form of a stock
dividend in April 1994. All common share and per share data reflect this stock
split.
4. BANK REVOLVING LINE OF CREDIT:
On July 29, 1994 the Company increased its bank line of credit to allow
seasonal borrowings of up to $400 million.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Best Buy Co., Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Best Buy Co., Inc. (the
Company) as of February 27, 1993, and February 26, 1994, and the related
statements of earnings, shareholders' equity, and cash flows for the years ended
February 29, 1992, February 27, 1993, and February 26, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Best Buy Co., Inc., as of February 27, 1993
and February 26, 1994, and the results of its operations and cash flows for the
years ended February 29, 1992, February 27, 1993, and February 26, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, the Company changed its
method of accounting for income taxes during the year ended February 26, 1994.
Deloitte & Touche LLP
Minneapolis, Minnesota
April 13, 1994
F-7
<PAGE>
BEST BUY CO., INC.
BALANCE SHEETS
($ IN 000, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
27, 1993 26, 1994
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................... $ 7,138 $ 59,872
Receivables....................................... 37,968 52,944
Merchandise inventories........................... 249,991 637,950
Deferred income taxes............................. 9,497 13,088
Prepaid expenses.................................. 332 756
----------- -----------
Total current assets............................ 304,926 764,610
Property and Equipment:
Land and buildings................................ 45,676 37,660
Leasehold improvements............................ 33,222 55,279
Furniture, fixtures and equipment................. 76,806 122,683
Property under capital leases..................... 14,163 17,870
----------- -----------
169,867 233,492
Less accumulated depreciation and amortization.... 43,425 60,768
----------- -----------
Net property and equipment...................... 126,442 172,724
Other Assets:
Deferred income taxes............................. 6,284 7,078
Other assets...................................... 1,490 8,082
----------- -----------
Total other assets.............................. 7,774 15,160
----------- -----------
Total Assets.................................. $439,142 $952,494
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable, bank................................ $ 3,700
Obligations under financing arrangements.......... 4,871 $ 11,156
Accounts payable.................................. 118,338 294,060
Accrued salaries and related expenses............. 12,350 19,319
Accrued liabilities............................... 18,221 37,754
Deferred service plan revenue and warranty
reserve.......................................... 16,240 19,146
Accrued income tax................................ 6,545 11,694
Current portion of long term debt................. 5,740 8,899
----------- -----------
Total current liabilities....................... 186,005 402,028
Deferred Service Plan Revenue and Warranty
Reserve............................................ 22,724 28,211
Long Term Debt...................................... 48,130 210,811
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $1.00 par value:
Authorized - 400,000 shares; Issued and
Outstanding - none
Common stock, $.10 par value:
Authorized - 120,000,000 shares; Issued and
Outstanding 34,486,000 and 41,742,000 shares,
respectively................................... 1,149 2,087
Additional paid-in capital........................ 137,151 224,089
Retained earnings................................. 43,983 85,268
----------- -----------
Total shareholders' equity...................... 182,283 311,444
----------- -----------
Total Liabilities and Shareholders' Equity.... $439,142 $952,494
----------- -----------
----------- -----------
</TABLE>
See notes to annual financial statements.
F-8
<PAGE>
BEST BUY CO., INC.
STATEMENTS OF EARNINGS
($ IN 000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
---------------------------------------
FEBRUARY FEBRUARY FEBRUARY
29, 1992 27, 1993 26, 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................. $929,692 $ 1,619,978 $ 3,006,534
Cost of goods sold.................... 748,630 1,335,944 2,549,609
----------- ----------- -----------
Gross profit.......................... 181,062 284,034 456,925
Selling, general and administrative
expenses............................. 162,286 248,126 379,747
----------- ----------- -----------
Operating income...................... 18,776 35,908 77,178
Interest expense, net................. 3,415 3,883 8,800
----------- ----------- -----------
Earnings before income taxes and
cumulative effect of change in
accounting principle................. 15,361 32,025 68,378
Income taxes.......................... 5,760 12,170 26,668
----------- ----------- -----------
Earnings before cumulative effect of
change in accounting principle....... 9,601 19,855 41,710
Cumulative effect of change in
accounting for income taxes.......... (425)
----------- ----------- -----------
Net earnings........................ $ 9,601 $ 19,855 $ 41,285
----------- ----------- -----------
----------- ----------- -----------
Earnings per share:
Earnings before cumulative effect of
change in accounting principle..... $ .33 $ .57 $ 1.01
Cumulative effect of change in
accounting for income taxes........ (.01)
----------- ----------- -----------
Net earnings per share............ $ .33 $ .57 $ 1.00
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares
outstanding (000).................... 28,848 34,776 41,336
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to annual financial statements.
F-9
<PAGE>
BEST BUY CO., INC.
STATEMENTS OF CASH FLOWS
($ IN 000)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
----------------------------------------
FEBRUARY 29, FEBRUARY 27, FEBRUARY 26,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings........................................................... $ 9,601 $ 19,855 $ 41,285
Charges to earnings not affecting cash:
Depreciation and amortization........................................ 10,013 14,832 22,412
Loss on disposal of property and equipment........................... 437 545 719
Cumulative effect of change in accounting for income taxes........... 425
------------ ------------ ------------
20,051 35,232 64,841
Changes in operating assets and liabilities:
Receivables.......................................................... (7,265) (21,987) (14,976)
Merchandise inventories.............................................. (40,154) (114,153) (387,959)
Deferred income taxes and prepaid expenses........................... (225) (2,063) (5,234)
Accounts payable..................................................... 26,770 49,668 175,722
Other current liabilities............................................ 7,062 16,106 33,014
Deferred service plan revenues and warranty reserve.................. 16 6,148 8,393
------------ ------------ ------------
Total cash provided by (used in) operating activities.............. 6,255 (31,049) (126,199)
------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property and equipment.................................... (25,279) (74,891) (101,412)
Sale of property and equipment......................................... 114 27 44,506
Decrease (increase) in other assets.................................... 358 (1,180) (6,592)
------------ ------------ ------------
Total cash used in investing activities............................ (24,807) (76,044) (63,498)
------------ ------------ ------------
FINANCING ACTIVITIES
Borrowings on revolving credit line.................................... 47,200 298,900 79,500
Payments on revolving credit line...................................... (47,200) (295,200) (83,200)
Long-term debt borrowings.............................................. 15,018 29,700 160,310
Long-term debt payments................................................ (1,696) (37,515) (6,977)
Common stock issued.................................................... 91,226 4,860 86,513
Increase (decrease) in obligations under financing arrangements........ (270) 697 6,285
------------ ------------ ------------
Total cash provided by financing activities........................ 104,278 1,442 242,431
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 85,726 (105,651) 52,734
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................... 27,063 112,789 7,138
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $ 112,789 $ 7,138 $ 59,872
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Capital lease additions.............................................. $ 3,963 $ 8,705 $ 3,807
Land and building acquired on contract for deed...................... $ 8,700
Cash paid during the period for:
Interest (net of amount capitalized)................................. $ 4,460 $ 5,385 $ 5,360
Income taxes......................................................... $ 4,753 $ 7,174 $ 25,442
</TABLE>
See notes to annual financial statements.
F-10
<PAGE>
BEST BUY CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
($ IN 000)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
BALANCES AT MARCH 2, 1991....................... $ 829 $ 41,385 $ 14,527
Sale of common stock............................ 270 87,705
Stock options exercised......................... 23 1,937
Tax benefit from stock options exercised........ 1,291
Net earnings.................................... 9,601
------ ---------- --------
BALANCES AT FEBRUARY 29, 1992................... 1,122 132,318 24,128
Stock options exercised......................... 27 2,311
Tax benefit from stock options exercised........ 2,522
Net earnings.................................... 19,855
------ ---------- --------
BALANCES AT FEBRUARY 27, 1993................... 1,149 137,151 43,983
Sale of common stock............................ 234 85,294
Stock options exercised......................... 10 977
Tax benefit from stock options exercised........ 1,363
Effect of three-for-two stock split............. 694 (696)
Net earnings.................................... 41,285
------ ---------- --------
BALANCES AT FEBRUARY 26, 1994................... $2,087 $ 224,089 $ 85,268
------ ---------- --------
------ ---------- --------
</TABLE>
See notes to annual financial statements.
F-11
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS
($ IN 000, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
The Company sells consumer electronics, personal computer and other home
office products, major appliances, entertainment software, and related
accessories through its retail stores.
CASH AND CASH EQUIVALENTS:
The Company considers all short-term investments with a maturity of three
months or less when purchased to be cash equivalents.
MERCHANDISE INVENTORIES:
Merchandise inventories are recorded at the lower of average cost or market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation, including
amortization of property under capital leases, is computed on the straight-line
method over the estimated useful lives of the assets, or, in the case of
leasehold improvements, over the shorter of the estimated useful lives or lease
terms.
ACCOUNTS PAYABLE:
Under the Company's cash management system, checks issued but not cleared
through the bank account frequently result in a cash overdraft in the accounting
records. Overdraft balances of $46,548 and $90,119 at February 27, 1993, and
February 26, 1994, respectively, are included in accounts payable.
PRE-OPENING COSTS:
Costs incurred in connection with the opening of new stores are expensed in
the year the store is opened. Pre-opening costs were $2,295, $6,231 and $7,335
in fiscal 1992, 1993, and 1994, respectively.
DEFERRED SERVICE PLAN REVENUE AND WARRANTY RESERVE:
Revenue from the sale of extended service contracts, net of direct selling
expenses, is recognized straight-line over the life of the contract. Costs
related to servicing the plans are expensed as incurred. Estimated costs of
promotional contracts, included with products at no cost to the consumer, are
accrued as warranty reserve at the time of product sale.
EARNINGS PER SHARE:
Earnings per share is computed on the basis of the weighted average number
of common shares outstanding during each period, adjusted for 1,458,000, 902,000
and 1,300,000 incremental shares assumed issued on the exercise of stock options
in fiscal 1992, 1993 and 1994, respectively. In September 1993, the Company
effected a three-for-two stock split in the form of a 50% stock dividend. In
April 1994, the Company effected a two-for-one stock split payable in the form
of a stock dividend. All common share and per share information has been
adjusted to reflect both splits.
FISCAL YEAR:
The Company's fiscal year ends on the Saturday nearest the end of February.
All years presented contained 52 weeks.
F-12
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS (CONTINUED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
2. OBLIGATIONS UNDER FINANCING ARRANGEMENTS:
The Company has two inventory financing credit lines, which total
approximately $175,000. Borrowings are collaterized by a security interest in
certain merchandise inventories approximating the outstanding borrowings. The
lines have provisions that give the financing sources a portion of the cash
discounts provided by the manufacturers.
3. BORROWINGS:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
27, 1993 26, 1994
----------- -----------
<S> <C> <C>
Senior Subordinated Notes........................... $150,000
Subordinated Notes.................................. $21,904 21,904
Equipment financing loans........................... 19,957 25,306
Obligations under capital leases.................... 12,009 13,800
Contract for deed................................... 8,700
----------- -----------
53,870 219,710
Less:
Current portion of long term debt................... 5,740 8,899
----------- -----------
$48,130 $210,811
----------- -----------
----------- -----------
</TABLE>
CREDIT AGREEMENT:
The Company has a credit agreement (the "Agreement") that contains a
revolving credit facility under which the Company can borrow up to $125,000. The
Agreement provides that up to $40,000 of the facility is available at all times
and an additional $85,000 is available from August 1 to December 31. The
Agreement expires in June 1995, and the Company has the option to extend the
Agreement for an additional year.
Borrowings under the facility are unsecured. Interest on borrowings is at
the agent bank's reference rate or LIBOR plus a specified margin. The Company
also pays certain commitment and agent fees.
The Agreement contains covenants that require maintenance of certain
financial ratios and place limits on annual capital expenditures. The Agreement
also provides that once a year, the Company must repay any amounts outstanding,
and for a period of not less than 60 days thereafter, the aggregate principal
amount outstanding is limited to $10,000. There were no balances outstanding
under the facility at February 26, 1994. At February 27, 1993 there was $3,700
outstanding under the previous facility.
SENIOR SUBORDINATED NOTES:
In October 1993, the Company issued $150,000 of senior subordinated notes.
The notes mature on October 1, 2000, and bear interest at 8 5/8%. The Company
may, at its option, redeem the notes prior to maturity at 102.5% and 101.25% of
par in 1998 and 1999, respectively. The Company may be required to offer early
redemption in the event of a change in control, as defined.
The notes are unsecured and subordinate to the prior payment of all senior
debt, which approximates $58,962 at February 26, 1994. The indenture also
contains provisions, which limit the amount of additional borrowings the Company
may incur and limit the Company's ability to pay dividends and make other
restricted payments.
F-13
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS (CONTINUED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
3. BORROWINGS: (CONTINUED)
SUBORDINATED NOTES:
The Company has an $18,000 unsecured, subordinated note outstanding which
bears interest at 9.95% and matures on July 30, 1999. In addition, the Company
has $3,904 of unsecured, subordinated notes due June 15, 1997 which bear
interest at 9%.
EQUIPMENT FINANCING LOANS:
The equipment financing loans require monthly or quarterly payments and have
maturity dates between June 1996 and October 1998. The interest rates on these
loans range from 7.54% to 11.15%. Furniture and fixtures with a book value of
$23,704 are pledged against these loans.
CONTRACT FOR DEED:
The Company purchased its corporate office building on a contract for deed.
The contract for deed calls for semiannual interest payments of $430 with
payment of the contract balance on June 12, 1996.
OBLIGATIONS UNDER CAPITAL LEASES:
The present value of future minimum lease payments relating to certain
equipment and a distribution center has been capitalized. The capitalized cost
is $14,163 and $17,870 at February 27, 1993, and February 26, 1994,
respectively. The net book value of assets under capital leases was $12,060 and
$13,439 at February 27, 1993 and February 26, 1994, respectively.
FUTURE MATURITIES OF DEBT:
<TABLE>
<CAPTION>
CAPITAL OTHER
LEASES DEBT
------- --------
<S> <C> <C>
FISCAL YEAR
- -------------------------------------------------------------
1995......................................................... $ 3,138 $ 6,422
1996......................................................... 2,872 6,452
1997......................................................... 2,540 14,697
1998......................................................... 6,126 9,005
1999......................................................... 534 1,334
Later years.................................................. 104 168,000
------- --------
15,314 $205,910
--------
--------
Less amount representing interest............................ 1,514
-------
Minimum lease payments....................................... 13,800
Less current portion......................................... 2,477
-------
Long-term portion............................................ $11,323
-------
-------
</TABLE>
The fair value of the Company's financial instruments, including those with
quoted market prices, approximates carrying value.
F-14
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS (Continued)
($ in 000, except per share amounts)
4. OPERATING LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS:
The Company conducts the majority of its retail and distribution operations
from leased locations. The Company completed the sale/leaseback of 17 stores in
fiscal 1994, resulting in net proceeds of approximately $44,600, with no gain or
loss recognized. The Company also leases various equipment under operating
leases and, prior to January 1994, its corporate headquarters were located in
leased facilities. These leases require payment of real estate taxes, insurance,
and maintenance. Most of the leases contain renewal options and escalation
clauses, and several require contingent rents based on specified percentages of
sales. Certain leases also contain covenants with regard to maintenance of
financial ratios. Future minimum lease obligations by year (not including
percentage rentals) for these operating leases at February 26, 1994, are as
follows:
<TABLE>
<S> <C>
FISCAL YEAR
- ----------------------------------------------------------------------
1995.................................................................. $ 38,954
1996.................................................................. 40,457
1997.................................................................. 39,772
1998.................................................................. 38,625
1999.................................................................. 36,244
Later years........................................................... 311,310
</TABLE>
The composition of the total rental expenses for all operating leases during
the last three fiscal years, including leases of building and equipment, is as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Minimum rentals...................................... $16,153 $22,757 $37,673
Percentage rentals................................... 388 405 439
------- ------- -------
$16,541 $23,162 $38,112
------- ------- -------
------- ------- -------
</TABLE>
Five stores are leased from the Company's CEO and principal shareholder, his
spouse, or partnerships in which he is a partner. Rent expense under these
leases during the last three fiscal years was as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Minimum rentals......................................... $1,049 $1,051 $1,049
Percentage rentals...................................... 388 405 423
------ ------ ------
$1,437 $1,456 $1,472
------ ------ ------
------ ------ ------
</TABLE>
5. RETIREMENT SAVINGS PLAN:
The Company has a retirement savings plan for employees meeting certain age
and service requirements. The plan provides for a Company matching contribution
which is subject to annual approval. This matching contribution was $531, $697
and $906 during fiscal 1992, 1993 and 1994, respectively.
6. SHAREHOLDERS' EQUITY:
PUBLIC OFFERINGS:
In June 1993, the Company completed a public offering of 7,020,000 shares of
Common Stock, including the underwriters' overallotment, at $12.83 per share.
Net proceeds of the offering were $85,528 after deducting the underwriting
discount and offering expenses of $4,562.
F-15
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS (CONTINUED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
6. SHAREHOLDERS' EQUITY: (CONTINUED)
In November 1991, the Company completed a public offering of 8,100,000
shares of Common Stock at $11.50 per share. Proceeds from this offering were
$87,975 after deducting the underwriting discount and offering expenses of
$5,175.
STOCK OPTIONS:
The Company sponsors two non-qualified stock option plans for directors and
key employees. These plans provide for the issuance of up to 8,150,000 shares.
Options may be granted only to employees or directors at option prices not less
than the fair market value of the Company's Common Stock on the date of the
grant. At February 26, 1994, options to purchase 3,144,000 shares are
outstanding under these plans. In addition, at February 26, 1994, an option to
purchase 26,000 shares is outstanding to an officer, not pursuant to a plan.
Option activity for each of the years in the period ended February 26, 1994,
is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding March 2, 1991............................ 2,271,000 $ 2.21 - 5.56
Granted............................................ 603,000 3.50 - 10.31
Exercised.......................................... (690,000) 2.21 - 3.76
Cancelled.......................................... (93,000) 2.75 - 5.56
---------
Outstanding February 29, 1992........................ 2,091,000 2.21 - 10.31
Granted............................................ 912,000 5.89 - 6.29
Exercised.......................................... (837,000) 2.21 - 6.29
Cancelled.......................................... (45,000) 2.21 - 6.29
---------
Outstanding February 27, 1993........................ 2,121,000 2.21 - 10.31
Granted............................................ 1,391,000 11.23 - 13.58
Exercised.......................................... (240,000) 2.21 - 10.31
Cancelled.......................................... (102,000) 2.21 - 12.00
---------
Outstanding February 26, 1994........................ 3,170,000 2.21 - 13.58
---------
---------
Exercisable February 26, 1994........................ 934,000 $ 2.21 - 13.58
---------
---------
</TABLE>
7. INCOME TAXES:
In fiscal 1994, the Company adopted FASB Statement No. 109 "Accounting for
Income Taxes" (FAS 109) and changed its method of accounting for income taxes
from the deferred method to the liability method required by FAS 109. As
permitted by FAS 109, prior years' financial statements have not been restated,
and the effect on pre-tax income in the current year is not significant. The
cumulative effect of the change as of February 28, 1993 was a charge to earnings
of $425.
F-16
<PAGE>
BEST BUY CO., INC.
NOTES TO ANNUAL FINANCIAL STATEMENTS (CONTINUED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES: (CONTINUED)
Deferred taxes under FAS 109 are the result of differences between the basis
of assets and liabilities for financial reporting and income tax purposes.
Significant deferred tax assets and liabilities as of February 26, 1994 consist
of the following:
<TABLE>
<S> <C>
Deferred service plan revenue and warranty reserve..................... $18,625
Inventory.............................................................. 3,326
Compensation and benefits.............................................. 1,547
Other -- net........................................................... 766
-------
Total deferred tax assets.......................................... 24,264
-------
Property and equipment................................................. 3,988
Other -- net........................................................... 110
-------
Total deferred tax liabilities..................................... 4,098
-------
Net deferred tax assets................................................ $20,166
-------
-------
</TABLE>
The deferred income tax expense (benefit) under the previous method of
accounting for income taxes for fiscal 1993 and 1992 is comprised of the
following:
<TABLE>
<CAPTION>
1992 1993
----- -------
<S> <C> <C>
Deferred service plan revenue and warranty reserve.............. $(161) $(2,308)
Depreciation expense............................................ 483 826
Inventory cost capitalization................................... (176) (497)
Reserves for losses not currently deductible.................... (50) (558)
Other........................................................... (93) (50)
----- -------
$ 3 $(2,587)
----- -------
----- -------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $4,637 $12,129 $25,909
State............................................... 1,120 2,628 5,882
------ ------- -------
5,757 14,757 31,791
------ ------- -------
Deferred:
Federal............................................. 2 (2,118) (4,620)
State............................................... 1 (469) (503)
------ ------- -------
3 (2,587) (5,123)
------ ------- -------
Provision for income taxes............................ $5,760 $12,170 $26,668
------ ------- -------
------ ------- -------
</TABLE>
F-17
<PAGE>
BEST BUY CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
($ IN 000, EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES: (CONTINUED)
Following is a reconciliation of the provision for income taxes to the
Federal statutory rate:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- --------
<S> <C> <C> <C>
Federal income tax at the statutory rate........ $ 5,223 $ 10,888 $ 23,932
State income taxes, net of federal benefit...... 750 1,412 3,320
Effect of tax rate change on deferred taxes..... (309)
Tax exempt investment income.................... (281) (228) (341)
Other........................................... 68 98 66
------- -------- --------
Provision for income taxes...................... $ 5,760 $ 12,170 $ 26,668
------- -------- --------
------- -------- --------
Effective tax rate.............................. 37.5% 38.0% 39.0%
</TABLE>
8. LEGAL PROCEEDINGS:
The Company is involved in various legal proceedings arising during the
normal course of conducting business. Management believes that the resolution of
these proceedings will not have any material adverse impact on the Company's
financial condition.
F-18
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BEST BUY AND BEST
BUY CAPITAL SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.............................. 4
Incorporation of Certain Documents by Reference.... 4
Prospectus Summary................................. 5
Investment Considerations.......................... 11
Use of Proceeds.................................... 13
Capitalization..................................... 13
Market Prices of Best Buy Common Stock............. 14
Dividend Policy.................................... 14
Selected Financial and Operating Data.............. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 16
Business........................................... 22
Management......................................... 31
Best Buy Capital................................... 33
Description of Securities Offered.................. 33
Description of Best Buy Capital Stock.............. 57
Certain Best Buy Charter and By-Law Provisions..... 58
Certain Federal Income Tax Considerations.......... 59
Underwriting....................................... 64
Validity of the Securities......................... 65
Experts............................................ 65
Index to Financial Statements...................... F-1
</TABLE>
4,000,000 PREFERRED SECURITIES
BEST BUY CAPITAL
% CONVERTIBLE MONTHLY INCOME
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY, AND CONVERTIBLE
INTO COMMON STOCK OF,
BEST BUY CO., INC.
---------
---------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
Incorporated
WILLIAM BLAIR & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1).
The following statement sets forth the estimated amounts of expenses, other
than the underwriting discount, to be borne by Best Buy in connection with the
distribution of the securities registered hereby.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 79,311
NASD Filing Fee.................................................. 23,500
New York Stock Exchange Listing Fee.............................. 46,400
Printing Expenses................................................ 80,000
Accounting Fees and Expenses..................................... 25,000
Legal Fees and Expenses.......................................... 125,000
Blue Sky Qualification Fees and Expenses......................... 20,000
Rating Agency Fees............................................... 125,000
Trustee Fees..................................................... 10,000
Miscellaneous Expenses........................................... 15,789
---------
Total........................................................ $ 550,000
---------
---------
<FN>
- --------------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Best Buy is subject to Minnesota Statutes, Chapter 302A. Minnesota Statutes,
Section 302A.521, provides that a corporation shall indemnify any person made or
threatened to be made a party to a proceeding by reason of the former or present
official capacity (as defined) of such person against judgments, penalties,
fines, including, without limitation, excise taxes assessed against such person
with respect to an employee benefit plan, settlements and reasonable expenses,
including attorneys' fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person (1) has not been
indemnified therefor by another organization or employee benefit plan; (2) acted
in good faith; (3) received no improper personal benefit and Section 302A.255
(with respect to director conflicts of interest), if applicable, has been
satisfied; (4) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and (5) reasonably believed that the conduct
was in the best interests of the corporation in the case of acts or omissions in
such person's official capacity for the corporation, or reasonably believed that
the conduct was not opposed to the best interests of the corporation in the case
of acts or omissions in such person's official capacity for other affiliated
organizations. Reference is also made to Section 8 of the proposed form of
Underwriting Agreement, filed as Exhibit 1 hereto.
As of July 1, 1994, Best Buy obtained a Directors' and Officers' Liability
Insurance Policy, with coverage of $15 million, subject to various deductibles
and exclusions from coverage. There is no coverage for liabilities arising in
connection with the filing of a Registration Statement by Best Buy under the
Securities Act of 1933 or under any underwriting agreement entered into in
connection with the public offering of securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Best
Buy and Best Buy Capital pursuant to the foregoing provisions or otherwise, Best
Buy and Best Buy Capital have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by Best Buy
or Best Buy Capital of expenses incurred or paid by a director, officer or
controlling person of Best Buy or Best Buy Capital in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Best Buy
and Best Buy Capital will, unless in the opinion of their counsel the matter has
II-1
<PAGE>
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ----------- ------------------------------------------------------------------------------------- ----------------
<C> <S> <C>
1 Form of Underwriting Agreement. Filed herewith
2.1 Certificate of Limited Partnership of Best Buy Capital, L.P. Filed herewith
2.2 Form of Amended and Restated Agreement of Limited Partnership of Best Buy Capital,
L.P. Filed herewith
3.1 Amended and Restated Articles of Incorporation of Best Buy Co., Inc., as amended. (1)
3.2 Amended and Restated By-Laws of Best Buy Co., Inc., as amended. (2) (3)
3.3 Form of Certificate of Designation with respect to Best Buy Series A Preferred Stock. Filed herewith
4.1 Form of Best Buy Capital Preferred Securities Certificate (included in 2.2). Filed herewith
4.2 Form of Best Buy Series A Preferred Stock Certificate (included in 3.3). Filed herewith
4.3 Form of Indenture. Filed herewith
4.4 Form of Subordinated Debenture (included in 4.3). Filed herewith
4.5 Form of Guarantee Agreement. Filed herewith
4.6 Form of Deposit Agreement with respect to Best Buy Series A Cumulative Preferred
Stock. Filed herewith
4.7 Form of Best Buy Common Stock Certificate. Filed herewith
5.1 Opinion of Robins, Kaplan, Miller & Ciresi, including consent. *
5.2 Opinion of Robins, Kaplan, Miller & Ciresi, as to certain tax matters. Filed herewith
12 Statement re: Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends. Filed herewith
23.1 Consent of Deloitte & Touche LLP. Filed herewith
23.2 Consent of Robins, Kaplan, Miller & Ciresi (included in Exhibit 5). *
24 Power of Attorney (included with signature page hereto). Filed herewith
25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 of . *
27 Financial Data Schedule. Filed herewith
<FN>
- --------------
* To be filed by amendment.
(1) Exhibit so marked was filed with the Securities and Exchange Commission as
an exhibit to the Annual Report on Form 10-K of Best Buy Co., Inc. for the
fiscal year ended February 26, 1994, and is incorporated herein by
reference.
(2) Exhibit so marked was filed with the Securities and Exchange Commission on
October 1, 1991, as an exhibit to the Registration Statement on Form S-3
(Reg. No. 33-43065) of Best Buy Co., Inc., and is incorporated herein by
reference.
(3) Exhibit so marked was filed with the Securities and Exchange Commission as
an exhibit to the Quarterly Report on Form 10-Q of Best Buy Co., Inc. for
the quarter ended November 30, 1991 and is incorporated herein by
reference.
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
1. Best Buy and Best Buy Capital hereby undertake:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of this Registration Statement (or the most recent post-effective
amendment thereto) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement, and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement
provided, however, that (i) and (ii) above do not apply if the information
required to be included in a post-effective amendment thereby is contained
in periodic reports filed by the Company pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. Best Buy and Best Buy Capital hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of Best
Buy's annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
4. See Item 15 for Best Buy's and Best Buy Capital's undertaking with
respect to indemnification.
5. Best Buy and Best Buy Capital hereby undertake that:
(a) For purposes of determining liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in the
form of prospectus filed by Best Buy and Best Buy Capital pursuant to Rule
424(b)(1) or (4) or rule 497(h) under the Securities Act of 1933 shall be
deemed to be part of the registration statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Best Buy Co.,
Inc. and Best Buy Capital, L.P. certify that they have reasonable grounds to
believe that they meet all of the requirements for filing on Form S-3 and have
duly caused this Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on the day of September, 1994.
BEST BUY CO., INC.
By /s/ RICHARD M. SCHULZE
------------------------------------
Richard M. Schulze
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Best Buy Capital, L.P.
By: Best Buy Co., Inc., its General
Partner
By /s/ RICHARD M. SCHULZE
------------------------------------
Richard M. Schulze
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below constitutes and appoints RICHARD
M. SCHULZE and ALLEN U. LENZMEIER his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form S-3, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following directors and officers
of Best Buy Co., Inc. in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
<C> <S> <C>
/s/ RICHARD M. SCHULZE
-------------------------------------- Chairman and Chief Executive Officer Sept. 29, 1994
Richard M. Schulze (principal executive officer) and Director
/s/ ALLEN U. LENZMEIER
-------------------------------------- Executive Vice President and Chief Financial Sept. 29, 1994
Allen U. Lenzmeier Officer (principal financial officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
<C> <S> <C>
/s/ ROBERT C. FOX
-------------------------------------- Senior Vice President -- Finance and Sept. 29, 1994
Robert C. Fox Treasurer (principal accounting officer)
/s/ BRADBURY H. ANDERSON
-------------------------------------- Director Sept. 29, 1994
Bradbury H. Anderson
--------------------------------------
Culver Davis, Jr. Director
--------------------------------------
Elliot S. Kaplan Director
--------------------------------------
David Stanley Director
/s/ FRANK D. TRESTMAN
-------------------------------------- Director Sept. 29, 1994
Frank D. Trestman
--------------------------------------
James C. Wetherbe Director
</TABLE>
II-5
<PAGE>
DRAFT OF SEPTEMBER 29, 1994
BEST BUY CAPITAL, L.P.
___% Convertible Monthly Income Preferred Securities
(liquidation preference $50 per share)
guaranteed by
BEST BUY CO., INC.
_____________________
UNDERWRITING AGREEMENT
_________ ___, 1994
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated
William Blair & Company,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Best Buy Capital, L.P., a Delaware limited partnership (the "Company"),
and Best Buy Co., Inc., a Minnesota corporation, as general partner in the
Company and as guarantor (the "Guarantor" or "Best Buy"), propose, subject to
the terms and conditions stated herein, that the Company issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
________ (the "Firm Shares") of the Company's ___% Convertible Monthly Income
Preferred Securities (liquidation preference $50 per security) representing
limited partnership interests (the "Preferred Securities") and, at the election
of the Underwriters, up to ________ additional Preferred Securities (the
"Optional Shares") (the Firm Shares and the Optional Shares which the
Underwriters elect to purchase pursuant to Section 2 hereof being referred to
collectively as the "Shares"), such Preferred Securities guaranteed pursuant to
a Guarantee Agreement, dated __________, 1994 (the "Guarantee") by the Guarantor
as to the payment of dividends, if, as and when declared, and as to payments on
liquidation or redemption (the Preferred Securities and the Guarantee being
referred to collectively as the "Securities"). The Preferred Securities are
exchangeable, under certain circumstances, for ___% Convertible Subordinated
Debentures of Best Buy (the "Subordinated Debentures") entitled to the benefits
of an indenture (in the form filed as an exhibit to the Registration Statement
referred to below, the "Indenture"), among Best Buy, the Company and
__________________, as trustee (the "Trustee"), which Subordinated Debentures
will be immediately converted into shares of common stock, par value $.10 per
share (the "Best Buy Common Stock"), of the Guarantor or exchanged into
depositary shares (the "Depositary Shares"), each representing a one
one-hundredth (1/100) interest in a share
<PAGE>
of Series A Cumulative Convertible Preferred Stock, liquidation preference
$5,000 per share (the "Best Buy Preferred Stock"), of the Guarantor. The Best
Buy Preferred Stock, immediately following its issuance, shall be deposited by
the Guarantor with _________________, as depositary (in such capacity, the
"Depositary"), against delivery of Depositary Shares evidenced by depositary
receipts (the "Depositary Receipts") to be issued by the Depositary under a
Deposit Agreement, to be dated as of __________, 1994 (the "Deposit Agreement"),
among the Guarantor, the Depositary and the holders from time to time of the
Depositary Receipts issued thereunder. Unless the context otherwise requires,
references herein to the "Depositary Shares" shall include the Depositary
Receipts evidencing such Depositary Shares.
1. Each of the Company and the Guarantor, jointly and severally,
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-3 (File No. 33-....) in
respect of the Shares, the Guarantee, the Subordinated Debentures, Best
Buy Common Stock, Best Buy Preferred Stock and the Depositary Shares
(collectively, the "Registered Securities") has been filed with the
Securities and Exchange Commission (the "Commission"), and delivered to
you; such registration statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits
thereto but including all documents incorporated by reference in the
prospectus contained therein, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; no other
document with respect to such registration statement or document
incorporated by reference therein has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended (the "Act"), being
hereinafter called a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and including (i)
the information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be
part of the registration statement at the time it was declared effective
and (ii) the documents incorporated by reference in the prospectus
contained in the registration statement at the time such part of the
registration statement became effective, each as amended at the time such
part of the registration statement became effective, being hereinafter
collectively called the "Registration Statement"; such final prospectus,
in the form first filed pursuant to Rule 424(b) under the Act, being
hereinafter called the "Prospectus"; any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of such Preliminary
Prospectus or Prospectus, as the case may be; any reference to any
amendment or supplement to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include any documents filed after the date
of such Preliminary Prospectus or Prospectus, as the case may be, under
the Securities Exchange Act of 1934, as amended (the
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"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Guarantor filed pursuant to Section 13(a)
or 15(d) of the Exchange Act after the effective date of the Registration
Statement that is incorporated by reference in the Registration
Statement);
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company or the Guarantor by an
Underwriter through you expressly for use therein;
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement
thereto, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED, HOWEVER, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company or the Guarantor by an Underwriter through you expressly for use
therein;
(d) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as
to the Registration Statement and any amendment thereto, and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; PROVIDED, HOWEVER, that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
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<PAGE>
furnished in writing to the Company or the Guarantor by an Underwriter
through you expressly for use therein;
(e) None of the Company, the Guarantor nor any of the Guarantor's
subsidiaries has sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Guarantor or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Guarantor or any of its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus;
(f) The Company, the Guarantor and the Guarantor's subsidiaries
have good and marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by them; and any real property and buildings held
under lease by the Company, the Guarantor and the Guarantor's subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by them;
(g) The Guarantor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Minnesota,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it
owns or leases properties, or conducts any business, so as to require such
qualification or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and
each subsidiary of the Guarantor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(h) The Company has been duly formed and is validly existing as a
limited partnership in good standing under the Delaware Revised Uniform
Limited Partnership Act, as amended (the "Partnership Act"); the Company
is a special purpose limited partnership as described in the Prospectus
and has conducted and will conduct no business other than the transactions
contemplated by this Agreement and described in the Prospectus; the
Company is not a party to or bound by any agreement or instrument other
than the Amended and Restated Limited Partnership Agreement of the Company
(in the form filed as an exhibit to the Registration Statement, the
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<PAGE>
"Partnership Agreement"), this Agreement and the Indenture; the Company
has no liabilities or obligations other than those arising out of the
transactions contemplated by this Agreement and described in the
Prospectus; and the Company is not a party to or subject to any action,
suit or proceeding of any nature;
(i) Up to the date hereof, the Guarantor has been and is the sole
general partner in the Company and Best Buy Financial Corporation, a
Delaware corporation and a wholly-owned subsidiary of Best Buy ("Best Buy
Financial"), is the sole limited partner in the Company. At the First
Time of Delivery (as defined in Section 4 hereof) Best Buy will be the
sole General Partner of the Company, the holders of the Securities will
become limited partners of the Company and Best Buy Financial will
withdraw as a limited partner; and all of the outstanding partnership
interests of the Company and all of the issued shares of capital stock of
the Guarantor have been duly and validly authorized and issued, are fully
paid and (other than the general partnership interest in the Company)
non-assessable, and conform to the descriptions thereof contained in the
Prospectus;
(j) The Guarantor has an authorized capitalization as set forth in
the Prospectus; the Shares have been duly and validly authorized by the
Company, and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and
non-assessable (except as such non-assessability may be affected by
matters described in the Prospectus under the caption "Best Buy Capital")
and will conform to the description thereof contained in the Prospectus;
the Shares will have the rights set forth in the Partnership Agreement and
the terms of the Shares are valid and binding on the Company; the Shares
are convertible through a conversion agent acting on behalf of the holders
of Preferred Securities (the "Conversion Agent") into shares of Best Buy
Common Stock and exchangeable through the Conversion Agent for Depositary
Shares representing Best Buy Preferred Stock, such conversion and exchange
effected in each case through an initial exchange through the Conversion
Agent of Preferred Securities for all or a portion of Subordinated
Debentures theretofore held by Best Buy Delaware and the immediate
conversion or exchange thereof by the Conversion Agent into Best Buy
Common Stock or Depositary Shares, as the case may be, all in accordance
with the Partnership Agreement, the Indenture and the Deposit Agreement;
the shares of Best Buy Common Stock initially issuable upon conversion of
the Subordinated Debentures and the shares of Best Buy Preferred Stock
initially issuable upon exchange of the Subordinated Debentures have been
duly authorized and reserved for issuance and, when issued and delivered
in accordance with the terms of the Subordinated Debentures, will be duly
and validly issued, fully paid and non-assessable and will conform to the
descriptions thereof contained in the Prospectus; the deposit of the Best
Buy Preferred Stock with the Depositary upon issuance thereof has been
duly authorized and when the Depositary Receipts are issued in accordance
with the provisions of the Deposit Agreement, such Depositary Receipts
will entitle the holders thereof to the rights specified in such
Depositary Receipts and in the Deposit Agreement (subject in the case of
the Deposit Agreement, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles) and the
Depositary Shares will conform to the
5
<PAGE>
description thereof in the Prospectus; the terms of the Best Buy Preferred
Stock are valid and binding on Best Buy; and the holders of outstanding
capital stock of the Guarantor are not entitled to preemptive or other
rights afforded by the Guarantor to subscribe for the shares of Best Buy
Common Stock or the shares of Best Buy Preferred Stock issuable upon
conversion or exchange of the Shares;
(k) The Guarantee, the Subordinated Debentures, the Deposit
Agreement and the Indenture (collectively, the "Guarantor Agreements")
have each been duly authorized by the Guarantor and when validly executed
and delivered by the Guarantor and, in the case of the Indenture, by the
Company and the Trustee and in the case of the Deposit Agreement, by the
Depositary, will constitute legal, valid and binding obligations of the
Guarantor, enforceable in accordance with their respective terms, subject,
as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; the Partnership Agreement has been duly authorized, validly
executed and delivered by the Guarantor and Best Buy Financial and
constitutes a legal, valid and binding obligation of the Guarantor,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; the Subordinated
Debentures are entitled to the benefits provided by the Indenture; the
Indenture has been duly qualified under the Trust Indenture Act; and the
Guarantor Agreements and the Partnership Agreement conform to the
descriptions thereof in the Preliminary Prospectus and will conform to the
descriptions thereof in the Prospectus;
(l) The Indenture has been duly authorized by the Company and, when
validly executed and delivered by the Company, the Guarantor and the
Trustee, will constitute a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general equity
principles;
(m) Best Buy is the sole general partner in the Company; and all of
the issued limited partnership interests of the Company other than the
Shares are owned by Best Buy, free and clear of all liens, encumbrances,
equities or claims;
(n) The issue and sale of the Shares by the Company, the purchase
of the Subordinated Debentures by the Company, the exchange by the Company
of Subordinated Debentures held by it for Preferred Securities in
connection with the conversion or exchange of the Preferred Securities for
Best Buy Common Stock or Best Buy Preferred Stock, the compliance by the
Company with all of the provisions of this Agreement, the execution,
delivery and performance by the Company of the Indenture and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such action result
in any violation of the provisions of the
6
<PAGE>
Partnership Agreement or certificate of limited partnership of the Company
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares by the
Company, the purchase of the Subordinated Debentures by the Company, the
exchange by the Company of Subordinated Debentures held by it for
Preferred Securities in connection with the conversion or exchange of such
Preferred Securities for Best Buy Common Stock or Best Buy Preferred Stock
or the consummation by the Company of the other transactions contemplated
by this Agreement, except the registration under the Act of the Registered
Securities, qualification of the Indenture under the Trust Indenture Act,
registration of the Shares under the Exchange Act, listing of the Shares
on the New York Stock Exchange and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase of the
Shares and the distribution of the Shares by the Underwriters;
(o) The issue and sale of the Shares by the Company and the
issuance by Best Buy of the Guarantee, the exchange by the Company of
Subordinated Debentures held by it for Preferred Securities in connection
with the conversion or exchange of the Preferred Securities for Best Buy
Common Stock or Best Buy Preferred Stock, the issuance by Best Buy of the
shares of Best Buy Common Stock issuable upon conversion of the
Subordinated Debentures, the issuance by Best Buy of the Best Buy
Preferred Stock issuable upon exchange of the Subordinated Debentures and
the deposit thereof with the Depositary, the compliance by the Company and
the Guarantor with all of the provisions of this Agreement, the execution,
delivery and performance by the Guarantor of the Guarantor Agreements and
the Partnership Agreement, and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any agreement or instrument to which the Guarantor or any of the
Guarantor's subsidiaries is a party or by which the Guarantor or any of
the Guarantor's subsidiaries is bound or to which any of its property or
assets of the Guarantor or any of the Guarantor's subsidiaries is subject
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or by-laws of the Guarantor or any statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Guarantor or any of the Guarantor's
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issuance of the
Guarantee, the issuance of the shares of Best Buy Common Stock issuable
upon conversion of the Subordinated Debentures and the issuance of the
shares of Best Buy Preferred Stock issuable upon exchange of the
Subordinated Debentures or the consummation by the Guarantor of the
transactions contemplated by this Agreement, except the registration under
the Act of the Registered Securities, qualification of the Indenture under
the Trust Indenture Act and such other consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase of the
Shares and distribution of the Shares by the Underwriters;
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<PAGE>
(p) None of the Company, the Guarantor nor any of the Guarantor's
subsidiaries is in violation of its organizational documents or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(q) The statements set forth in the Prospectus under the captions
"Description of Securities Offered" and "Description of Best Buy Capital
Stock", insofar as they purport to constitute a summary of the terms of
the securities therein described, and, subject to the limitations set
forth therein, under the caption "Certain Federal Income Tax
Considerations", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and fair;
(r) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company, the Guarantor or
any of the Guarantor's subsidiaries is a party or of which any of their
properties is the subject which, if determined adversely to the Company,
the Guarantor or any of their subsidiaries, would individually or in the
aggregate have a material adverse effect on the financial position,
stockholders' equity or results of operations of the Company, the
Guarantor and the Guarantor's subsidiaries; and, to the best of the
Company's and the Guarantor's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(s) The Company shall remain an "unrestricted subsidiary" as such
term is defined in the Indenture, dated as of October 12, 1993, between
the Guarantor and Mercantile Bank of St. Louis, National Association, as
trustee;
(t) Neither the Company nor the Guarantor is and, after giving
effect to the offering and sale of the Shares, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(u) None of the Company, the Guarantor or any of their affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes;
(v) Deloitte & Touche, which has certified certain financial
statements of the Company, are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder;
(w) Ernst & Young, which has become the auditor of the Company, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(x) The Guarantor owns the service mark designated as "Best Buy Co.
and design", U.S. Patent and Trademark Office Registration No. 1,379,703,
registered January 21, 1986 and has not received notice of any conflict
between such service mark and the rights of others in markets in which the
Guarantor currently operates, which conflict is likely to have a material
adverse effect on the Company, the Guarantor or any of the Guarantor's
subsidiaries, taken as whole; and
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(y) Neither the Company nor the Guarantor has taken nor will it
take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
or the Guarantor to facilitate the sale or resale of the Securities.
2. Subject to the terms and conditions herein set forth, (a) the Company
and the Guarantor agree to issue and sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase, at a
purchase price per share of $................., the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company and the Guarantor agree
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase, at the purchase price per share
set forth in clause (a) of this Section 2, that portion of the number of
Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................. Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
As compensation to the Underwriters for their commitments hereunder, and
in view of the fact that the proceeds of the sale of the Securities will be used
by the Company to purchase the Subordinated Debentures of the Guarantor, the
Guarantor hereby agrees to pay at each Time of Delivery (as defined in Section 4
hereof) to Goldman, Sachs & Co., for the accounts of the several Underwriters,
an amount equal to $.............. per share for the Shares to be delivered
hereunder at such Time of Delivery.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder shall be
delivered by or on behalf of the Company to Goldman, Sachs & Co., through the
facilities of The Depository Trust Company ("DTC"), for the account of such
Underwriter, against payment
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by or on behalf of such Underwriter of the purchase price therefor by certified
or official bank check or checks, payable to the order of the Company in New
York Clearing House (next day) funds. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on
____________, 1994 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
At each Time of Delivery, the Guarantor will pay, or cause to be paid, the
commission payable at such Time of Delivery to the Underwriters under Section 2
hereof by certified or official bank check or checks, payable to the order of
Goldman, Sachs & Co. in New York Clearing House (next day) funds.
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriters pursuant to Section 7(i) hereof, and the check or checks specified
in subsection (a) above, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
all at such Time of Delivery. A meeting will be held at the Closing Location at
......... p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York City are generally authorized or
obligated by law or executive order to close.
5. Each of the Company and the Guarantor, jointly and severally, agrees
with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved
by you promptly after reasonable notice thereof; to advise you, promptly
after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Guarantor with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of the Prospectus and for
so long
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<PAGE>
as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus
or prospectus, of the suspension of the qualification of the Registered
Securities for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event
of the issuance of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the withdrawal
of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Registered Securities and the Depositary
Shares for offering and sale under the securities laws of such
jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Shares, provided that, in connection therewith neither the Company nor the
Guarantor shall be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in
such quantities as you may from time to time reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Registered Securities and if
at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during such
period to amend or supplement the Prospectus or to file under the Exchange
Act any document incorporated by reference in the Prospectus in order to
comply with the Act, the Exchange Act or the Trust Indenture Act, to
notify you and upon your request to file such document and to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales
of any of the Registered Securities at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense
of such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) In the case of the Guarantor, to make generally available to
its securityholders as soon as practicable, but in any event not later
than eighteen months after the effective date of the Registration
Statement (as defined in Rule 158(c) under the act), an earnings statement
of the Guarantor and its subsidiaries (which need not
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be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Guarantor, Rule
158);
(e) During the period beginning from the date hereof and continuing
to and including the date which is 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any shares of Best Buy Common Stock, any other shares of capital stock of
Best Buy, any other security convertible into or exercisable or
exchangeable for Best Buy Common Stock or any such capital stock or debt
securities substantially similar to the Subordinated Debentures or any
other securities substantially similar to the Shares, other than the
Shares, shares of Best Buy Common Stock, Best Buy Preferred Stock or
Depositary Shares issued or delivered upon conversion or exchange of the
Subordinated Debentures, securities issued or delivered upon conversion,
exchange, or exercise of any other securities of the Guarantor outstanding
on the date of the Prospectus, securities issued pursuant to the
Guarantor's stock option or other benefit or incentive plans maintained
for its officers, directors, or employees, securities issued by the
Guarantor in connection with mergers, acquisitions or similar
transactions, or partnership interests of the Company issued to the
Guarantor in connection with the sale of the Optional Shares in order to
maintain the Guarantor's 21% interest in the total capital of the Company,
without your prior written consent;
(f) To furnish to the holders of Shares as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of the
Guarantor and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Guarantor and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to holders of Best Buy
Common Stock, and to deliver to you (i) as soon as they are available,
copies of any reports and financial statements furnished to or filed with
the Commission or any national securities exchange on which any class of
securities of the Company or the Guarantor is listed; and (ii) such
additional information concerning the business and financial condition of
the Company or the Guarantor as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and the Guarantor and the Guarantor's
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares and the Subordinated Debentures pursuant to this Agreement in the
manner specified in the Prospectus under the caption "Use of Proceeds";
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(i) To use its best efforts to list, subject to notice of issuance,
the Shares on the New York Stock Exchange (the "Exchange"); and
(j) To reserve and keep available at all times, free of preemptive
rights, shares of Best Buy Common Stock for the purpose of enabling the
Guarantor to satisfy any obligations to issue shares of Best Buy Common
Stock upon conversion or exchange of the Subordinated Debentures.
6. The Guarantor covenants and agrees with the several Underwriters that
it will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's and the Guarantor's counsel and accountants in
connection with the registration of the Registered Securities under the Act and
all other expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Deposit Agreement, the
Registered Securities, the Blue Sky Memorandum, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares and the Subordinated Debentures; (iii)
all expenses in connection with the qualification of the Registered Securities
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) any fees charged by securities rating services for rating the Preferred
Securities; (v) all fees and expenses in connection with listing the Registered
Securities on the Exchange and the cost of registering the Shares under Section
12 of the Exchange Act; (vi) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vii) the cost of qualifying the Shares and the
Best Buy Preferred Stock with The Depository Trust Company; (viii) the cost of
preparing certificates for the Shares and the Depositary Shares; (ix) the cost
and charges of any transfer agent or registrar; (x) the cost and charges of the
Depositary; (xi) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee in connection
with the Indenture and the Subordinated Debentures; and (xii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and the Guarantor herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company and the Guarantor shall have
performed all of their respective obligations hereunder theretofore to be
performed and the following additional conditions:
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(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part of
the Commission shall have been complied with to your reasonable
satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Guarantor and the formation of
the Company; the validity of the Registered Securities and the
Subordinated Debentures being delivered at such Time of Delivery; the
Registration Statement and the Prospectus and other related matters as you
may reasonably request; and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon
such matters;
(c) Robins, Miller, Kaplan & Ciresi, counsel for the Company and
the Guarantor, shall have furnished to you their written opinion with
respect to only matters of U.S. law, dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Guarantor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Minnesota with power and authority (corporate and other) to
own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has been duly formed and is validly existing as
a limited partnership in good standing under the Partnership Act;
the Company is a special purpose limited partnership as described in
the Prospectus; the Company is not a party to or bound by any
agreement or instrument other than the Partnership Agreement, this
Agreement and the Indenture; and to the best of such counsel's
knowledge, there are no legal or governmental proceedings to which
the Company is a party or of which any property of the Company is
the subject and no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(iii) The Guarantor has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability
by reason of failure to be so qualified in any such jurisdiction
(such counsel being entitled to rely in respect of the opinion in
this clause (iii) upon opinions of local counsel and in respect of
matters of fact upon certificates of public officials or officers of
the Guarantor, provided that such counsel shall state that they
believe that both you and they are justified in so relying upon such
opinions and certificates);
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(iv) The Company and the Guarantor and the Guarantor's
subsidiaries have good and marketable title in fee simple to all
real property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company and the Guarantor or the
Guarantor's subsidiaries; and any real property and buildings held
under lease by the Company and the Guarantor or the Guarantor's
subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and the Guarantor or the
Guarantor's subsidiaries (in giving the opinion in this clause, such
counsel may state that no examination of record titles for the
purpose of such opinion has been made, and that they are relying
upon a general review of the titles of the Company, the Guarantor
and the Guarantor's subsidiaries, upon opinions of local counsel and
abstracts, reports and policies of title companies rendered or
issued at or subsequent to the time of acquisition of such property
by the Company, the Guarantor or the Guarantor's subsidiaries, upon
opinions of counsel to the lessors of such property and, in respect
to matters of fact, upon certificates of officers of the Company and
the Guarantor or the Guarantor's subsidiaries, PROVIDED that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions, abstracts, reports,
policies and certificates);
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company, the Guarantor or any of
the Guarantor's subsidiaries is a party or of which any property of
the Company, the Guarantor or any of the Guarantor's subsidiaries is
the subject which, if determined adversely to the Company, the
Guarantor or any of the Guarantor's subsidiaries, as the case may
be, would individually or in the aggregate have a material adverse
effect on the financial position, stockholders' equity or results of
operations of the Company, the Guarantor and the Guarantor's
subsidiaries; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) As of the date of such Time of Delivery the Guarantor is the
sole General Partner of the Company and the holders of the Shares
are the sole limited partners and there are no other partners in the
Company; the Guarantor has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Guarantor and all of the issued partnership interests of the
Company have been duly and validly authorized and issued and are
fully paid and (other than the general partnership interest in the
Company) non-assessable and conform in all material respects to the
descriptions thereof contained in the Prospectus; and all of the
issued partnership interests of the Company, other than the Shares,
are owned directly by the Guarantor, free and clear of all liens,
encumbrances, equities or claims;
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(vii) This Agreement has been duly authorized, executed and
delivered by each of the Company and the Guarantor;
(viii) The Guarantor Agreements and the Partnership Agreement have
been duly authorized, executed and delivered by the Guarantor and
constitute legal, valid and binding obligations of the Guarantor,
enforceable in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; the Subordinated Debentures are entitled to the benefits
provided by the Indenture; the Indenture has been duly qualified
under the Trust Indenture Act; and the Guarantor Agreements and the
Partnership Agreement conform in all material respects to the
descriptions thereof in the Prospectus;
(ix) The Indenture has been duly authorized, validly executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally
and to general equity principles;
(x) The Shares have been duly and validly authorized by the
Company, and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and
non-assessable (except as such non-assessability may be affected by
matters described in the Prospectus under the caption "Best Buy
Capital") and will conform to the description thereof contained in
the Prospectus; the Shares have the rights set forth in the
Partnership Agreement and the terms of the Shares are valid and
binding on the Company; the Shares are convertible through the
Conversion Agent into shares of Best Buy Common Stock and
exchangeable through the Conversion Agent for Depositary Shares
representing shares of Best Buy Preferred Stock, such conversion and
exchange effected in each case through an initial exchange through
the Conversion Agent of Preferred Securities for all or a portion of
Subordinated Debentures theretofore held by Best Buy Delaware and
the immediate conversion or exchange thereof by the Conversion Agent
into Best Buy Common Stock or Depositary Shares, as the case may be,
all in accordance with the Partnership Agreement, the Indenture and
the Deposit Agreement; the shares of Best Buy Common Stock initially
issuable upon conversion of the Subordinated Debentures and the
shares of Best Buy Preferred Stock initially issuable upon exchange
of the Subordinated Debentures have been duly authorized and
reserved for issuance and, when issued and delivered in accordance
with the terms of the Subordinated Debentures, will be duly and
validly issued, fully paid and non-assessable and will conform in
all material respects to the descriptions thereof contained in the
Prospectus; the deposit of the Best Buy Preferred Stock with the
Depositary upon issuance thereof has been duly authorized and when
the Depositary Receipts are issued in accordance with the provisions
of the Deposit Agreement such Depositary
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<PAGE>
Receipts will entitle the holders thereof to the rights specified in
such Depositary Receipts and in the Deposit Agreement (subject in
the case of the Deposit Agreement, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles) and the Depositary Shares will conform to the
description thereof in the Prospectus; the terms of the Best Buy
Preferred Stock are valid and binding on Best Buy; and the holders
of outstanding capital stock of the Guarantor are not entitled to
preemptive or other rights afforded by the Guarantor to subscribe
for the shares of Best Buy Common Stock or the shares of Best Buy
Preferred Stock issuable upon conversion or exchange of the Shares;
(xi) The issue and sale by the Company of the Shares being
delivered at such Time of Delivery, the compliance by the Company
with all of the provisions of this Agreement, the purchase by the
Company of the Subordinated Debentures, the exchange by the Company
of Subordinated Debentures held by it for Preferred Securities in
connection with the conversion or exchange of the Preferred
Securities for Best Buy Common Stock or Best Buy Preferred Stock,
the execution, delivery and performance by the Company of the
Indenture and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under,
any agreement or instrument known to such counsel to which the
Company is a party or by which the Company is bound or to which any
of the property or assets of the Company is subject, nor will such
action result in any violation of the provisions of the Partnership
Agreement or certificate of limited partnership of the Company or
any statute or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction over
the Company or any of its properties;
(xii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares by the
Company, the purchase by the Company of the Subordinated Debentures,
the exchange by the Company of Subordinated Debentures held by it
for Preferred Securities in connection with the conversion or
exchange of the Preferred Securities for Best Buy Common Stock or
Best Buy Preferred Stock, or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
under the Act of the Registered Securities, qualification of the
Indenture under the Trust Indenture Act, registration of the Shares
under the Exchange Act, listing of the Shares on the New York Stock
Exchange, each of which has been made or obtained, and such
consents, approvals, authorizations, registrations or qualifications
as have been obtained or may be required under state securities or
Blue Sky laws in connection with the purchase of the Shares and the
distribution of the Shares by the Underwriters;
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<PAGE>
(xiii) The issue and sale of the Shares by the Company, the
issuance by Best Buy of the Guarantee, the exchange by the Company
of Subordinated Debentures held by it for Preferred Securities in
connection with the conversion or exchange of the Preferred
Securities for Best Buy Common Stock or Best Buy Preferred Stock,
the issuance by Best Buy of the shares of Best Buy Common Stock
issuable upon conversion of the Subordinated Debentures, the
issuance of the shares of Best Buy Preferred Stock issuable upon
exchange of the Subordinated Debentures by the Guarantor and the
deposit thereof with the Depositary, the compliance by the Guarantor
with all of the provisions of this Agreement, the execution,
delivery and performance by the Guarantor of the Guarantor
Agreements and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Guarantor
or any of the Guarantor's subsidiaries is a party or by which the
Guarantor or any of the Guarantor's subsidiaries is bound or to
which any of the property or assets of the Guarantor or any of the
Guarantor's subsidiaries is subject, nor will such action result in
any violation of the provisions of the Certificate of Incorporation
or by-laws of the Guarantor or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Guarantor, any of the
Guarantor's subsidiaries or any of their properties;
(xiv) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or
body is required for the issue of the Guarantee, the issuance of the
shares of Best Buy Common Stock issuable upon conversion of the
Subordinated Debentures or the issuance of the Best Buy Preferred
Stock issuable upon exchange of the Subordinated Debentures or the
consummation by the Guarantor of the transactions contemplated
herein and therein, except the registration under the Act of the
Registered Securities, which has been made, and such consents,
approvals, authorizations, registrations or qualifications as have
been obtained or may be required under state securities or Blue Sky
laws in connection with the purchase of the Shares and the
distribution of the Shares by the Underwriters;
(xv) The statements set forth in the Prospectus under the
captions "Description of Securities Offered" and "Description of the
Best Buy Capital Stock" insofar as they constitute summaries of the
terms of securities therein described and, subject to the
limitations set forth therein, under the caption "Certain Federal
Income Tax Consequences", insofar as they constitute matters of law
or legal conclusions are accurate, correct and fairly present the
information set forth therein;
(xvi) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company or
the Guarantor prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no
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<PAGE>
opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder; and such counsel has no reason to believe that any of
such documents, when such documents became effective or were so
filed, as the case may be, contained, in the case of a registration
statement which became effective under the Act, an untrue statement
of a material fact, or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or, contained, in the case of other documents which were
filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such documents
were so filed, not misleading;
(xvii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company or
the Guarantor prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the Trust Indenture
Act and the rules and regulations thereunder; such counsel has no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company or
the Guarantor prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein and other financial data therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company or the
Guarantor prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading; and such counsel does not know of any
amendment to the Registration Statement required to be filed or of
any contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be
incorporated by reference into the Prospectus or required to be
described in the Registration Statement or the Prospectus which are
not filed or incorporated by reference or described as required; and
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<PAGE>
(xviii) Neither the Company nor the Guarantor is an "investment
company" or an entity "controlled" by an "investment company", as
such terms are defined in the Investment Company Act;
(d) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date
of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, Deloitte & Touche and Ernst & Young shall have furnished to you
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annexes I and
II, respectively, hereto;
(e) The Guarantor Agreements shall have been executed and delivered
and in the case of the Certificate of Amendment with respect to the Best
Buy Preferred Stock, executed and filed, in each case in a form reasonably
acceptable to you;
(f) (i) None of the Company, the Guarantor nor any of the
Guarantor's subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Guarantor or any of its subsidiaries or any change,
or any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Guarantor or any of its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus, the effect
of which, in any such case described in Clause (i) or (ii), is in your
judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a downgrading in the rating accorded the
Guarantor's debt securities or preferred stock by any "nationally
recognized statistical rating organization", as that term is defined by
the Commission for purposes of Rule 436(g)(2) under the Act, (ii) a public
announcement by any such organization referred to in clause (i) that it
has under surveillance or review, with possible negative implications, its
rating of any of the Guarantor's debt securities or preferred stock (iii)
a suspension or material limitation in trading in securities generally on
the New York Stock Exchange, (iv) a suspension or material limitation in
trading in the Company's or the Guarantor's securities on the New York
Stock Exchange, (v) a general moratorium on commercial banking activities
in New York declared by either Federal or New York State authorities, or
(vi) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this Clause (vi) in your
judgment makes it impracticable
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<PAGE>
or inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed, subject to notice of issuance, on the New York Stock
Exchange; and
(i) The Company and the Guarantor shall have furnished or caused to
be furnished to you at such Time of Delivery certificates of officers of
the Company and the Guarantor satisfactory to you as to the accuracy of
the representations and warranties of the Company and the Guarantor herein
at and as of such Time of Delivery, as to the performance by the Company
and the Guarantor of all of their obligations hereunder to be performed at
or prior to such Time of Delivery and as to such other matters as you may
reasonably request and the Company and the Guarantor shall have furnished
certificates as to the matters set forth in subsections (a) and (f) of
this Section and as to such other matters as you may reasonably request.
8. (a) The Company and the Guarantor, jointly and severally, will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; PROVIDED, HOWEVER, that
neither the Company nor the Guarantor shall be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and the
Guarantor against any losses, claims, damages or liabilities to which the
Company and the Guarantor may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
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Underwriter through you expressly for use therein; and will reimburse the
Company and the Guarantor for any legal or other expenses reasonably incurred by
the Company and the Guarantor in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against such indemnifying
party under such subsection, notify such indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Guarantor on the one hand and the Underwriters on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Guarantor on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantor on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses)
22
<PAGE>
received by the Company and the Guarantor bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Guarantor on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Guarantor and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by PRO RATA allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Guarantor under this Section 8
shall be in addition to any liability which the Company and the Guarantor may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 8 shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company and the Guarantor (including any person who, with his or her consent, is
named in the Registration Statement as about to become a director of the Company
or the Guarantor, and to each person, if any, who controls the Company or the
Guarantor within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Guarantor shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Guarantor that you have so arranged for the purchase of such Shares, or the
Company or the Guarantor notifies you that it has so arranged for the purchase
of such Shares, you or the Company and the Guarantor shall have the right to
postpone such Time of Delivery for a period of not more than seven
23
<PAGE>
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company and the Guarantor agree to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Guarantor as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company and the Guarantor shall have the right to require each non-defaulting
Underwriter to purchase the number of shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Guarantor as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Company and
the Guarantor shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Company and the Guarantor to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter, the
Company or the Guarantor, except for the expenses to be borne by the Company and
the Guarantor and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Guarantor and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company or the Guarantor, or any officer or director or
controlling person of the Company or the Guarantor, and shall survive delivery
of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Guarantor shall then be under any liability to any
Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other
reason, any Shares are not delivered by or on behalf of the Company as provided
herein, the Company or the Guarantor will reimburse the Underwriters through you
for all out-of-pocket expenses approved in writing by
24
<PAGE>
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but neither the Company or the Guarantor shall then be
under any further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company or the Guarantor shall be delivered or sent by
mail to the address of the Guarantor, set forth in the Registration Statement,
Attention: Secretary; PROVIDED, HOWEVER, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company and the Guarantor by you upon request.
Any such statements, requests, notices or agreements shall take effect upon
receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company, the Guarantor and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company, the
Guarantor and each person who controls the Company, the Guarantor or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
25
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters, the Company and
the Guarantor. It is understood that your acceptance of this letter on behalf
of each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
BEST BUY CAPITAL, L.P.
By: Best Buy Co., Inc.,
as general partner
By: .............................
Name:
Title:
BEST BUY CO., INC.
By: .............................
Name:
Title:
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
WILLIAM BLAIR & COMPANY
By: ...........................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
26
<PAGE>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ------------------
Goldman, Sachs & Co.....................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................
Morgan Stanley & Co. Incorporated.......
William Blair & Company.................
[NAMES OF OTHER UNDERWRITERS]...........
Total............................
27
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, Deloitte & Touche
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Guarantor and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules examined by them and included or
incorporated by reference in the Registration Statement or the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act or the Exchange Act, as applicable, and the
related published rules and regulations thereunder;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Guarantor's
quarterly report on Form 10-Q for the quarter ended May 28, 1994
incorporated by reference into the Prospectus as indicated in their report
thereon a copy of which has been furnished to the Representatives; and on
the basis of specified procedures including inquiries of officials of the
Guarantor who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (vi)(a) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Exchange Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that such
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the Exchange Act and the related published rules and
regulations;
(iv) They have compared the information included or incorporated by
reference into the Guarantor's Annual Report on Form 10-K for the most
recent fiscal year and the Guarantor's quarterly report on Form 10-Q for
the quarter ended May 28, 1994 incorporated by reference into the
Prospectus under selected captions with the disclosure requirements of
Regulation S-K and on the basis of limited procedures specified in such
letter nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of Items
301, 302 and 402, respectively, of Regulation S-K;
(v) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Guarantor
for the five most recent fiscal years included in the Prospectus and
included or incorporated by reference in Item 6 of the Guarantor's Annual
Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Guarantor's Annual Reports on
Form 10-K for such fiscal years;
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, inspection of the minute books of the
Guarantor and its subsidiaries from the date of the latest audited
financial statements included or incorporated by reference in the
Prospectus until the date of the unaudited financial statements referred
to below, inquiries of officials of the Guarantor and its subsidiaries
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(a) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Guarantor's Quarterly Report on Form 10-Q for
the quarter ended May 28, 1994 incorporated by reference in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Exchange Act and the
related published rules and regulations, or (b) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Guarantor's Quarterly
Report on Form 10-Q for the quarter ended May 28, 1994 incorporated
in the Prospectus, for them to be in conformity with generally
accepted accounting principles;
(vii) In addition to the examination referred to in their report
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Guarantor and its subsidiaries, which appear or are incorporated by
reference in the Guarantor's Annual Report on Form 10-K for the most
recent fiscal year and the Guarantor's quarterly report on Form 10-Q for
the quarter ended May 28, 1994 incorporated by reference in the
Prospectus, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Guarantor and its
subsidiaries and have found them to be in agreement.
2
<PAGE>
ANNEX II
Pursuant to Section 7(d) of the Underwriting Agreement, Ernst & Young
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Guarantor and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus
and/or included in the Guarantor's Quarterly Reports on Form 10-Q
incorporated by reference into the Prospectus as indicated in their
reports thereon copies of which have been furnished to the
Representatives; and on the basis of specified procedures including
inquiries of officials of the Guarantor who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (iv)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the
related published rules and regulations;
(iii) They have compared the information in the Prospectus under the
caption "Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends" with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Item 503(d) of Regulation S-K;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Guarantor and its subsidiaries, inspection of
the minute books of the Guarantor and its subsidiaries since the date of
the latest audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the Guarantor and
its subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included or
incorporated by reference in the Prospectus or the Guarantor's
Quarterly Report on Form 10-Q for the quarter ended August 27, 1994
incorporated by reference in the Prospectus do not comply as to form
in all material respects with the applicable accounting requirements
of the Exchange Act and the related published rules and
<PAGE>
regulations, or (ii) any material modifications should be made to
the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus or included in the Guarantor's
Quarterly Report on Form 10-Q for the quarter ended August 27, 1994
incorporated in the Prospectus, for them to be in conformity with
generally accepted accounting principles;
(B) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise
of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities,
in each case which were outstanding on the date of the latest
balance sheet included or incorporated by reference in the
Prospectus) or any increase in the consolidated long-term debt of
the Guarantor and its subsidiaries, or any decreases in consolidated
net current assets or stockholders' equity or other items specified
by the Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts shown in
the latest balance sheet included or incorporated by reference in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(C) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus
to the specified date referred to in Clause (B) there were any
decreases in consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(v) In addition to the examination referred to in their report
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (ii) and (iv) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Guarantor and its subsidiaries, which appear in the Prospectus
(excluding documents incorporated by reference) or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Representatives or in the Guarantor's quarterly report on Form 10-Q for
the quarter ended August 27, 1994 incorporated by reference in the
Prospectus, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Guarantor and its
subsidiaries and have found them to be in agreement.
2
<PAGE>
EXHIBIT 2.1
CERTIFICATE OF LIMITED PARTNERSHIP
OF
BEST BUY CAPITAL, L.P.
This Certificate of Limited Partnership of Best Buy Capital, L.P. (the
"Partnership") is being executed and filed by the undersigned General Partner
(the "General Partner") to form a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (6 Del. C. Section 17-101 et seq.).
ARTICLE ONE
The name of the limited partnership formed hereby is Best Buy Capital, L.P.
ARTICLE TWO
The address of the registered office of the Partnership in the State of
Delaware is at Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801, and the name and address of the registered agent
for service of process of the Partnership in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
ARTICLE THREE
The name and business address of the General Partner of the Partnership are
as follows:
NAME BUSINESS ADDRESS
---- ----------------
Best Buy Co., Inc. 7075 Flying Cloud Drive
Eden Prairie, MN 55344
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership as of the 22nd day of September, 1994.
GENERAL PARTNER:
BEST BUY CO., INC.
By: /s/ Robert C. Fox
-----------------------------
Name: Robert C. Fox
Title: Senior Vice
President - Finance
and Treasurer
<PAGE>
EXHIBIT 2.2
Draft of September 28, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
BEST BUY CAPITAL, L.P.
- --------------------------------------------------------------------------------
Dated as of __________ __, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions........................................ 1
Section 1.2 Headings........................................... 10
ARTICLE II
CONTINUATION OF THE PARTNERSHIP;
ADMISSION OF PREFERRED SECURITIES HOLDERS;
WITHDRAWAL OF INITIAL LIMITED PARTNER
Section 2.1 Continuation of the Partnership.................... 10
Section 2.2 Name............................................... 11
Section 2.3 Business of the Partnership........................ 11
Section 2.4 Term............................................... 11
Section 2.5 Registered Agent and Office........................ 11
Section 2.6 Principal Place of Business........................ 11
Section 2.7 Name and Business Address of
General Partner.................................... 12
Section 2.8 Qualification to Do Business....................... 12
Section 2.9 Admission of Holders of Preferred
Securities; Withdrawal of Initial
Limited Partner.................................... 12
ARTICLE III
CAPITAL CONTRIBUTIONS; REPRESENTATION OF
PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS
Section 3.1 Capital Contributions.............................. 13
Section 3.2 Preferred Security Holder's Interest
Represented by L.P. Certificate.................... 13
Section 3.3 Capital Accounts................................... 13
Section 3.4 Interest on Capital Contributions.................. 14
Section 3.5 Withdrawal and Return of
Capital Contributions.............................. 14
Section 3.6 Investment of Capital Contributions................ 14
-i-
<PAGE>
ARTICLE IV
ALLOCATIONS
Section 4.1 Profits and Losses................................. 15
Section 4.2 Special Allocations................................ 16
Section 4.3 Allocations for Income Tax Purposes................ 18
Section 4.4 Withholding........................................ 18
ARTICLE V
DIVIDENDS AND DISTRIBUTIONS
Section 5.1 Dividends.......................................... 19
Section 5.2 Limitations on Distributions....................... 19
ARTICLE VI
ISSUANCE OF PREFERRED SECURITIES
Section 6.1 General Provisions Regarding Preferred Securities.. 19
Section 6.2 Preferred Securities............................... 20
Section 6.3 Conversion Rights of Preferred
Securities......................................... 26
Section 6.4 Optional Exchange for Depositary
Shares Representing Best Buy
Preferred Stock.................................... 31
ARTICLE VII
BOOKS OF ACCOUNT, RECORDS AND REPORTS
Section 7.1 Books and Records.................................. 34
Section 7.2 Accounting Method.................................. 35
Section 7.3 Annual Audit....................................... 35
ARTICLE VIII
POWERS, RIGHTS AND DUTIES
OF THE LIMITED PARTNERS
Section 8.1 Limitations........................................ 36
Section 8.2 Liability.......................................... 36
Section 8.3 Priority........................................... 36
-ii-
<PAGE>
ARTICLE IX
POWERS, RIGHTS AND DUTIES
OF THE GENERAL PARTNER
Section 9.1 Authority.......................................... 36
Section 9.2 Powers and Duties of General Partner............... 37
Section 9.3 Expenses Payable by General Partner................ 38
Section 9.4 Liability.......................................... 38
Section 9.5 Investment Company or Tax Actions.................. 39
Section 9.6 Outside Businesses................................. 39
Section 9.7 Limits on General Partner's Powers................. 39
Section 9.8 Tax Matters Partner................................ 41
Section 9.9 Consolidation, Merger or Sale of Assets............ 42
ARTICLE X
TRANSFERS OF INTERESTS BY PARTNERS
Section 10.1 Transfer of Interests.............................. 43
Section 10.2 Transfer of LP Certificates........................ 44
Section 10.3 Persons Deemed Preferred Security
Holders............................................ 44
Section 10.4 Book-Entry Interests............................... 44
Section 10.5 Notices to Clearing Agency......................... 45
Section 10.6 Definitive LP Certificates......................... 45
ARTICLE XI
WITHDRAWAL; DISSOLUTION;
LIQUIDATION AND DISTRIBUTION OF ASSETS
Section 11.1 Withdrawal of Partners............................. 46
Section 11.2 Dissolution of the Partnership..................... 46
Section 11.3 Liquidation........................................ 47
Section 11.4 Distribution in Liquidation........................ 48
Section 11.5 Rights of Limited Partners......................... 48
Section 11.6 Termination........................................ 48
ARTICLE XII
AMENDMENTS AND MEETINGS
Section 12.1 Amendments ........................................ 48
Section 12.2 Amendment of Certificate .......................... 49
Section 12.3 Meetings of Partners............................... 49
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ARTICLE XIII
MISCELLANEOUS
Section 13.1 Notices............................................ 50
Section 13.2 Power of Attorney.................................. 51
Section 13.3 Entire Agreement................................... 51
Section 13.4 GOVERNING LAW...................................... 51
Section 13.5 Effect............................................. 51
Section 13.6 Pronouns and Number................................ 51
Section 13.7 Captions........................................... 52
Section 13.8 Partial Enforceability............................. 52
Section 13.9 Counterparts....................................... 52
Section 13.10 Remedies........................................... 52
ANNEX A -- Form of LP Certificate Evidencing Preferred Securities
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AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
BEST BUY CAPITAL, L.P.
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Best Buy
Capital, L.P., a Delaware limited partnership (the "PARTNERSHIP"), dated as of
______ 1994, among Best Buy Co., Inc., a Minnesota corporation ("BEST BUY"),
as the general partner, Best Buy Finance Corporation, a Delaware corporation, as
the initial limited partner (the "INITIAL LIMITED PARTNER") and such other
Persons (as defined herein) who become Limited Partners (as defined herein) as
provided herein.
WHEREAS, Best Buy and the Initial Limited Partner entered into an
Agreement of Limited Partnership, dated as of __________, 1994 (the "ORIGINAL
LIMITED PARTNERSHIP AGREEMENT");
WHEREAS, the Certificate of Limited Partnership of the Partnership
was filed with the Office of the Secretary of State of the State of Delaware on
_________, 1994; and
WHEREAS, the Partners desire to continue the Partnership under the
Act (as defined herein) and to amend and restate the Original Limited
Partnership Agreement in its entirety.
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
and restate the Original Limited Partnership Agreement as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 DEFINITIONS. Unless the context otherwise requires,
the terms defined in this Article I shall, for the purposes of this Agreement,
have the meanings herein specified.
"ACT" means the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time.
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"ACTION" means any action permitted to be taken by the General
Partner under this Agreement relating to the terms of the Preferred Securities,
which action shall be in writing.
"ADDITIONAL DIVIDENDS" means Dividends that shall be declared and
paid by the Partnership on any Dividend arrearages in respect of the Preferred
Securities at the rate of ___% per annum compounded monthly.
"ADDITIONAL INTEREST" means interest that shall accrue on any
interest on the Subordinated Debentures that is not paid monthly and that shall
accrue at the rate of ___% per annum compounded monthly.
"AFFILIATE" means, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding with power to vote
10% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person and (f) if
the specified Person is an officer, director, general partner or employee, any
other entity for which the specified Person acts in any such capacity.
"AGREEMENT" means this Amended and Restated Agreement of Limited
Partnership, as amended, modified, supplemented or restated from time to time in
accordance with its terms.
"BEST BUY" has the meaning set forth in the forepart of this
Agreement.
"BEST BUY COMMON STOCK" means the Common Stock, par value $.10 per
share, of Best Buy. However, subject to the provisions of Article XII of the
Indenture, shares of Best Buy Common Stock issuable on conversion of Preferred
Securities shall include only shares of the class designated as Common Stock of
Best Buy on the first Closing Date or shares of any class or classes resulting
from any reclassification or reclassifications thereof and which have no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of Best Buy and
which are not subject to redemption by Best Buy; PROVIDED, that if at any
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time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all reclassification bears to the
total number of shares of all such classes resulting from all such
reclassification.
"BEST BUY PREFERRED STOCK" means the Series A Preferred Stock of
Best Buy with a liquidation preference of $5,000 per share.
"BOOK-ENTRY INTEREST" means a beneficial interest in the LP
Certificates, ownership and transfers of which shall be made through the
book-entry system of a Clearing Agency as described in Section 10.4.
"BUSINESS DAY" means any day other than a day on which banking
institutions in The City of New York are authorized or required by law to close.
"CAPITAL ACCOUNT" has the meaning set forth in Section 3.3.
"CERTIFICATE" means the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of the State of Delaware on
September , 1994, as it may be amended and restated from time to time.
"CLEARING AGENCY" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depository
for the Preferred Securities and in whose name (or nominee's name) shall be
registered one or more global LP Certificates and which shall undertake to
effect book-entry transfers and pledges of the Preferred Securities.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of interests in securities
deposited with the Clearing Agency.
"CLOSING DATE" means each "Time of Delivery" under the
Underwriting Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section (Section) of the Code refers
not only to such specific section but also to any corresponding provision of
any federal tax statute enacted after the date
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of this Agreement, as such specific section or corresponding provision is in
effect on the date of application of the provisions of this Agreement containing
such reference.
"CONVERSION AGENT" has the meaning set forth in Section 6.3(c) of
this Agreement.
"CONVERSION DATE" has the meaning set forth in Section 6.3(b) of
this Agreement.
"CONVERSION EXPIRATION DATE" has the meaning set forth in Section
6.3(d) of this Agreement.
"CONVERSION PRICE" has the meaning set forth in Section 6.3(a) of
this Agreement.
"CURRENT MARKET PRICE" of publicly traded shares of Best Buy
Common Stock for any day means the last reported sales price, regular way on
such day, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange Consolidated Transaction Tape.
"DEFINITIVE LP CERTIFICATES" has the meaning set forth in Section
10.4 of this Agreement.
"DEPOSITARY" means ________________ and its successors and
assigns.
"DEPOSIT AGREEMENT" means the Deposit Agreement dated as of
___________, 1994 among Best Buy, _____________, and the holders from time to
time of the Depositary Receipts.
"DEPOSITARY RECEIPT" means one of the deposit receipts, issued by
the Depositary under the Deposit Agreement, each representing any number of
whole Depositary Shares.
"DEPOSITARY SHARES" means the depositary shares, each representing
a 1/100th interest in a share of Best Buy Preferred Stock deposited with the
Depositary pursuant to the Deposit Agreement dated _______________, 1994,
between Best Buy and the Depositary.
"DIVIDENDS" means the cumulative cash distributions from the
partnership with respect to the Interests represented by the Preferred
Securities, accruing from the first Closing Date and payable monthly in arrears
on the
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last day of each calendar month of each year, commencing _______________, 1994.
"DIVIDEND PAYMENT DATE" has the meaning set forth in Section
6.2(b)(ii) of this Agreement.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"ELIGIBLE INVESTMENT ACCOUNT" means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution shall have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"ELIGIBLE INSTITUTION" means (a) the Fiscal Agent or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank), (1) (i) which has either (A) a long-term unsecured
debt rating of AAA or better by S&P's and Aaa or better by Moody's or (B) a
short-term unsecured debt rating or a certificate of deposit rating of A-1+ or
better by S&P's and P-1 or better by Moody's and (ii) whose deposits are insured
by the FDIC or (2) (i) the parent of which has a long-term or short-term
unsecured debt rating which signifies investment grade and (ii) whose deposits
are insured by the FDIC.
"ELIGIBLE INVESTMENTS" mean book-entry securities, negotiable
instruments, cash or securities represented by instruments in bearer or
registered form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the Government of the United States of America;
(b) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the laws of
the United States of America or any state thereof and subject to
supervision and examination by federal or state banking or depository
institution authorities; PROVIDED, HOWEVER, that at the time of the
investment or contractual commitment to invest therein, the commercial
paper
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or other short-term unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a Person other
than such depository institution or trust company) thereof shall have a
credit rating from each of S&P's, Moody's and, if rated by Fitch, Fitch in
the highest investment category granted thereby;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from each of S&P's,
Moody's and, if rated by Fitch, Fitch in the highest investment rating
category granted thereby;
(d) investments in money market funds having a rating from each of
S&P's and Moody's in the highest investment rating category granted
thereby;
(e) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC;
(f) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above; or
(g) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the Government of the United
States of America or any agency or instrumentality thereof, the
obligations of which are backed by the full faith and credit of the United
States of America, in either case entered into with (i) a depository
institution or trust company (acting as principal) described in clause (b)
or (ii) a depository institution or trust company which is an Eligible
Institution and the deposits of which are insured by the FDIC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE EVENT" has the meaning specified in Section 6.4(b) of
this Agreement.
"EXCHANGE PRICE" means one Depositary Share (with a proportionate
liquidation preference of $50) representing a 1/100th interest in a share of
Best Buy Preferred Stock (with a liquidation preference of $5,000) for each $50
principal amount of Subordinated Debentures (which rate of exchange is
equivalent to one Depositary Share representing Best Buy Preferred Stock for one
Preferred Security).
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"EXCHANGE ELECTION MEETING" has the meaning specified in Section
6.4(c) of this Agreement.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"FISCAL PERIOD" means each calendar month.
"FISCAL YEAR" means (i) the period commencing upon the formation
of the Partnership and ending on December 31, 1994, and (ii) any subsequent
twelve (12) month period commencing on January 1 and ending on December 31.
"FITCH" means Fitch Investors Service, Inc. or any successor
thereto.
"GENERAL PARTNER" means Best Buy in its capacity as general
partner of the Partnership, its permitted successors, or any successor general
partner in the Partnership admitted as such pursuant to the applicable
provisions of this Agreement.
"GUARANTEE" means the Guarantee Agreement dated as of ______,
1994 of Best Buy in favor of the Preferred Security Holders with respect to the
Preferred Securities.
"HOLDER" or "Preferred Security Holder" means a Limited Partner in
whose name an LP Certificate representing Preferred Securities is registered.
"INDENTURE" means the Indenture, dated as of __________ __, 1994,
among Best Buy, the Partnership and the Trustee relating to the Subordinated
Debentures.
"INITIAL LIMITED PARTNER" means Best Buy Finance Corporation, a
Delaware corporation.
"INTEREST" means the entire ownership interest of a Partner in the
Partnership at any particular time, including, without limitation, its interest
in the capital, profits, losses and distributions of the Partnership.
"LIMITED PARTNER" means any Person who is admitted to the
Partnership as a Limited Partner pursuant to the terms of this Agreement.
"LIQUIDATION DISTRIBUTION" has the meaning set forth in Section
6.2(f).
"LIQUIDATOR" has the meaning specified in Section 11.3 of this
Agreement.
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"LP CERTIFICATE" means a certificate substantially in the form
attached hereto as Annex A, evidencing the Preferred Securities held by a
Limited Partner.
"MAJORITY OR OTHER STATED PERCENTAGE IN LIQUIDATION PREFERENCE"
means Holder(s) of Preferred Securities who are the record owners of Preferred
Securities whose aggregate liquidation preferences represent not less than 50%
or not less than such stated percentage of the aggregate liquidation preference
of all Preferred Securities then outstanding.
"MOODY'S" means Moody's Investors Service, Inc. or any successor
thereto.
"NET INCOME" and "NET LOSS", respectively, for any Fiscal Period
means the income and loss, respectively, of the Partnership for such Fiscal
Period as determined in accordance with the method of accounting followed by the
Partnership for federal income tax purposes, including, for all purposes, the
net income, if any, from Eligible Investments and any income exempt from tax
expenditures of the Partnership which are described in Code; PROVIDED,
HOWEVER, that any item allocated under Section 4.2 shall be excluded from the
computation of Net Income and Net Loss.
"NOTICE OF CONVERSION" has the meaning set forth in Section 4.2 of
this Agreement.
"NOTICE OF CONVERSION EXPIRATION" has the meaning set forth in
Section 6.3(d)(iii) of this Agreement.
"NOTICE OF EXCHANGE" has the meaning specified in Section 6.4(a)
of this Agreement.
"ORIGINAL LIMITED PARTNERSHIP AGREEMENT" has the meaning set forth
in the recitals to this Agreement.
"PARTNERS" means the General Partner and, if appointed pursuant to
Section 6.2(g), any Special General Partner and the Limited Partners,
collectively, where no distinction is required by the context in which the term
is used.
"PARTNERSHIP" means the limited partnership formed under the Act
pursuant to the Original Limited Partnership Agreement upon filing of the
Certificate, and continued pursuant to this Agreement.
"PARTNERSHIP DISTRIBUTION ACCOUNT" has the meaning specified in
Section 3.6(b) of this Agreement.
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"PERSON" means any individual, corporation, association,
partnership, trust or other entity.
"POWER OF ATTORNEY" means the Power of Attorney granted pursuant
to Section 13.2.
"PREFERRED SECURITIES" means the Interests of Limited Partners
represented by one or more LP Certificates and described in Article VI.
"PREFERRED SECURITY OWNER" means, with respect to a Book Entry
Interest, a Person who is the beneficial owner of such Book Entry Interest, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency or Clearing Agency Participant).
"PRESS RELEASE" has the meaning set forth in Section 6.3(d)(ii) of
this Agreement.
"PURCHASE PRICE" for any Preferred Security means the amount paid
per Preferred Security pursuant to the Underwriting Agreement.
"REDEMPTION PRICE" has the meaning set forth in Section 6.2(d).
"RATING AGENCIES" means Fitch, Moody's and S&P.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL GENERAL PARTNER" means the Person appointed (i) to
enforce Preferred Security Holders' rights under the Guarantee, (ii) to enforce
the Partnership's rights against Best Buy under the Subordinated Debentures or
(iii) to exercise rights otherwise exercisable by the General Partner to declare
and pay distributions on the Preferred Securities as provided in Section 6.2(g)
of this Agreement.
"S&P" means Standard & Poor's Ratings Group or any successor
thereof.
"SUBORDINATED DEBENTURES" means the convertible subordinated
debentures of Best Buy issued pursuant to the Fiscal Agency Agreement and sold
by Best Buy to the Partnership in connection with the issuance and sale by the
Partnership of the Preferred Securities.
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"TAX MATTERS PARTNER" means the General Partner designated as such
in Section 9.8 hereof.
"TRADING DAY" means, with respect to any security listed for
trading on the New York Stock Exchange, any day on which such securities are
traded on the New York Stock Exchange.
"TRANSFER AGENT" means ______________________ and its successors
and assigns.
"TREASURY REGULATIONS" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"TRUSTEE" means __________, the trustee under the Indenture, and
its successors and assigns.
"UNDERWRITERS" means the underwriters named in Schedule I to the
Underwriting Agreement.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement dated
, 1994, among Best Buy, the Partnership and the several Underwriters
named therein relating to the issuance of the Preferred Securities.
Section 1.2 HEADINGS. The headings and subheadings in this
Agreement are included for convenience and identification purposes only and are
in no way intended to describe, interpret, define or limit the scope, extent or
intent of this Agreement or any provision hereof.
ARTICLE II
CONTINUATION OF THE PARTNERSHIP;
ADMISSION OF PREFERRED SECURITIES HOLDERS;
WITHDRAWAL OF INITIAL LIMITED PARTNER
Section 2.1 CONTINUATION OF THE PARTNERSHIP. The parties hereto
agree to continue the Partnership in accordance with the terms of this
Agreement. The General Partner, for itself and as agent for the Limited
Partners, shall make every reasonable effort to assure that an amendment to the
Certificate of Limited Partnership reflecting this Agreement, and all other
certificates and documents, are properly executed and shall accomplish all
filing, recording, publishing and other acts necessary or appropriate for
compliance with all the requirements for the
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continuation of the Partnership as a limited partnership under the Act and under
all other laws of the State of Delaware or such other jurisdictions in which the
General Partner determines that the Partnership may conduct business. The
rights and duties of the Partners shall be as provided herein and, subject to
the terms hereof, the Act.
Section 2.2 NAME. The name of the Partnership is "Best Buy
Capital, L.P.", as such name may be modified from time to time by the General
Partner following written notice to the Limited Partners.
Section 2.3 BUSINESS OF THE PARTNERSHIP. The purposes of the
Partnership are (a) to issue limited partnership interests in the Partnership in
the form of Preferred Securities, and to use substantially all of the proceeds
thereof and substantially all of the proceeds from the capital contributed to
the Partnership by the General Partner to purchase Subordinated Debentures of
Best Buy, (b) to invest, at all times, at least 1% of the total capital
contributed to the Partnership by the Partners in the Eligible Investment
Account as provided herein and (c) except as otherwise limited herein, to enter
into, make and perform all contracts and other undertakings, and engage in all
activities and transactions as the General Partner may reasonably deem necessary
or advisable for the carrying out of the foregoing purposes of the Partnership.
The Partnership may not conduct any other business or operations except as
contemplated by the preceding sentence.
Section 2.4 TERM. The term of the Partnership shall commence
upon the filing of the Certificate in the Office of the Secretary of State of
the State of Delaware and shall continue until December 31, 2039, unless
dissolved before such date in accordance with the provisions of this Agreement.
Section 2.5 REGISTERED AGENT AND OFFICE. The Partnership's
registered agent and office in Delaware shall be [The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801]. At any time, the General Partner may designate
another registered agent and/or registered office.
Section 2.6 PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Partnership shall be c/o Best Buy Co., Inc., 7075 Flying Cloud
Drive, Eden Prairie, Minnesota 55344. Upon ten days written notice to the
Partners, the General Partner may change the location of the Partnership's
principal place of business, provided that such change has no material adverse
effect upon any Partner.
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Section 2.7 NAME AND BUSINESS ADDRESS OF GENERAL PARTNER. The
name and address of the General Partner are as follows:
Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Attention: Secretary
The General Partner may change its name or business address from time to time,
in which event the General Partner shall promptly notify the Limited Partners of
any such change.
Section 2.8 QUALIFICATION TO DO BUSINESS. The General Partner
shall cause the Partnership to become qualified, formed or registered under the
applicable qualification, fictitious name or similar laws of any jurisdiction in
which the Partnership transacts business.
Section 2.9 ADMISSION OF HOLDERS OF PREFERRED SECURITIES;
WITHDRAWAL OF INITIAL LIMITED PARTNER.
(a) Without execution of this Agreement, upon the acquisition of an
LP Certificate by a Person, whether by purchase, gift, devise or otherwise,
which acquisition shall be deemed to constitute a request by such Person that
the books and records of the Partnership reflect such Person's admission as a
Limited Partner, such Person shall be admitted to the Partnership as a Limited
Partner and shall become bound by this Agreement.
(b) Following the first admission of a Preferred Security Holder to
the Partnership as a Limited Partner, the Initial Limited Partner shall withdraw
from the Partnership and shall receive the return of its capital contribution
without interest or deduction.
(c) The name and mailing address of each Partner and the amount
contributed by such Partner to the capital of the Partnership shall be listed on
the books and records of the Partnership. The General Partner shall be required
to update the books and records from time to time as necessary to accurately
reflect such information.
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ARTICLE III
CAPITAL CONTRIBUTIONS; REPRESENTATION OF
PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS
Section 3.1 CAPITAL CONTRIBUTIONS.
(a) The General Partner has, on or prior to the first Closing
Date, contributed an aggregate of $ _______ to the capital of the Partnership.
The General Partner shall on or prior to each subsequent Closing Date, make such
additional capital contributions as are necessary to maintain its Capital
Account balance at an amount equal to at least 21% of the aggregate positive
Capital Account balances of all Partners as of the time of each such Closing
Date.
(b) The Initial Limited Partner has, prior to the date hereof,
contributed the amount of $___ to the capital of the Partnership, which amount
will be returned to the Initial Limited Partner as contemplated by Section
2.9(b).
(c) On each Closing Date, each Person who acquires a Preferred
Security from the Partnership shall, in connection with the acquisition of such
Preferred Security, contribute to the capital of the Partnership an amount in
cash equal to the Purchase Price for such Preferred Security.
(d) No Limited Partner shall at any time be required to make any
additional capital contributions to the Partnership, except as may be required
by law.
Section 3.2 PREFERRED SECURITY HOLDER'S INTEREST REPRESENTED BY
L.P. CERTIFICATE. A Preferred Security Holder's Interest shall be represented
by the L.P. Certificate held by or on behalf of such Holder. Each Preferred
Security Holder's respective ownership of Preferred Securities shall be set
forth on the books and records of the Partnership. Each Holder hereby agrees
that its Interest represented by its L.P. Certificate shall for all purposes be
personal property. A Preferred Security Holder shall have no interest in
specific Partnership property.
Section 3.3 CAPITAL ACCOUNTS. An individual capital account (a
"CAPITAL ACCOUNT") shall be established and maintained on the books of the
Partnership for each Partner in compliance with Treasury Regulation Sections
1.704-1(b)(2)(iv) and 1.704-2, as amended. Subject to the preceding sentence,
each Capital Account will be increased by the amount of the capital
contributions (including the Purchase Price) made by, and the Net Income
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allocated to, such Partner (or predecessor in interest) and reduced by the
amount of distributions made by the Partnership, and Net Losses allocated, to
the Partner (or predecessor thereof). In addition, a Partner's Capital Account
shall be increased or decreased, as the case may be, for any items specifically
allocated to such Partner under Section 4.2 of this Agreement, and, to the
extent permitted under such Treasury Regulation, the General Partner's Capital
Account will be increased to the extent the General Partner pays any costs or
expenses of the Partnership directly out of the General Partner's own funds.
Section 3.4 INTEREST ON CAPITAL CONTRIBUTIONS. Except as
provided herein, no Partner shall be entitled to interest on or with respect to
any capital contribution to the Partnership.
Section 3.5 WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTIONS.
Subject to Section 3.l(b), no Partner shall be entitled to withdraw any part of
such Partner's capital contribution to the Partnership. No Partner shall be
entitled to receive any distributions from the Partnership, except as provided
in this Agreement.
Section 3.6 INVESTMENT OF CAPITAL CONTRIBUTIONS.
(a) The General Partner shall establish and maintain in the name
of the Partnership an Eligible Investment Account bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Partners. On each Closing Date, the General Partner shall deposit from the
proceeds of the aggregate capital contributions received from the Partners an
amount equal to at least 1% of such aggregate capital contributions into the
Eligible Investment Account. On the first Closing Date, the amount so deposited
by the General Partner shall equal $_________.
(b) Funds on deposit in the Eligible Investment Account shall be
invested by the General Partner; PROVIDED, HOWEVER, it is understood and
agreed that the General Partner shall not be liable for any loss arising from
such investment in Eligible Investments; PROVIDED FURTHER that none of the
funds deposited in the Eligible Investment Account shall be invested in an
Eligible Investment or Eligible Investments issued by the General Partner or an
Affiliate thereof for a period of five years following the Closing Date. All
such Eligible Investments shall be held by the General Partner for the benefit
of the Partnership, PROVIDED, HOWEVER, that on the day preceding each
Dividend Payment Date all interest and other investment income (net of losses
and investment expenses) on funds on deposit in
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the Eligible Investment Account shall be deposited into the Partnership account
maintained by the Partnership for receipt of income on the Subordinated
Debentures as designated pursuant to Section 3.1 of the Fiscal Agency Agreement
(the "PARTNERSHIP DISTRIBUTION ACCOUNT") and shall constitute a portion of the
Partnership's Net Income eligible for distribution to the Partners. Funds on
deposit in the Eligible Investment Account shall be invested in Eligible
Investments that will mature prior to the next succeeding Dividend Payment Date.
ARTICLE IV
ALLOCATIONS
Section 4.1 PROFITS AND LOSSES. After giving effect to the
special allocations set forth in Section 4.2,
(a) the Partnership's Net Income for each Fiscal Period of the
Partnership shall be allocated as follows:
(i) First, among Holders, as of the close of business on the
record date for such Fiscal Period, an amount of Net Income equal to the
excess of (x) the Dividends accrued on each Holder's Preferred Securities
from the first Closing Date through and including the close of business on
the record date for such Fiscal Period, including any Additional Dividends
payable with respect thereto, over (y) the amount of Net Income allocated
to each such Holder pursuant to this Section 4.1(a)(i) in all prior Fiscal
Periods, including any Additional Dividends payable with respect thereto.
(ii) Second, to each Holder of a Preferred Security in an amount
equal to the excess of (x) all Net Losses allocated to each such Holder
from the date of issuance of the Preferred Security through and including
the close of such Fiscal Period pursuant to Section 4.1(b)(ii) over (y)
the amount of Net Income allocated to each such Holder pursuant to this
Section 4.1(a)(ii) in all prior Fiscal Periods.
(iii) Any remaining Net Income shall be allocated to the General
Partner.
(b) The Partnership's Net Loss for any Fiscal Period shall be
allocated as follows:
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(i) First, to the General Partner until the balance of the General
Partner's Capital Account is reduced to zero.
(ii) Second, among the Holders in proportion to their respective
aggregate Capital Account balances, until the Capital Account balances of
such Holders are reduced to zero; PROVIDED, HOWEVER, that the General
Partner shall make appropriate adjustments in these allocations, in
accordance with Section 4.1(c), with respect to any Preferred Securities
as to which Net Income has been allocated with respect to Dividends that
accrued but were not paid.
(iii) Any remaining Net Loss shall be allocated to the General
Partner.
(c) The General Partner shall make such changes to the allocations
in Sections 4.1(a) and 4.1(b) as it deems reasonably necessary so that, in the
year of the Partnership's liquidation, amounts distributed to the Preferred
Security Holders in accordance with Section 11.4(ii) shall equal their
Liquidation Distributions.
Section 4.2 SPECIAL ALLOCATIONS.
(a) If a Holder delivers an irrevocable notice of conversion
("NOTICE OF CONVERSION") to the Conversion Agent which instructs the
Conversion Agent to exchange Preferred Securities for a portion of the
Subordinated Debentures held by the Partnership and to immediately convert such
Subordinated Debentures into Best Buy Common Stock pursuant to Section 6.3(b) of
this Agreement, such Holder shall be allocated any interest (including original
issue discount) accruing on a daily basis on the Subordinated Debentures so
converted until the date of such conversion, but only to the extent such
interest was not previously allocated to the Partners in a prior Fiscal Period
as part of Net Income under Section 4.1(a) of this Agreement.
(b) All expenditures described in Code Section 705(a)(2)(B) that
are incurred by, or on behalf of, the Partnership and paid by the General
Partner shall be allocated entirely to the General Partner.
(c) In the event any Holder unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership Net Income shall be
specially allocated to such Holder in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations,
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the deficit, if any, in the balance of the Capital Account of such Holder as
quickly as possible. This Section 4.2(c) is intended to comply with the
qualified income offset provision in Section 1.704-1(b)(2)(ii)(d) of the
Treasury Regulations.
(d) For purposes of determining the profits, losses or any other
items allocable to any period, profits, losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the General
Partner using any method that is permissible under Section 706 of the Code
and the Treasury Regulations promulgated thereunder. Unless otherwise
specified, such profits, losses or other items shall be determined for each
Fiscal Period.
(e) The Partners are aware of the income tax consequences of the
allocations made by this Article IV and hereby agree to be bound by the
provisions of this Article IV in reporting their shares of Partnership Net
Income and Net Loss for U.S. federal income tax purposes.
(f) Notwithstanding anything to the contrary that may be expressed
or implied in this Article IV, the interest of the General Partner in each item
of income, gain, loss, deduction and credit will be equal to at least (i) at any
time that aggregate capital contributions to the Partnership are equal to or
less than $50,000,000, 1% of each such item and (ii) at any time that aggregate
capital contributions to the Partnership are greater than $50,000,000, at least
1%, multiplied by a fraction (not exceeding one and not less than 0.2), the
numerator of which is $50,000,000 and the denominator of which is the lesser of
the aggregate Capital Account balances of the Capital Accounts of all Partners
at such time and the aggregate capital contributions to the Partnership of all
Partners at such time.
(g) The Partners intend that the allocations under Section 4.1
conform to Treasury Regulations Sections 1.704-1(b) and 1.704-2 (including,
without limitation, the minimum gain chargeback, chargeback of partner
nonrecourse debt minimum gain, qualified income offset and partner nonrecourse
debt provisions of such Treasury Regulations), and the General Partner shall
make such changes in the allocations under Section 4.1 as it believes are
reasonably necessary to meet the requirements of such Treasury Regulations.
(h) Solely for the purpose of adjusting the Capital Accounts of the
Partners, and not for tax purposes, if any property is distributed in kind to
any Partner, the difference between its fair market value and its book value
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at the time of distribution shall be treated as gain or loss recognized by the
Partnership and allocated pursuant to the provisions of Section 4.1.
Section 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income,
gains, losses, deductions and credits of the Partnership shall be allocated in
the same manner as the items entering into the computation of Net Income and Net
Loss are allocated under Sections 4.1 and 4.2; PROVIDED, HOWEVER, that
solely for federal, state and local income and franchise tax purposes, but not
for book or Capital Account purposes, income, gain, loss and deductions with
respect to any property properly carried on the Partnership's books at a value
other than the tax basis of such property shall be allocated in a manner
determined in the General Partner's discretion, so as to take into account
(consistently with Code Section 704(c) principles) the difference between such
property's book value and its tax basis. Notwithstanding anything to the
contrary set forth in this Agreement, the General Partner is authorized to
modify the allocations of this Section 4.3, and Sections 4.1 and 4.2, if
necessary or appropriate, in the General Partner's sole discretion, for the
allocations to fairly reflect the economic gain, income or loss to each of the
Partners, or as otherwise required by the Code or the Treasury Regulations.
Section 4.4 WITHHOLDING. The Partnership shall comply with
withholding requirements under federal, state and local law and shall remit
amounts withheld to and file required forms with applicable jurisdictions. To
the extent that the Partnership is required to withhold and pay over any amounts
to any authority with respect to distributions or allocations to any Partner,
the amount withheld shall be deemed to be a distribution in the amount of the
withholding to the Partner. In the event of any claimed over-withholding,
Partners shall be limited to an action against the applicable jurisdiction. If
the amount withheld was not withheld from actual distributions, the Partnership
may reduce subsequent distributions by the amount of such withholding. Each
Partner agrees to furnish the Partnership with any representations and forms as
shall reasonably be requested by the Partnership to assist it in determining the
extent of, and in fulfilling, its withholding obligations.
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ARTICLE V
DIVIDENDS AND DISTRIBUTIONS
Section 5.1 DIVIDENDS. Limited Partners shall receive periodic
Dividends, if any, redemption payments and liquidation distributions in
accordance with the terms of the Preferred Securities set forth in Article VI.
Subject to the rights of the Preferred Security Holders, all cash remaining in
the Partnership Distribution Account shall be distributed to the General Partner
at such time as the General Partner shall determine.
Section 5.2 LIMITATIONS ON DISTRIBUTIONS. The Partnership shall
not make a distribution to any Partner on account of such Partner's Interest if
such distribution would violate Section 17-607 of the Act or other applicable
law.
ARTICLE VI
ISSUANCE OF PREFERRED SECURITIES
Section 6.1 GENERAL PROVISIONS REGARDING PREFERRED SECURITIES.
(a) There is hereby authorized for issuance and sale Preferred
Securities having an aggregate liquidation preference not greater than $ and
having the designation, annual Dividend rate, liquidation preference, redemption
terms, conversion and exchange rights and other powers, preferences and special
rights and limitations set forth in this Article VI. The aggregate liquidation
preference of Preferred Securities authorized hereunder shall be reduced 30 days
after the first Closing Date to the amount purchased by the Underwriters.
(b) The payment of Dividends and payments of distributions by the
Partnership in liquidation or on redemption in respect of Preferred Securities
shall be guaranteed by Best Buy pursuant to the Guarantee. In the event of an
appointment of a Special General Partner pursuant to Section 6.2(g), among other
things, to enforce the Guarantee, the Special General Partner may take
possession of the Guarantee for such purpose. The Preferred Security Holders,
by acceptance of such Preferred Securities, acknowledge and agree to the
subordination provisions in, and other terms of, the Guarantee.
(c) The proceeds received by the Partnership from the issuance of
Preferred Securities, together with the
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proceeds of the capital contributed by the General Partner pursuant to Section
3.1(a) of this Agreement, but less any amounts deposited by the General Partner
in the Eligible Investment Account pursuant to Section 3.6(a), shall be invested
by the Partnership in Subordinated Debentures with (i) an aggregate principal
amount equal to such aggregate proceeds and (ii) an interest rate at least equal
to the Dividend rate of the Preferred Securities.
(d) The Partnership may not issue any other interests in the
Partnership, without the approval of the Holders of not less than 66 2/3% in
Liquidation Preference of the Preferred Securities; PROVIDED, HOWEVER, that
the Partnership may issue a general partnership interest to the Special General
Partner. All Preferred Securities shall rank senior to all other Interests in
the Partnership in respect of the right to receive Dividends or other
distributions and the right to receive payments out of the assets of the
Partnership upon voluntary or involuntary liquidation, dissolution, winding-up
or termination of the Partnership. All Preferred Securities redeemed, purchased
or otherwise acquired by the Partnership (including Preferred Securities
surrendered for conversion or exchange) shall be canceled. The Preferred
Securities will be issued in registered form only. Dividends on all Preferred
Securities shall be cumulative.
(e) No Holder shall be entitled as a matter of right to subscribe
for or purchase, or have any preemptive right with respect to, any part of any
new or additional limited partnership interests, or of securities convertible
into any Preferred Securities or other limited partnership interests, whether
now or hereafter authorized and whether issued for cash or other consideration
or by way of a Dividend.
(f) Neither Best Buy nor any Affiliate of Best Buy shall have the
right to vote or give or withhold consent with respect to any Preferred Security
owned by it, directly or indirectly, and, for purposes of any matter upon which
the Limited Partners may vote or give or withhold consent as provided in this
Agreement, Preferred Securities owned by Best Buy or any Affiliate shall be
treated as if they were not outstanding.
Section 6.2 PREFERRED SECURITIES.
(a) DESIGNATION. The Preferred Securities, liquidation
preference $50 per Preferred Security, are
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hereby designated as "___% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES".
(b) DIVIDENDS. (i) Preferred Security Holders shall be entitled
to receive, when, as and if declared by the General Partner, cumulative
Dividends at a rate per annum of ____% of the stated liquidation preference of
$50 per Preferred Security, calculated on the basis of a 360-day year consisting
of 12 months of 30 days each. For any period shorter than a full monthly
Dividend period, Dividends will be computed on the basis of the actual number of
days elapsed in such period. Dividends shall be payable in United States
dollars monthly in arrears on the last day of each calendar month of each year,
commencing ___ 1994. Such Dividends will accrue and be cumulative whether or
not they have been declared and whether or not there are funds of the
Partnership legally available for the payment of Dividends. Dividends on the
Preferred Securities shall be cumulative from the first Closing Date.
Additional Dividends upon any Dividend arrearages shall be declared and paid in
order to provide, in effect, monthly compounding on such Dividend arrearages at
a rate of ____% per annum compounded monthly and such Additional Dividends shall
accumulate. In the event that any date on which Dividends are payable on the
Preferred Securities is not a Business Day, then payment of the Dividend payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date.
(ii) Dividends on the Preferred Securities must be declared monthly
and be paid on the last day of each calendar month (each a "DIVIDEND PAYMENT
DATE") to the extent that the Partnership has, on such date, (x) funds legally
available for the payment of such Dividends and (y) cash on hand sufficient to
permit such payments, it being understood that to the extent that funds are not
available to pay in full all accumulated and unpaid Dividends, the Partnership
may pay partial Dividends to the extent of funds legally available therefor.
For purposes of this Section 6.2(b), net interest and investment income from
funds on deposit in the Eligible Investment Account that is transferred into the
Partnership Distribution Account shall be considered funds available for the
payment of Dividends; PROVIDED, HOWEVER, that the principal amount of
Eligible Investments shall not be available as distributions as Dividends or
otherwise except in connection with a liquidating distribution pursuant to
Section 11.4 of this Agreement.
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Dividends will be payable to the Holders as they appear on the books and records
of the Partnership on the relevant record dates, which will be one Business Day
prior to the related Dividend Payment Date. In the event of any extended
interest payment period with respect to the Subordinated Debentures resulting in
the deferral of the payment of Dividends on the Preferred Securities, the
General Partner shall notify the Holders as to such extended interest payment
period.
(iii) The Partnership shall not:
(A) pay, declare or set aside for payment, any dividends or other
distributions on any other Interests in the Partnership; or
(B) redeem, purchase or otherwise acquire any other Interests in
the Partnership;
until, in each case, such time as all accumulated and unpaid Dividends on all of
the Preferred Securities, including any Additional Dividends thereon, shall have
been paid in full for all Dividend periods terminating on or prior to the date
of such payment or the date of such redemption, purchase or acquisition, as the
case may be.
(iv) In the event of an election by the Holder to convert its
Preferred Securities through the Conversion Agent into Best Buy Common Stock
pursuant to Section 6.3 of this Agreement, neither Best Buy nor the Partnership
shall make, or be required to make, any payment, allowance or adjustment with
respect to accumulated and unpaid Dividends on such Preferred Securities;
PROVIDED that Holders of Preferred Securities at the close of business on any
record date for the payment of Dividends will be entitled to receive the
Dividend payable on such Preferred Securities on the corresponding Dividend
Payment Date notwithstanding the conversion of such Preferred Securities into
Best Buy Common Stock following such record date.
(d) REDEMPTION. (i) If at any time following the Conversion
Expiration Date, less than five percent (5%) of the Preferred Securities
authorized under Section 6.1(a) remain outstanding, such Preferred Securities
shall be redeemable, at the option of the Partnership, in whole but not in part,
from time to time, upon not fewer than 30 nor more than 60 days' prior notice,
at a redemption price equal to the liquidation preference per Preferred Security
plus accumulated and unpaid Dividends (whether or not earned or declared) to the
date fixed for redemption, including any
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Additional Dividends accrued thereon (the "REDEMPTION PRICE").
(ii) Upon repayment at maturity or prepayment of the Subordinated
Debentures, including as a result of the acceleration of the Subordinated
Debentures upon the occurrence of an Event of Default with respect to the
Subordinated Debentures, the proceeds from such repayment or prepayment shall be
applied to redeem the Preferred Securities at the Redemption Price.
(e) REDEMPTION PROCEDURES. (i) Notice of any redemption (a
"NOTICE OF REDEMPTION") of the Preferred Securities to be redeemed will be
given by the Partnership by mail to each record Holder of Preferred Securities
not fewer than 30 nor more than 60 days prior to the date fixed for redemption
thereof following the issuance of a notice of prepayment or redemption of the
Subordinated Debentures by Best Buy to the Partnership. For purposes of the
calculation of the date of redemption and the dates on which notices are given
pursuant to this paragraph (e)(i), a Notice of Redemption shall be deemed to be
given on the day such notice is first mailed by first-class mail, postage
prepaid, to each Holder of Preferred Securities. Each Notice of Redemption
shall be addressed to each Holder of Preferred Securities at the address of the
Holder appearing in the books and records of the Partnership. If all of the
Preferred Securities are represented by Book-Entry Interests, Notices of
Redemption shall be sent to the Clearing Agency. No defect in the Notice of
Redemption or in the mailing thereof with respect to any Preferred Security
shall affect the validity of the redemption proceedings with respect to any
other Preferred Security.
(ii) If, following a notice of prepayment of all outstanding
Subordinated Debentures, the Partnership issues a Notice of Redemption, then, by
12:00 noon, New York time, on the redemption date, Best Buy will repay to the
Partnership an aggregate principal amount of the Subordinated Debentures, which,
together with accrued and unpaid interest and any Additional Interest thereon,
will be an amount sufficient to pay the Redemption Price for all Preferred
Securities then outstanding. If all of the Preferred Securities are represented
by Book-Entry Interests, the Partnership shall irrevocably deposit such funds
with the Clearing Agency and give the Clearing Agency irrevocable instructions
and authority to pay the Redemption Price to the Holders of Preferred Securities
and otherwise the Partnership may pay the Redemption Price by check. If a
Notice of Redemption shall have been issued and funds deposited as required or a
check deposited in the U.S. mails
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postage prepaid, then upon the date of such deposit, all rights of the Preferred
Security Holders who hold such Preferred Securities so called for redemption
will cease, except the right of the Holders of such securities to receive the
Redemption Price, but without interest from and after such redemption date. In
the event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by the Partnership or by Best Buy pursuant to the Guarantee,
Dividends on such Preferred Securities (including any Additional Dividends
thereon) will continue to accumulate at the then applicable rate, from the
original redemption date to the date that the Redemption Price is actually paid.
(f) LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution, winding-up or termination of the
Partnership, the Holders of Preferred Securities at the time outstanding will be
entitled to receive out of the assets of the Partnership (including any Eligible
Investments or amounts deposited in the Eligible Investment Account) legally
available for distribution to Partners after satisfaction of liabilities of
creditors as required by the Act before any distribution of assets is made with
respect to any other Interest in the Partnership, an amount equal to the
aggregate of the stated liquidation preference of $50 per Preferred Security and
accumulated and unpaid Dividends (whether or not earned or declared) to the date
of payment, including any Additional Dividends accrued thereon (the
"LIQUIDATION DISTRIBUTION").
(g) VOTING RIGHTS -- SPECIAL GENERAL PARTNER. (i) If (x) the
Partnership fails to pay Dividends in full on the Preferred Securities for 15
consecutive months (other than as a result of a determination by Best Buy to
extend the interest payment period of the Subordinated Debentures in accordance
with the terms thereof), (y) an Event of Default under the Subordinated
Debentures occurs and is continuing or (z) Best Buy is in default on any of its
payment obligations under the Guarantee, then the Holders, upon the affirmative
vote of at least a Majority in Liquidation Preference of the Preferred
Securities, will be entitled to appoint and authorize a Special General Partner
to enforce the Partnership's rights as a creditor under the Subordi-
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nated Debentures, enforce the rights of the Holders under the Guarantee and to
declare and pay Dividends (including Additional Dividends) on the Preferred
Securities. Upon the appointment of a Special General Partner, the Special
General Partner shall be authorized, and shall to the extent of legally
available funds, declare and pay Dividends (including Additional Dividends)
on the Preferred Securities. So long as the appointment of the Special General
Partner is effective, the Special General Partner shall manage the business and
affairs of the Partnership to the exclusion of the General Partner.
(ii) In furtherance of the foregoing, and without limiting the
powers of any Special General Partner so appointed and for the avoidance of any
doubt concerning the powers of the Special General Partner, any Special General
Partner, in its own name and as Special General Partner of the Partnership, may
institute a proceeding, including, without limitation, any suit in equity, an
action at law or other judicial or administrative proceeding, to enforce the
Partnership's rights directly against Best Buy, or any other obligor in
connection with such obligations on behalf of the Partnership, and may prosecute
such proceeding to judgment or final decree, and enforce the same against Best
Buy or any other obligor in connection with such obligations and collect, out of
the property, wherever situated, of Best Buy or any such other obligor upon such
obligations, the monies adjudged or decreed to be payable in the manner provided
by law.
(iii) For purposes of determining whether the Partnership has
failed to pay Dividends in full for 15 consecutive months, Dividends shall be
deemed to remain in arrears, notwithstanding any payments in respect thereof,
until full cumulative Dividends have been or contemporaneously are declared and
paid with respect to all monthly Dividend periods terminating on or prior to the
date of payment of such full cumulative Dividends. Not later than 30 days after
such right to appoint a Special General Partner arises, the General Partner will
convene a meeting for election of a Special General Partner. If the General
Partner fails to convene such meeting within such 30-day period, the Holders of
not less than 10% in Liquidation Preference of the Preferred Securities will be
entitled to convene such meeting. The provisions of Section 12.3 relating to
the convening and conduct of meetings of the Partners will apply with respect to
any such meeting. Any Special General Partner so appointed shall vacate office
immediately if the Partnership (or Best Buy pursuant to the Guarantee) shall
have paid in full all accumulated and unpaid Dividends (including any Additional
Dividends) on the
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Preferred Securities or such Event of Default or default, as the case may be,
shall have been cured.
(h) VOTING RIGHTS -- CERTAIN AMENDMENTS. (i) If any proposed
amendment of this Agreement provides for, or the General Partner otherwise
proposes to effect, (x) any action that would materially adversely affect the
powers, preferences or rights of the Preferred Securities, whether by way of
amendment of this Agreement or otherwise or (y) the liquidation, dissolution,
winding-up or termination of the Partnership (other than in connection with the
exchange of Depositary Shares representing Best Buy Preferred Stock for all of
the Preferred Securities upon the occurrence of an Exchange Event), then the
Holders of outstanding Preferred Securities will be entitled to vote on such
amendment or action of the General Partner (but not on any other amendment or
action) and such amendment or action shall not be effective except with the
approval of Holders of not less than 66 2/3% in Liquidation Preference of the
Preferred Securities; PROVIDED, HOWEVER, that no such approval shall be
required if the liquidation, dissolution, winding-up or termination of the
Partnership is proposed or initiated pursuant to Section 11.2 hereof.
(ii) Any required approval of Holders may be given at a separate
meeting of such Holders convened for such purpose or pursuant to written
consent. The Partnership will cause a notice of any meeting at which Holders
are entitled to vote, or of any matter upon which action by written consent of
such Holders is to be taken, to be mailed to each Holder. Each such notice will
include a statement setting forth (x) the date of such meeting or the date by
which such action is to be taken, (y) a description of any matter on which such
Holders are entitled to vote or upon which written consent is sought and (z)
instructions for the delivery of proxies or consents. No vote or consent of the
Holders will be required for the Partnership to redeem and cancel Preferred
Securities in accordance with this Agreement.
(iii) Except as provided in this Section 6.2, Holders shall have no
voting rights, and the Holders may not remove the General Partner.
Section 6.3. CONVERSION RIGHTS OF PREFERRED SECURITIES. The
Holders of Preferred Securities shall have the right, at their option, at any
time before the close of business on the Conversion Expiration Date, to cause
the Conversion Agent to convert Preferred Securities, on behalf of the
converting Holders, into shares of Best Buy Common
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Stock in the manner described herein on and subject to the following terms and
conditions:
(a) The Preferred Securities will be convertible at the office of
the Conversion Agent into fully paid and nonassessable shares of Best Buy Common
Stock pursuant to the Holder's direction to the Conversion Agent to exchange
such Preferred Securities for a portion of the Subordinated Debentures
theretofore held by the Partnership on the basis of one Preferred Security per
$50 principal amount of Subordinated Debentures, and immediately convert such
amount of Subordinated Debentures into fully paid and nonassessable shares of
Best Buy Common Stock at an initial rate of ___ shares of Best Buy Common Stock
per $50 principal amount of Subordinated Debentures (which is equivalent to a
conversion price of $______ per share of Best Buy Common Stock, subject to
certain adjustments set forth in the terms of the Subordinated Debentures (as so
adjusted, "CONVERSION PRICE")).
(b) In order to convert Preferred Securities into Best Buy Common
Stock, the Holder shall surrender the Preferred Securities to be converted to
the Conversion Agent at the office referred to above, together with an
irrevocable Notice of Conversion (i) setting forth the number of Preferred
Securities to be converted and the name or names, if other than the Holder, in
which the shares of Best Buy Common Stock should be issued and (ii) directing
the Conversion Agent (a) to exchange such Preferred Securities for a portion of
the Subordinated Debentures held by the Partnership (at the rate of exchange
specified in the preceding paragraph) and (b) to immediately convert such
Subordinated Debentures, on behalf of such Holder, into Best Buy Common Stock
(at the conversion rate specified in the preceding paragraph). If the Notice of
Conversion is delivered before the close of business on the Conversion
Expiration Date, the Conversion Agent shall notify the Partnership of the
Holder's election to exchange Preferred Securities for a portion of the
Subordinated Debentures held by the Partnership and the Partnership shall, upon
receipt of such notice, deliver to the Conversion Agent the appropriate
principal amount of Subordinated Debentures for exchange in accordance with this
Section. The Conversion Agent shall thereupon notify Best Buy of the Holder's
election to convert such Subordinated Debentures into shares of Best Buy Common
Stock. Holders of Preferred Securities at the close of business on a dividend
payment record date will be entitled to receive the Dividend payable on such
securities on the corresponding Dividend Payment Date notwithstanding the
conversion of such Preferred Securities following such dividend payment record
date. Except as
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provided above, no payment, allowance or adjustment shall be made by the
Partnership or Best Buy upon any conversion on account of any accumulated and
unpaid Dividends accrued on the Preferred Securities (including any Additional
Dividends accrued thereon) surrendered for conversion, or on account of any
accumulated and unpaid dividends on the shares of Best Buy Common Stock issued
upon such conversion. Preferred Securities shall be deemed to have been
converted immediately prior to the close of business on the day on which a
Notice of Conversion relating to such Preferred Securities is delivered in
accordance with the foregoing provision (the "CONVERSION DATE"). The Person
or Persons entitled to receive the Best Buy Common Stock issuable upon
conversion of the Subordinated Debentures shall be treated for all purposes as
the record holder or holders of such Best Buy Common Stock at such time. No
fractional shares of Best Buy Common Stock will be issued as a result of
conversion, but in lieu thereof, such fractional interest will be paid in cash
by Best Buy. As promptly as practicable on or after the Conversion Date, Best
Buy shall issue and deliver at the office of the Conversion Agent a certificate
or certificates for the number of full shares of Best Buy Common Stock issuable
upon such conversion, together with the cash payment, if any, in lieu of any
fraction of any share to the Person or Persons entitled to receive the same,
unless otherwise directed by the Holder in the notice of conversion and the
Conversion Agent shall distribute such certificate or certificates to such
Person or Persons.
(c) Each Holder of a Preferred Security by his acceptance thereof
appoints the Transfer Agent for the Preferred Securities "CONVERSION AGENT"
for the purpose of effecting the conversion of Preferred Securities in
accordance with this Section and the exchange of Preferred Securities for
Depositary Shares representing Best Buy Preferred Stock in accordance with
Section 6.4. In effecting the conversion and exchange transactions described in
this Section and Section 6.4, the Conversion Agent shall be acting as agent of
the Holders of Preferred Securities directing it to effect such conversion
or exchange transactions. The Conversion Agent is hereby authorized (i) to
exchange Preferred Securities from time to time for Subordinated Debentures held
by the Partnership in connection with the conversion or exchange of such
Preferred Securities in accordance with this Section and Section 6.4 hereof,
(ii) to convert all or a portion of the Subordinated Debentures into Best Buy
Common Stock and thereupon to deliver such shares of Best Buy Common Stock in
accordance with the provisions of this Section and to deliver to the Partnership
a new Subordinated Debenture or Debentures for
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any resulting unconverted principal amount and (iii) following the occurrence of
an Exchange Event, to exchange all of the Subordinated Debentures for Depositary
Shares representing Best Buy Preferred Stock in accordance with the provisions
of Section 6.4 hereof and thereupon to deliver such Depositary Shares to the
Persons entitled to receive them.
(d) (i) On and after the third anniversary of the date of issuance
of the Preferred Securities, the Partnership shall have the right, at its
option, to cause the conversion rights set forth in this Section to expire, BUT
ONLY IF for 20 Trading Days, within any period of 30 consecutive Trading
Days, including the last Trading Day of such period, the Current Market Price of
the Best Buy Common Stock on each of such 20 Trading Days exceeds 120% of the
Conversion Price in effect on such Trading Day.
(ii) In order to exercise its option to cause the conversion
rights of Holders to expire, Best Buy must issue a press release announcing the
Conversion Expiration Date (the "PRESS RELEASE") prior to the opening of
business on the second Trading Day after any period in which the condition in
the preceding paragraph has been met. The Press Release shall state that the
Partnership has elected to exercise its right to extinguish the conversion
rights of Holders of Preferred Securities, specify the Conversion Expiration
Date and provide the Conversion Price of the Preferred Stock and the Current
Market Price of the Best Buy Common Stock, in each case as of the close of
business on the Trading Day next preceding the date of the Press Release. If
the Partnership exercises the option described in this paragraph, the
"CONVERSION EXPIRATION DATE" shall be a date selected by the Partnership which
shall be not less than 30 or more than 60 days after the date on which the
Partnership issues the Press Release. In the event the Partnership does not
exercise the option described in this paragraph, the Conversion Expiration Date
shall be the earlier of (a) the date of an Exchange Election, as set forth in
Section 6.4(c), and (b) two Business Days preceding the date set for the
mandatory redemption of the Preferred Securities pursuant to Section 6.2(d)(ii).
(iii) In addition to the Press Release, notice of the
expiration of conversion rights (a "NOTICE OF CONVERSION EXPIRATION") must be
given by the Partnership by first-class mail to each record Holder of Preferred
Securities not more than four (4) Business Days after the Partnership issues the
Press Release. Each such mailed Notice of Conversion Expiration shall state, as
appropriate:
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(1) the Conversion Expiration Date; (2) the Conversion Price of the Preferred
Securities and the Current Market Price of the Best Buy Common Stock, in each
case as of the close of business on the Trading Day next preceding the date of
the Notice of Conversion Expiration; (3) the place or places at which Preferred
Securities are to be surrendered prior to the Conversion Expiration Date for
certificates representing shares of Best Buy Common Stock; and/or (4) such other
information or instructions as the Partnership deems necessary or advisable to
enable a Holder to exercise its conversion right hereunder. For purposes of the
calculation of the Conversion Expiration Date and the dates on which notices are
given pursuant to this paragraph (d), a Notice of Conversion Expiration shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to each Holder of Preferred Securities at the address of the
Holder appearing in the books and records of the Partnership (whether or not the
Holder receives the Notice). No defect in the Notice of Conversion Expiration
or in the mailing thereof with respect to any Preferred Security shall affect
the validity of such notice with respect to any other Preferred Security. As of
the close of business on the Conversion Expiration Date, the Preferred
Securities shall be deemed to be non-convertible securities.
(e) No fractional shares of Best Buy Common Stock will be issued
as a result of conversion, but in lieu thereof, such fractional interest will be
in cash by Best Buy to the Partnership, which in turn will make such payment to
the Holder or Holders of Preferred Securities so converted.
(f) Best Buy shall at all times reserve and keep available out of
its authorized and unissued Best Buy Common Stock, solely for issuance upon the
conversion of the Subordinated Debentures, free from any preemptive or other
similar rights, such number of shares of Best Buy Common Stock as shall from
time to time be issuable upon the conversion of all the Subordinated Debentures
then outstanding. Notwithstanding the foregoing, Best Buy shall be entitled to
deliver upon conversion of Subordinated Debentures, shares of Best Buy Common
Stock reacquired and held in the treasury of Best Buy (in lieu of the issuance
of authorized and unissued shares of Best Buy Common Stock), so long as any such
treasury shares are free and clear of all liens, charges, security interests or
encumbrances. Any shares of Best Buy Common stock issued upon conversion of the
Subordinated Debentures shall be duly authorized, validly issued and fully paid
and nonassessable. The Partnership shall deliver the shares of Best Buy Common
Stock received upon conversion of the Subordinated Debentures to the converting
Holder free
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and clear of all liens, charges, security interests and encumbrances, except for
United States withholding taxes. Each of Best Buy and the Partnership shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all applicable requirements as to registration or
qualification of the Best Buy Common Stock (and all requirements to list the
Best Buy Common Stock issuable upon conversion of Subordinated Debentures that
are at the time applicable), in order to enable Best Buy to lawfully issue Best
Buy Common Stock to the Partnership upon conversion of the Subordinated
Debentures and the Partnership to lawfully deliver the Best Buy Common Stock to
each Holder upon conversion of the Preferred Securities.
(g) Best Buy will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Best Buy Common Stock on
conversion of Subordinated Debentures and the delivery of the shares of Best Buy
Common Stock by the Partnership upon conversion of the Preferred Securities.
Best Buy shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of shares of Best Buy
Common Stock in a name other than that in which the Preferred Securities so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Partnership the
amount of any such tax, or has established to the satisfaction of the
Partnership that such tax has been paid.
(h) Nothing in Section 6.3(g) shall limit the requirement of the
Partnership to withhold taxes pursuant to Section 4.4 or otherwise require the
General Partner or the Partnership to pay any amounts on account of such
withholdings.
Section 6.4 OPTIONAL EXCHANGE FOR DEPOSITARY SHARES REPRESENTING
BEST BUY PREFERRED STOCK.
(a) Upon the occurrence of an Exchange Event, the Holders of a
Majority in Liquidation Preference of the Preferred Securities, voting as a
class or by written consent, may, at their option, cause the Conversion Agent to
(i) exchange all (but not less than all) of the Preferred Securities then
outstanding for all (but not less than all) of the Subordinated Debentures held
by the Partnership at the rate of exchange specified in Section 6.3(a) above,
(ii) immediately exchange such Subordinated Debentures, on behalf of the
Holders, for Depositary Shares, each representing ownership of 1/100th of a
share of Best Buy
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Preferred Stock, at the Exchange Price and (iii) to distribute such Depositary
Shares to the Holders. Upon receipt of notice and the directions described
above (the "NOTICE OF EXCHANGE"), the Conversion Agent shall promptly notify
the Partnership, Best Buy and the trustee for the Subordinated Debentures of an
Exchange Election by delivering copies of the Notice of Exchange to such
Persons. The Partnership, upon such notice, shall deliver the Subordinated
Debentures to the Conversion Agent in exchange for the Preferred Securities.
Best Buy, upon such notice, shall, in exchange for the principal amount of the
Subordinated Debentures then outstanding, issue and deposit with the Depositary,
pursuant to the Deposit Agreement, a certificate or certificates for the number
of shares of Best Buy Preferred Stock issuable at the Exchange Price in return
for a Depositary Receipt or Receipts evidencing a proportionate number of
Depositary Shares in respect of the Best Buy Preferred Stock so deposited. Best
Buy shall request that the Depositary Receipts be issued in the names of the
holders of Preferred Securities designated in the Notice of Exchange. As
promptly as practicable on or after the exchange date, Best Buy shall deliver at
the office of the Conversion Agent the Depositary Receipt or Receipts
representing the Best Buy Preferred Stock issuable upon such exchange.
(b) The failure of Best Buy, after its election to extend interest
payments on the Subordinated Debentures in accordance with their terms, to make
15 interest payments to the partnership shall constitute an "EXCHANGE EVENT."
(c) As soon as practicable, but in no event later than 30 days
after the occurrence of an Exchange Event, the General Partner shall convene a
general meeting of the Holders (an "EXCHANGE ELECTION MEETING") for the
purpose of acting on the matter of whether to cause the Conversion Agent to
exchange all of the Preferred Securities then outstanding for all of the
Subordinated Debentures held by the Partnership and immediately exchange those
Subordinated Debentures, on behalf of the Holders, for Depositary Shares. If
the General Partner fails to convene such Exchange Election Meeting within such
30-day period, the Holders of not less than 10% in Liquidation Preference of the
Preferred Securities will be entitled to convene such Exchange Election Meeting.
Upon the affirmative vote of the Holders of a Majority in Liquidation Preference
of the Preferred Securities at an Exchange Election Meeting or, in the absence
of such meeting, upon receipt by the Partnership of a written consent signed by
the Holders of a Majority in Liquidation Preference of the Preferred Securities,
an election to exchange all outstanding Preferred Securities on
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the basis described above (an "EXCHANGE ELECTION") will be deemed to have been
made.
Holders, by becoming a party to this Agreement pursuant to Section
2.9 of this Agreement, will be deemed to have agreed to be bound by these
optional exchange provisions in regard to the exchange of Preferred Securities
for Depositary Shares pursuant to the terms described above.
(d) Each Depositary Share will represent a one one-hundredth
(1/100th) interest in a share of Best Buy Preferred Stock and shall be evidenced
by a Depositary Receipt. Best Buy shall at all times reserve and keep available
out of its authorized and unissued Best Buy Preferred Stock, solely for issuance
upon the exchange of Subordinated Debentures for Depositary Shares, free from
any preemptive or other similar rights, such number of shares of Best Buy
Preferred Stock as shall from time to time be issuable upon the exchange of all
the Subordinated Debentures then outstanding for Depositary Shares. Each of
Best Buy and the Partnership shall prepare and shall use its best efforts to
obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all applicable
requirements as to registration or qualification of the Best Buy Preferred Stock
in order to enable Best Buy to lawfully issue the Best Buy Preferred Stock upon
exchange of the Subordinated Debentures and deposit such Best Buy Preferred
Stock with the Depositary under the Deposit Agreement and the Partnership to
lawfully deliver Depositary Shares upon exchange of the Preferred Securities.
All shares of Best Buy Preferred Stock issued upon conversion of the
Subordinated Debentures shall be duly authorized, validly issued and fully paid
and non-assessable and the terms of the Best Buy Preferred Stock shall be valid
and binding on Best Buy. The Conversion Agent shall deliver the Depositary
Shares, evidenced by Depositary Receipts, received upon exchange of the
Preferred Securities to the exchanging Holder, free and clear of all liens,
charges, security interests and encumbrances.
(e) Best Buy will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Best Buy Preferred Stock upon
exchange of the Subordinated Debentures, the delivery and deposit of such shares
to the Depositary and the delivery of the Depositary Shares by the Partnership
upon exchange of the Preferred Securities. Best Buy shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Best Buy Preferred Stock or Depositary Shares in a
name other than that in which Preferred Securi-
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ties so exchanged were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Partnership
the amount of any such tax, or has established to the satisfaction of the
Partnership that such tax has been paid.
(f) Preferred Securities shall be deemed to have been exchanged
immediately prior to the close of business on the day on which the Exchange
Election is made. The Person or Persons entitled to receive the Depositary
Shares representing the Best Buy Preferred Stock issuable upon exchange of the
Preferred Securities shall be treated for all purposes as the record holder or
holders of such Best Buy Preferred Stock at such time. As promptly as
practicable on or after the date on which the Exchange Election is made, Best
Buy shall issue and deposit with the Depositary a certificate or certificates
for the number of full shares of Best Buy Preferred Stock issuable upon such
exchange in return for a Depositary Receipt or Receipts issued by the Depositary
evidencing a proportionate number of Depositary Shares in respect of the Best
Buy Preferred Stock so deposited and deliver such Depositary Receipt or Receipts
to the Partnership for distribution to the Persons entitled thereto. The
Partnership shall promptly distribute such Depositary Receipts to the Persons
entitled thereto.
(g) The terms of the Best Buy Preferred Stock issued upon the
exchange of the Preferred Securities for Depositary Shares shall provide that
all accumulated and unpaid Dividends (including any Additional Dividends
thereon) that are not paid by the Partnership or Best Buy pursuant to the
Guarantee shall be treated as accumulated and unpaid dividends on such Best Buy
Preferred Stock.
(h) Nothing in Section 6.4(e) shall limit the requirement of the
Partnership to withhold taxes pursuant to Section 4.4 or otherwise require the
General Partner or Best Buy Capital to pay any amounts on account of such
withholdings.
ARTICLE VII
BOOKS OF ACCOUNT, RECORDS AND REPORTS
Section 7.1 BOOKS AND RECORDS.
(a) Proper and complete records and books of account of the
Partnership shall be kept by the General Partner in which shall be entered fully
and accurately all transactions and other matters relative to the Partnership's
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business as are usually entered into records and books of account maintained by
Persons engaged in businesses of a like character, including a Capital Account
for each Partner. The books and records of the Partnership, together with a
certified copy of this Agreement and of the Certificate, shall at all times be
maintained at the principal office of the General Partner and shall be open to
the inspection and examination of the Partners or their duly authorized
representatives for a proper purpose during reasonable business hours.
(b) The General Partner may, for such period of time that the
General Partner deems reasonable, keep confidential from the Partners any
information with respect to the Partnership the disclosure of which the General
Partner reasonably believes is not in the best interests of the Partnership or
is adverse to the interests of the Partnership or which the Partnership or the
General Partner is required by law or by an agreement with any Person to keep
confidential.
(c) Within three months after the close of each Fiscal Year, the
General Partner shall transmit to each Partner, a statement indicating such
Partner's share of each item of Partnership income, gain, loss, deduction or
credit for such Fiscal Year for federal income tax purposes.
Section 7.2 ACCOUNTING METHOD. For both financial and tax
reporting purposes and for purposes of determining profits and losses, the books
and records of the Partnership shall be kept on the accrual method of accounting
applied in a consistent manner and shall reflect all Partnership transactions
and be appropriate and adequate for the Partnership's business.
Section 7.3 ANNUAL AUDIT. As soon as practical after the end of
each Fiscal Year, but not later than 90 days after such end, the financial
statements of the Partnership shall be audited by a firm of independent
certified public accountants selected by the General Partner, and such financial
statements shall be accompanied by a report of such accountants containing their
opinion. The cost of such audits will be an expense of the Partnership and paid
by Best Buy.
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ARTICLE VIII
POWERS, RIGHTS AND DUTIES
OF THE LIMITED PARTNERS
Section 8.1 LIMITATIONS. Other than as set forth in this
Agreement, the Limited Partners shall not participate in the management or
control of the Partnership's business, property or other assets nor shall the
Limited Partners transact any business for the Partnership, nor shall the
Limited Partners have the power to act for or bind the Partnership, said powers
being vested solely and exclusively in the General Partner (and, upon
appointment, the Special General Partner). Except for shares of Common Stock or
Best Buy Preferred Stock deliverable upon conversion or exchange of the
Preferred Securities, the Limited Partners shall have no interest in the
properties, or assets of the General Partner, or any equity therein, or in any
proceeds of any sales thereof (which sales shall not be restricted in any
respect, by virtue of acquiring or owning an Interest in the Partnership).
Section 8.2 LIABILITY. Subject to the provisions of the Act, no
Limited Partner shall be liable for the repayment, satisfaction or discharge of
any debts or other obligations of the Partnership in excess of the Capital
Account balance of such Limited Partner.
Section 8.3 PRIORITY. No Limited Partner shall have priority
over any other Limited Partner as to Partnership allocations or distributions.
ARTICLE IX
POWERS, RIGHTS AND DUTIES
OF THE GENERAL PARTNER
Section 9.1 AUTHORITY. Subject to the limitations provided in
this Agreement, the General Partner or, upon appointment pursuant to Section
6.2(g), the Special General Partner, shall have exclusive and complete
authority and discretion to manage the operations and affairs of the Partnership
and to make all decisions regarding the business of the Partnership. Any action
taken by the General Partner or, upon appointment pursuant to Section 6.2(g),
the Special General Partner, shall constitute the act of and serve to bind the
Partnership. In dealing with the General Partner or, upon appointment pursuant
to Section 6.2(g), the Special General Partner, acting on behalf of the
Partnership no Person shall be required to inquire into the
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authority of the General Partner or, upon appointment pursuant to Section
6.2(g), the Special General Partner, to bind the Partnership. Persons dealing
with the Partnership are entitled to rely conclusively on the power and
authority of the General Partner or, upon appointment pursuant to Section
6.2(g), the Special General Partner, as set forth in this Agreement.
Section 9.2 POWERS AND DUTIES OF GENERAL PARTNER. Except as
otherwise specifically provided herein, the General Partner (or, upon
appointment pursuant to Section 6.2(g), the Special General Partner), shall have
all rights and powers of a general partner under the Act, and shall have all
authority, rights and powers in the management of the Partnership business to do
any and all other acts and things necessary, proper, convenient or advisable to
effectuate the purposes of this Agreement, including by way of illustration but
not by way of limitation, the following:
(a) to secure the necessary goods and services required in
performing the General Partner's duties for the Partnership;
(b) to exercise all powers of the Partnership, on behalf of the
Partnership, in connection with enforcing the Partnership's rights under
the Subordinated Debentures and the Guarantee;
(c) to issue Preferred Securities and to admit Limited Partners in
connection therewith in accordance with this Agreement;
(d) to act as registrar and transfer agent for the Preferred
Securities or designate an entity to act as registrar and transfer agent;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including with
respect to Dividends and voting rights and to make determinations as to
the payment of Dividends, and make or cause to be made all other required
payments to Holders and to the General Partner;
(f) to open, maintain and close bank accounts and to draw checks
and other orders for the payment of money;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the
Partnership;
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(h) to deposit, withdraw, invest, pay, retain and distribute the
Partnership's funds in a manner consistent with the provisions of this
Agreement;
(i) to take all action which may be necessary or appropriate for
the preservation and the continuation of the Partnership's valid
existence, rights, franchises and privileges as a limited partnership
under the laws of the State of Delaware and of each other jurisdiction in
which such existence is necessary to protect the limited liability of the
Limited Partner or to enable the Partnership to conduct the business in
which it is engaged;
(j) to cause the Partnership to enter into and preform, on behalf
of the Partnership, the Underwriting Agreement and to cause the
Partnership to purchase the Subordinated Debentures without any further
act, vote or approval of any Partner; and
(k) to execute and deliver any and all documents or instruments,
perform all duties and powers and do all things for and on behalf of the
Partnership in all matters necessary or desirable or incidental to the
foregoing.
Section 9.3 EXPENSES PAYABLE BY GENERAL PARTNER. The General
Partner hereby assumes and shall be liable for the debts, obligations and
liability of the partnership and agrees to pay to each Person or entity to whom
the Partnership is now or hereafter becomes indebted or liable, whether such
indebtedness, obligations or liabilities arise in contract, tort or otherwise,
(including, without limitation, payment obligations arising under Section 7.3 of
this Agreement, but excluding payment obligations of Best Buy to Holders of the
Preferred Securities in such Holders' capacities as Holders of such Preferred
Securities, such obligations being separately guaranteed under the Guarantee)
(the "BENEFICIARIES") the full payment of such indebtedness and any and all
liabilities, when and as due. This agreement is intended to be for the benefit
of and to be enforceable by all such Beneficiaries whether or not such
Beneficiaries have received notice hereof.
Section 9.4 LIABILITY. Except as expressly set forth in this
Agreement, (a) the General Partner shall not be personally liable for the return
of any portion of the capital contributions (or any return thereon) of the
Limited Partners; (b) the return of such capital contributions (or any return
thereon) shall be made solely from assets of the Partnership; and (c) the
General Partner shall not be
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required to pay to the Partnership or to any Limited Partner any deficit in any
Limited Partner's Capital Account upon dissolution or otherwise. Other than as
provided in Sections 6.3 and 6.4 of this Agreement or under the Act, no Limited
Partner shall have the right to demand or receive property other than cash for
its respective Interest in the Partnership.
Section 9.5 INVESTMENT COMPANY OR TAX ACTIONS. The General
Partner is authorized and directed to conduct its affairs and to operate the
Partnership in such a way that the Partnership would not be deemed to be an
"investment company" required to be registered under the Investment Company
Act of 1940 (the "1940 ACT") or taxed as a corporation for federal income tax
purposes and so that the Subordinated Debentures will be treated as indebtedness
of Best Buy for federal income tax purposes. In this connection, the General
Partner is authorized to take any action not inconsistent with applicable law or
this Agreement, and that does not materially and adversely affect the interests
of Holders, that the General Partner determines in its discretion to be
necessary or desirable for such purposes.
Section 9.6 OUTSIDE BUSINESSES. Any Partner or Affiliate thereof
may engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Partnership, and the Partnership and the Partners shall have no rights by
virtue of this Agreement in and to such independent ventures or the income or
profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper. No Partner or Affiliate thereof shall be obligated to present any
particular investment opportunity to the Partnership even if such opportunity is
of a character that, if presented to the Partnership, could be taken by the
Partnership, and any Partner or Affiliate thereof shall have the right to take
for its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment opportunity.
Section 9.7 LIMITS ON GENERAL PARTNER'S POWERS. (a) Anything in
this Agreement to the contrary notwithstanding, the General Partner (or, upon
appointment pursuant to Section 6.2(g), the Special General Partner) shall not
cause or permit the Partnership to:
(i) acquire any assets other than as expressly provided herein;
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(ii) do any act which would make it impractical or impossible to
carry on the ordinary business of the Partnership;
(iii) possess Partnership property for other than a Partnership
purpose;
(iv) admit a Person as a Partner, except as expressly provided in
this Agreement;
(v) make any loans to the General Partner or its Affiliates, other
than loans represented by the Subordinated Debentures;
(vi) perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction;
(vii) engage in any activity that is not consistent with the
purposes of the Partnership, as set forth in Section 2.3;
(viii) without the written consent of 66 2/3% in Liquidation
Preference of the Preferred Securities have an order for relief entered
with respect to the Partnership or commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary
case under any such law, or consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a
substantial part of the Partnership's property, or make any assignment for
the benefit of creditors of the Partnership; or
(ix) borrow money or become liable for the borrowings of any third
party or to engage in any financial or other trade or business.
(b) So long as the Subordinated Debentures are held by the
Partnership, the General Partner shall not:
(i) direct the time, method and place of conducting any proceeding
for any remedy available to the Special General Partner, or exercising any
trust or power conferred on the Special General Partner with respect to
the Subordinated Debentures,
(ii) waive any past default which is waivable under the
Subordinated Debentures,
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(iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures shall be due and payable,
(iv) consent to any amendment, modification or termination of the
Subordinated Debentures without, in each case, obtaining the prior
approval of the Holders of not less than 66 2/3% in Liquidation Preference
of the Preferred Securities; PROVIDED, HOWEVER, that where a consent
under the Subordinated Debentures would require the consent of each holder
of Subordinated Debentures affected thereby, no such consent shall be
given by the General Partner without the prior consent of each Holder of
Preferred Securities.
(c) The General Partner shall not revoke any action previously
authorized or approved by the Special General Partner or by a vote of Holders
without the approval of the Holders of not less than 66 2/3% in Liquidation
Preference of the Preferred Securities. The General Partner shall notify all
Holders of any notice of default received from the Fiscal Agent with respect to
the Subordinated Debentures.
Section 9.8 TAX MATTERS PARTNER.
(a) For purposes of Code Section 6231(a)(7), the "TAX MATTERS
PARTNER" shall be the General Partner as long as it remains the general partner
of the Partnership. The Tax Matters Partner shall keep the Limited Partners
fully informed of any inquiry, examination or proceeding.
(b) The General Partner shall not make an election in accordance
with Section 754 of the Code.
(c) The General Partner and the Preferred Security Holders
acknowledge that they intend, for U.S. federal income tax purposes, that the
Partnership shall be treated as a partnership and that the General Partner and
the Preferred Security Holders shall be treated as Partners of such Partnership
for such purposes.
(d) The General Partner shall retain, at the expense of the
Partnership and at its sole discretion, a nationally recognized firm of
certified public accountants which shall prepare all federal, state, local or
other tax returns (including information returns) of the Partnership, as
required by law, and the Schedule K-1's or any successor or similar forms or
schedules required by law.
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Section 9.9 CONSOLIDATION, MERGER OR SALE OF ASSETS.
(a) Best Buy may not merge or consolidate with or into another
entity or permit another entity to merge or consolidate with or into, or be
replaced by, or sell, transfer or lease all or substantially all of its assets
to another entity (each such event, a "TRANSACTION") unless (i) at the time of
such Transaction, no Event of Default (as defined in the Fiscal Agency
Agreement) shall have occurred and be continuing, or would occur as a result of
such Transaction, (ii) the survivor of such merger or consolidation or the
entity to which Best Buy's assets are sold, transferred or leased is an entity
organized under the laws of the United States or any state thereof, such entity
becomes a party to this Agreement and becomes the General Partner, assumes all
of Best Buy's obligations under this Agreement, and has a net worth equal to at
least 10% of the total capital contributions made by the Partners to the
Partnership, and (iii) prior to such Transaction, Best Buy obtains an opinion of
nationally recognized independent counsel experienced in such matters to the
effect that the Partnership will continue to be taxable as a partnership for
federal income tax purposes after such Transaction and (iv) in the case of any
sale, transfer or lease of all or substantially all of Best Buy's assets that
includes Best Buy's Interest in the Partnership, Best Buy has obtained the
consent of the Holders of not less than 66 2/3% in Liquidation Preference of the
Preferred Securities to the sale, transfer or lease of its Interest in the
Partnership.
(b) In addition, Best Buy shall not cause or allow the Partnership
to enter into a Transaction, except as described below and as permitted or
required under Section 11.3 of this Agreement. The Partnership may, for
purposes of changing its state of domicile in order to avoid 1940 Act
consequences adverse to Best Buy, itself or the Holders, merge or without the
consent of the Holders, merge or consolidate with or into, or be replaced by, a
limited partnership or trust organized as such under the laws of any state of
the United States of America; PROVIDED, that (i) such successor entity either
(x) expressly assumes all of the obligations of the Partnership under the
Preferred Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"SUCCESSOR SECURITIES") so long as the Successor Securities rank, with respect
to participation in the profits or assets of the successor entity, at least as
high as the Preferred Securities rank, with respect to participation in the
profits or assets of the Partnership, (ii) Best Buy expressly acknowledges such
successor entity
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as the holder of the subordinated Debentures, (iii) such Transaction does not
cause the Preferred Securities (or the Successor Securities) to be delisted by
any national securities exchange or other organization on which the Preferred
Securities are then listed, (iv) such Transaction does not cause the Preferred
Securities (or the Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, as that term is defined by the
Securities and Exchange Commission for purposes of Rule 436(g)(2) under the
Securities Act, (v) such Transaction does not adversely affect the powers,
preferences and other special rights of Holders of Preferred Securities
(including Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (vi) prior
to such Transaction Best Buy has received an opinion of nationally recognized
independent counsel to the Partnership experienced in such matters to the effect
that (x) such successor entity will be treated as a partnership for federal
income tax purposes, (y) following such Transaction, Best Buy and such successor
entity will be in compliance with the 1940 Act without registering thereunder as
an investment company, and (z) such Transaction will not adversely affect the
limited liability of the Holders.
ARTICLE X
TRANSFERS OF INTERESTS BY PARTNERS
Section 10.1 TRANSFER OF INTERESTS.
(a) Preferred Securities shall be freely transferable by a Holder.
(b) Except as provided in the next sentence, the General Partner
may not assign or transfer its Interest in the Partnership in whole or in part
unless, prior to such assignment or transfer, the General Partner has obtained
the consent of the Holders of not less than 66 2/3% in Liquidation Preference of
the Preferred Securities. The General Partner may assign or transfer its
interest in the Partnership without such consent only to an entity that is the
survivor of a merger or consolidation of the General Partner in a transaction
that meets the requirements of Section 9.9(a). "PERMITTED SUCCESSOR" shall
mean an entity that is an assignee or transferee of the Interest of the General
Partner as permitted by this Section 10.1(b).
(c) Except as provided above, no Interest shall be transferred, in
whole or in part, except in accordance
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with the terms and conditions set forth in this Agreement. Any transfer or
purported transfer of any Interest not made in accordance with this Agreement
shall be null and void.
Section 10.2 TRANSFER OF LP CERTIFICATES. The General Partner
shall provide for the registration of LP Certificates and of transfers of LP
Certificates. Upon surrender for registration of transfer of any LP
Certificate, the General Partner shall cause one or more new LP Certificates to
be issued in the name of the designated transferee or transferees. Every LP
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the General Partner duly
executed by the Preferred Security Holder or his or her attorney duly authorized
in writing. Each LP Certificate surrendered for registration of transfer shall
be canceled by the General Partner. A transferee of an LP Certificate shall be
admitted to the Partnership as a Limited Partner and shall be entitled to the
rights and subject to the obligations of a Preferred Security Holder hereunder
upon the receipt by a transferee of an LP Certificate.
Section 10.3 PERSONS DEEMED PREFERRED SECURITY HOLDERS. The
Partnership may treat the Person in whose name any LP Certificate shall be
registered on the books and records of the Partnership as the sole holder of
such LP Certificate and of the Preferred Securities represented by such LP
Certificate for purposes of receiving Dividends and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such LP Certificate or in the Preferred Securities
represented by such LP Certificate on the part of any other Person, whether or
not the Partnership shall have actual or other notice thereof.
Section 10.4 BOOK-ENTRY INTERESTS. The LP Certificates, on
original issuance, will be issued in the form of a global LP Certificate or LP
Certificates representing the Book-Entry Interests, to be delivered to DTC, the
initial Clearing Agency, by, or on behalf of, the Partnership. Such LP
Certificate or LP Certificates shall initially be registered on the books and
records of the Partnership in the name of Cede & Co., the nominee of DTC, and no
Preferred Security Owner will receive a definitive LP Certificate representing
such Preferred Security Owner's interests in such LP Certificate, except as
provided in Section 10.6. Unless and until definitive, fully registered LP
Certificates (the "DEFINITIVE LP CERTIFICATES") have been issued to the
Preferred Security Owners pursuant to Section 10.6:
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(i) The provisions of this Section shall be in full force and
effect;
(ii) The Partnership, the General Partner and any Special General
Partner shall be entitled to deal with the Clearing Agency for all
purposes of this Agreement (including the payment of Dividends, Redemption
Price and liquidation proceeds on the LP Certificates and receiving
approvals, votes or consents hereunder) as the Preferred Security Holder
and the sole holder of the LP Certificates and shall have no obligation to
the Preferred Security Owner; and
(iii) None of the Partnership, the General Partner, any Special
General Partner or any agent of the General Partner, the Partnership or
any Special General Partner shall have any liability with respect to or
responsibility for the records of the Clearing Agency.
Section 10.5 NOTICES TO CLEARING AGENCY. Whenever a notice or
other communication to the Preferred Security Holders is required under this
Agreement, unless and until Definitive LP Certificates shall have been issued to
the Preferred Security Owners pursuant to Section 10.6, the General Partner and
any Special General Partner shall give all such notices and communications
specified herein to be given to the Preferred Security Holders to the Clearing
Agency, and shall have no obligations to the Preferred Security Owners.
Section 10.6 DEFINITIVE LP CERTIFICATES. If (i) the Clearing
Agency elects to discontinue its services as securities depository, (ii) the
Partnership elects to terminate the book-entry system through the Clearing
Agency, or (iii) there is an Event of Default under the Subordinated Debentures,
then Definitive LP Certificates shall be prepared by the Partnership. Upon
surrender of the global LP Certificate or LP Certificates representing the
Book-Entry Interests by the Clearing Agency, accompanied by registration
instructions, the General Partner shall cause Definitive LP Certificates to be
delivered to Preferred Security Owners in accordance with the instructions of
the Clearing Agency. Neither the General Partner nor the Partnership shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Any Person
receiving a Definitive LP Certificate in accordance with this Article X shall be
admitted to the Partnership as a Limited Partner upon receipt of such Definitive
LP Certificate and shall be registered on the books and records of the
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Partnership as a Preferred Security Holder. The Definitive LP Certificates
shall be printed, lithographed or engraved or may be produced in any other
manner as may be required by any national securities exchange on which the
Preferred Securities may be listed and is reasonably acceptable to the General
Partner, as evidenced by its execution thereof.
ARTICLE XI
WITHDRAWAL; DISSOLUTION;
LIQUIDATION AND DISTRIBUTION OF ASSETS
Section 11.1 WITHDRAWAL OF PARTNERS. The General Partner shall
not at any time retire or withdraw from the Partnership except as otherwise
permitted hereunder. If the General Partner retires or withdraws in
contravention of this Section 11.1, it shall indemnify, defend and hold harmless
the Partnership and the other Partners from and against any losses, expenses,
judgments, fines, settlements or damages suffered or incurred by the Partnership
or such other Partners arising out of or resulting from such retirement or
withdrawal.
Section 11.2 DISSOLUTION OF THE PARTNERSHIP.
(a) The Partnership shall not be dissolved by the admission of
Partners in accordance with the terms of this Agreement. Except as provided in
Section 11.2(b)(ii), the death, retirement, resignation, expulsion, bankruptcy
or dissolution of a Partner, or the occurrence of any other event which
terminates the Interest of a Partner in the Partnership, shall not cause the
Partnership to be dissolved and its affairs wound up so long as the Partnership
at all times has at least two Partners. Upon the occurrence of any such event,
the business of the Partnership shall be continued without dissolution.
(b) The Partnership shall be dissolved and terminated and its
affairs shall be wound up upon the earliest to occur of any of the following
events:
(i) the expiration of the term of the Partnership, as provided in
Section 2.4 of this Agreement;
(ii) upon the bankruptcy, insolvency or dissolution of the General
Partner;
(iii) the entry of a decree of judicial dissolution under Section
17-802 of the Act; or
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(iv) the written consent of all Partners.
(c) Upon dissolution of the Partnership, the Liquidator shall
promptly notify the Partners of such dissolution.
Section 11.3 LIQUIDATION.
(a) In the event of the dissolution of the Partnership for any
reason, the General Partner (or, if the Partnership is dissolved pursuant to
Section 11.2(b)(ii), then a liquidating agent appointed by Holders of not less
than 66 2/3% in Liquidation Preference of the Preferred Securities (the General
Partner or such person so appointed is hereinafter referred to as the
"LIQUIDATOR")) shall commence to wind up the affairs of the Partnership and to
liquidate the Partnership's assets, including the Partnership's Eligible
Investments and/or amounts deposited in the Eligible Investment Account;
PROVIDED, HOWEVER, that a reasonable time shall be allowed for the orderly
liquidation of the assets of the Partnership and the satisfaction of liabilities
to creditors so as to enable the Partners to minimize the normal losses
attendant upon liquidation. The Partners shall continue to share all income,
losses and distributions during the period of liquidation in accordance with
Articles IV and V. Subject to the provisions of this Article XI, the Liquidator
shall have full right and unlimited discretion to determine the time, manner and
terms of any sale or sales of Partnership property pursuant to such liquidation,
giving due regard to the activity and condition of the relevant market and
general financial and economic conditions.
(b) The Liquidator shall have all of the rights and powers with
respect to the assets and liabilities of the Partnership in connection with the
liquidation and termination of the Partnership that the General Partner would
have with respect to the assets and liabilities of the Partnership during the
term of the Partnership, and the Liquidator is hereby expressly authorized and
empowered to execute any and all documents necessary or desirable to effectuate
the liquidation and termination of the Partnership and the transfer of any
assets.
(c) Notwithstanding the foregoing, a Liquidator that is not a
General Partner shall not be deemed a Partner in this Partnership and shall not
have any of the economic interests in the Partnership of a Partner; and such
Liquidator may be compensated for its services to the Partnership at normal
customary and competitive rates for its services
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to the Partnership as reasonably determined by all the Limited Partners.
Section 11.4 DISTRIBUTION IN LIQUIDATION. Subject to Section
9.3, the proceeds of liquidation shall be applied in the following order of
priority (and without regard to the provisions of Section 17-804 of the Act):
(i) to creditors of the Partnership, including Preferred Security
Holders who are creditors, to the extent otherwise permitted by law, in
satisfaction of the liabilities of the Partnership (whether by payment or
the making of reasonable provision for payment thereof), other than
liabilities for distributions (including Dividends) to Partners; and
(ii) following any allocations required under Section 4.1(c) of the
Agreement, to the Partners in proportion to the Partner's positive Capital
Account balances.
Section 11.5 RIGHTS OF LIMITED PARTNERS. Each Limited Partner
shall look solely to the assets of the Partnership for all distributions with
respect to the Partnership and such Partner's capital contribution (including
returns thereof), and such Partner's share of profits or losses thereof, and
shall have no recourse therefor (upon dissolution or otherwise) against the
General Partner, except under the Guarantee. Except as provided in Sections 6.3
and 6.4 of this Agreement, no Partner shall have any right to demand or receive
property other than cash upon dissolution and termination of the Partnership.
Section 11.6 TERMINATION. The Partnership shall terminate when
all of the assets of the Partnership shall have been disposed of and the assets
shall have been distributed as provided in Section 11.4. The Liquidator shall
then execute and cause to be filed a certificate of cancellation of the
Partnership.
ARTICLE XII
AMENDMENTS AND MEETINGS
Section 12.1 AMENDMENTS. Except as provided by Section 6.2(h),
this Agreement may be amended by a written instrument executed by the General
Partner without the consent of any Limited Partner; PROVIDED, HOWEVER, that
no amendment shall be made, and any such purported amendment shall be void and
ineffective, to the extent the result
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thereof would be to cause the Partnership to be treated as anything other than a
partnership for purposes of United States income taxation or require the
Partnership to register under the 1940 Act.
Section 12.2 AMENDMENT OF CERTIFICATE. In the event this
Agreement shall be amended pursuant to Section 12.1, the General Partner shall
amend the Certificate to reflect such change if it deems such amendment of the
Certificate to be necessary or appropriate.
Section 12.3 MEETINGS OF PARTNERS.
(a) Meetings of the Limited Partners who are Holders may be called
at any time by the General Partner to consider and act on any matter on which
Limited Partners are entitled to act under the terms of this Agreement or
the Act. The General Partner shall call a meeting of Holders if directed to do
so by Holders of not less than 10% in Liquidation Preference as permitted by
this Agreement. Such direction shall be given by delivering to the General
Partner a request in writing stating that the signing Limited Partners desire to
call a meeting and indicating the general or specific purpose for which the
meeting is to be called.
(b) Notice of any such meeting shall be given to all Partners not
less than seven Business Days nor more than 60 days prior to the date of such
meeting. Each such notice shall set forth the date, time and place of the
meeting, a description of any matter on which Holders are entitled to vote
and instructions for the delivery of proxies or written consents.
(c) Any action that may be taken at a meeting of the Limited
Partners may be taken without a meeting if a consent in writing setting forth
the action so taken is signed by Limited Partners owning not less than the
minimum Interests that would be necessary to authorize or take such action at a
meeting in which all Limited Partners having a right to vote thereon were
present and voting. Prompt notice of the taking of action without a meeting
shall be given to the Limited Partners entitled to vote who have not consented
in writing. The General Partner may provide that any written ballot submitted
to the Limited Partners for the purpose of taking any action without a meeting
shall be refunded to the Partnership within a specified time.
(d) Each Partner may authorize any Person to act for it by proxy on
all matters as to which a Partner is entitled to participate, including waiving
notice of any
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meeting, or voting or participating at a meeting. Every proxy must be signed by
the Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the Partner executing
it.
(e) Each meeting of Partners shall be conducted by the General
Partner or by such other Person that the General Partner may designate.
(f) The General Partner may establish all other reasonable
procedures relating to meetings of Partners or the giving of written consents,
in addition to those expressly provided, including notice of time, place or
purpose of any meeting at which any matter is to be voted on by any Partners,
waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person or by
proxy or any other matter with respect to the exercise of any such right to
vote.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 NOTICES. All notices provided for in this Agreement
shall be in writing, and shall be delivered or mailed by first class or
registered or certified mail or, with respect to the Partnership and General
Partner, telecopied, as follows:
(a) if given to the Partnership, in care of the General Partner at
the Partnership's mailing address set forth below:
Best Buy Capital, L.P.
c/o Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Attention: Secretary
Telecopy: [(612) 947-2706]
(b) if given to the General Partner, at its mailing address set
forth below:
Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Attention: Secretary
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Telecopy: [(612) 947-2706]
(c) if given to any other Partner at the address set forth on the
books and records of the Partnership.
Section 13.2 POWER OF ATTORNEY. Each Holder does hereby
constitute and appoint the General Partner, and if applicable, any Special
General Partner appointed pursuant to Section 6.2(g) of this Agreement, as its
true and lawful representative and attorney-in-fact, in its name, place and
stead to make, execute, sign, deliver and file (a) any amendment of the
Certificate required because of an amendment of this Agreement or in order to
effect any change in the Partnership, (b) this Agreement, (c) any amendments to
this Agreement and (d) all such other instruments, documents and certificates
which from time to time may required by the laws of the United States of
America, the State of Delaware or any other jurisdiction, or any political
subdivision or agency thereof, to effectuate, implement and continue the valid
and subsisting existence of the Partnership or to dissolve the Partnership for
any other purpose consistent with this Agreement and the transactions
contemplated hereby.
The power of attorney granted hereby is coupled with an interest and
shall (a) survive and not be affected by the subsequent death, incapacity,
disability, dissolution, termination, or bankruptcy of the Holder granting the
same or the transfer of all or any portion of such Holder's Interest and (b)
extend to such Holder's successors, assigns and legal representatives.
Section 13.3 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement among the parties. It supersedes any prior agreement or
understandings among them, and it may not be modified or amended in any manner
other than as set forth herein.
SECTION 13.4 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED
BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
Section 13.5 EFFECT. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, successors and assigns.
Section 13.6 PRONOUNS AND NUMBER. Wherever from the context it
appears appropriate, each term stated in
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either the singular or the plural shall include the singular and the plural, and
pronouns stated in either the masculine, feminine or neuter shall include the
masculine, feminine and neuter.
Section 13.7 CAPTIONS. Captions contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit or extend
the scope or intent of this Agreement or any provisions hereof.
Section 13.8 PARTIAL ENFORCEABILITY. If any provision of this
Agreement, or the application of such provision to any Person or circumstance,
shall be held invalid, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
Section 13.9 COUNTERPARTS. This Agreement may contain more than
one counterpart of the signature page and this Agreement may be executed by the
affixing of the signature of each of the Partners to one of such counterpart
signature pages. All of such counterpart signatures pages shall be read as
though one, and they shall have the same force and effect as though all of the
signers had signed a single signature page.
Section 13.10 REMEDIES. The failure of any party to seek redress
for violation of, or to insist upon the strict performance of, any provision of
this Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation. The
rights and remedies provided by this Agreement are cumulative and the use of any
one right or remedy by any party shall not preclude or waive its right to use
any or all other remedies. Said rights and remedies
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are given in addition to any other rights the parties may have by law, statute,
ordinance or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above stated.
GENERAL PARTNER:
BEST BUY CO., INC.,
a Minnesota corporation
By:
------------------------
Name:
Title:
INITIAL LIMITED PARTNER:
BEST BUY FINANCE CORPORATION,
a Delaware corporation
By:
------------------------
Name:
Title:
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Annex A
- --------------------------------------------------------------------------------
Certificate Number Number of Preferred Securities
- --------------------------------------------------------------------------------
R-1
- --------------------------------------------------------------------------------
CUSIP NO.
Certificate Evidencing Preferred Securities
of
Best Buy Capital, L.P.
__% Convertible Monthly Income Preferred Securities
(liquidation preference $50 per Preferred Security)
Best Buy Capital, L.P., a limited partnership formed under the laws
of the State of Delaware (the "Partnership"), hereby certifies that _____ (the
"Holder") is the registered owner of _______ preferred securities of the
Partnership representing limited partnership interests in the Partnership, which
are designated the __% Convertible Monthly Income Preferred Securities
(liquidation preference $50 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are fully paid and are nonassessable
interests in the Partnership, as to which the Partners in the Partnership who
hold the Preferred Securities (the "Preferred Security Holders"), in their
capacities as Partners in the Partnership, will have no liability solely by
reason of being Preferred Security Holders (subject to the obligation of a
Preferred Security Holder to repay any funds wrongfully distributed to it), and
are freely transferable on the books and records of the Partnership, in person
or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The powers, preferences and special
rights and limitations of the Preferred Securities are set forth in, and this
certificate and the Preferred Securities represented hereby are issued and shall
in all respects be subject to the terms and provisions of, the Amended and
Restated Limited Partnership Agreement of the Partnership
A-1
<PAGE>
dated as of _______ 1994, as the same may be amended from time to time in
accordance with its terms (the "Limited Partnership Agreement"), authorizing the
issuance of the Preferred Securities and determining the powers, preferences and
other special rights and limitations, regarding Dividends, voting, return of
capital and otherwise, and other matters relating to the Preferred Securities.
Capitalized terms used herein but not defined herein shall have the meaning
given them in the Limited Partnership Agreement. The Holder is entitled to the
benefits of the Guarantee Agreement of Best Buy Co., Inc., a Minnesota
corporation ("Best Buy"), dated as of ______, 1994 (the "Guarantee") to the
extent provided therein. The partnership will furnish a copy of the Limited
Partnership Agreement and the Guarantee to the Holder without charge upon
written request to the Partnership at its principal place of business or
registered office.
The Holder, by accepting this certificate, is deemed to have agreed
(i) to be bound by the provisions of the Limited Partnership Agreement,
including the provisions of the Limited Partnership Agreement concerning the
exchange of the Preferred Securities for Depositary Shares representing
fractional interests in Best Buy Preferred Stock and (ii) that the Subordinated
Debentures acquired by the Partnership with the proceeds from the issuance of
the Preferred Securities are subordinated and junior in right of payment to all
Senior Indebtedness of Best Buy as and to the extent provided in the
Subordinated Debentures and (iii) that the Guarantee ranks (x) subordinate and
junior in right of payment to all Senior Indebtedness of Best Buy, and (y) PARI
PASSU with the most senior preferred or preference stock now or hereafter
issued by Best Buy and with any guarantee now or hereafter entered into by Best
Buy in respect of any preferred or preference stock of any Affiliate of Best
Buy, and (z) senior to Best Buy Common Stock and any other class or series of
capital stock of Best Buy or any of its Affiliates which by its express terms
ranks junior in the payment of dividends and amounts on liquidation,
dissolution, and winding-up to the Preferred Securities, in each case, as and to
the extent provided in the Guarantee. Upon receipt of this certificate, the
Holder is admitted to the partnership as a Limited Partner, is bound by the
Limited Partnership Agreement and is entitled to the benefits thereunder.
A-2
<PAGE>
IN WITNESS WHEREOF, the Partnership has executed this certificate
this _______ day of ______ 1994.
BEST BUY CAPITAL, L.P.
By: BEST BUY CO. INC.,
its General Partner
By:
--------------------------
Name:
Title:
A-3
<PAGE>
EXHIBIT 3.3
Draft of September 28, 1994
CERTIFICATE OF DESIGNATION
OF
BEST BUY CO., INC.
Series A Cumulative Convertible Preferred Stock
WE, THE UNDERSIGNED, ________________ and ____________ being,
respectively, the __________ and the __________ of Best Buy Co., Inc., a
corporation organized under the laws of the State of Minnesota (the
"Corporation"), do hereby certify that pursuant to Section 302A.401 of the
Minnesota Statutes, resolutions as hereinafter set forth were adopted on
________ __, 1994 by the affirmative vote of a majority of the Board of
Directors, such resolutions stating the number, designation, relative rights,
preferences and limitations of a series of Preferred Stock, as fixed by the
Board of Directors of the Corporation:
RESOLVED, that there is hereby established a series of preferred
stock of the Corporation with relative rights and preferences as follows:
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT; SPECIAL PURPOSE; RESTRICTION ON
SENIOR SERIES.
(A) The shares of this series of Preferred Stock shall be
designated as "Series A Cumulative Convertible Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting such series shall be
_____, par value $1.00 per share.
(B) Shares of Series A Preferred Stock shall be issued only upon
exchange of ___% convertible subordinated debentures of the Corporation due 2024
(the "Subordinated Debentures") immediately following the exchange of all
outstanding preferred securities, liquidation preference $50 per security (the
"Best Buy Capital Preferred Securities"), of Best Buy Capital, L.P., a Delaware
limited partnership ("Best Buy Capital"), for such Subordinated Debentures
theretofore held by Best Buy Capital. The exchanges described in the preceding
sentence shall have taken place only pursuant to a valid exchange election (the
"Exchange Election") by the holders of a majority of the aggregate
<PAGE>
liquidation preference of the Best Buy Capital Preferred Securities then
outstanding effected in the manner prescribed in the Amended and Restated
Agreement of Limited Partnership of Best Buy Capital, dated ________ __, 1994.
Upon issuance, the Series A Preferred Stock shall be deposited by the
Corporation with the Depositary (as defined in the Deposit Agreement, dated
________ __, 1994, among the Corporation and _____, as Depositary (the "Deposit
Agreement")) against the issuance of Depositary Receipts (as defined in the
Deposit Agreement) evidencing depositary shares, each representing a one
one-hundredth (1/100th) interest in a share of Series A Preferred Stock (the
"Depositary Shares").
(C) So long as any Best Buy Capital Preferred Securities are
outstanding, the Corporation shall not authorize or issue any other class or
series of capital stock ranking senior as to the payment of dividends or amounts
upon liquidation, dissolution or winding-up to the Series A Preferred Stock
without the approval of the holders of not less than 66-2/3% of the aggregate
liquidation preference of the Best Buy Capital Preferred Securities then
outstanding.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A)(1) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation out of funds legally available therefor, cumulative cash dividends
in an amount per share per annum equal to $______ (equivalent to a rate per
annum of ____% of the stated liquidation preference of $5,000 per share of
Series A Preferred Stock), calculated on the basis of a 360-day year consisting
of 12 months of 30 days each, and for any period shorter than a full monthly
dividend period, dividends will be computed on the basis of the actual number of
days elapsed in such period, and payable in United States dollars monthly in
arrears on the last day of each calendar month of each year.
(2) Dividends, when, as and if declared by the Board of Directors
of the Corporation out of funds legally available therefor, must be paid on the
last day of each month. Such dividends will accrue and be cumulative whether or
not they have been earned or declared and whether or not there are funds of the
Corporation legally available for the payment of dividends. Dividends on the
Series A Preferred Stock shall be cumulative from the date of the Exchange
Election. Accrued but unpaid interest on the Subordinated Debentures, if any,
on the date of the issuance of the Series A Preferred Stock and the Depositary
Shares in
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exchange for such Subordinated Debentures shall constitute, and be treated as,
accumulated and unpaid dividends on the Series A Preferred Stock; PROVIDED,
HOWEVER, that the amount which shall constitute such accumulated and unpaid
dividends on the Best Buy Series A Preferred Stock shall be neither less than
nor greater than the amount of accumulated and unpaid dividends (including
Additional Dividends), if any, on the Best Buy Capital Preferred Securities on
the date of such Exchange Election. The record date for each dividend payment
date shall be the Business Day (as defined below) immediately preceding such
dividend payment date. In the event that any date on which dividends are
payable on the Series A Preferred Stock is not a day other than a day on which
banking institutions in The City of New York are authorized or obligated by law
or executive order to be closed (a "Business Day"), then payment of the dividend
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
(B) In the event that full cumulative dividends on the Series A
Preferred Stock have not been declared and paid or set apart for payment when
due, then the Corporation shall not, and shall not permit any majority-owned
subsidiary to declare or pay any dividend on, or redeem, purchase, acquire for
value or make a liquidation payment with respect to, any Pari Passu Stock or
Junior Stock (other than as a result of a reclassification of Pari Passu Stock
or Junior Stock or the exchange or conversion of one class or series of Pari
Passu Stock or Junior Stock for another class or series of Pari Passu Stock or
Junior Stock, respectively), or make any guarantee payments with respect to the
foregoing (other than payments under the Guarantee or dividends or guarantee
payments to Best Buy).
"Pari Passu Stock" means any preference stock or preferred stock of
the Corporation, or any guarantee now or hereafter entered into by the
Corporation in respect of any preferred or preference stock of any affiliate of
the Corporation, ranking, in such case, as to the payment of dividends and
amounts upon liquidation, dissolution and winding-up on a parity with the Series
A Preferred Stock. "Junior Stock" means Common Stock and any other class or
series of capital stock of the Corporation or any of its affiliates which by its
express terms ranks junior in the payment of dividends or amounts upon
liquidation, dissolution or winding-up to the Series A Preferred Stock.
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<PAGE>
SECTION 3. VOTING RIGHTS.
(A) In the event that full cumulative dividends on the Series A
Preferred Stock have not been paid for 18 monthly dividend periods, the number
of directors of the Corporation constituting the entire Board of Directors shall
be increased by two persons and the holders of the Series A Preferred Stock
shall have the right to elect such persons to fill such positions at any annual
meeting of shareholders or special meeting held in place thereof, or at a
special meeting of the holders of the Series A Preferred Stock called as
hereinafter provided. Whenever all arrears of dividends on the Series A
Preferred Stock then outstanding shall have been paid and dividends thereon for
the current monthly period shall have been paid or declared and set apart for
payment, then the right of the holders of the Series A Preferred Stock to elect
such additional two directors shall cease (but subject always to the same
provisions for the vesting of such voting rights in the case of any similar
future arrearages in dividends), and the terms of office of all persons elected
as directors by the holders of the Series A Preferred Stock shall forthwith
terminate and the number of the Board of Directors shall be reduced accordingly.
At any time after such voting power shall have been so vested in the holders of
shares of the Series A Preferred Stock, the Secretary of the Corporation may,
and upon the written request of any holder of Series A Preferred Stock
(addressed to the Secretary at the principal office of the Corporation) shall,
call a special meeting of the holders of the Series A Preferred Stock for the
election of the two directors to be elected by them as herein provided; such
call to be made by notice similar to that provided in the by-laws for a special
meeting of the shareholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series A
Preferred Stock may call such meeting, upon the notice above provided, and for
that purpose shall have access to the stock books and records of the
Corporation. The directors elected at any such special meeting shall hold
office until the next annual meeting of the shareholders or special meeting held
in place thereof if such office shall not have previously terminated as above
provided. In case any vacancy shall occur among the directors elected by the
holders of the Series A Preferred Stock, a successor shall be elected by the
Board of Directors to serve until the next annual meeting of the shareholders or
special meeting held in place thereof upon the nomination of the then remaining
director elected by the holders of the Series A Preferred Stock or the successor
of such remaining director.
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(B) Except as otherwise required by law or set forth herein,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required for the taking of any corporate action. So
long as any shares of Series A Preferred Stock are outstanding, the consent of
the holders of not less than 66 2/3% of the outstanding shares of Series A
Preferred Stock, given in person or by proxy either at a regular meeting or at a
special meeting called for that purpose, at which the holders of Series A
Preferred Stock shall vote separately as a series, shall be necessary for
effecting, validating or authorizing any one or more of the following:
(1) The amendment, alteration or repeal of any of the provisions of
the Articles of Incorporation, as restated and amended, of the
Corporation, or any amendment thereto or any other certificate filed
pursuant to law (including any such amendment, alteration or repeal
effected by any merger or consolidation to which the Corporation is a
party) that would adversely affect any of the rights, powers or
preferences of outstanding shares of Series A Preferred Stock; PROVIDED,
HOWEVER, that any amendment or amendments to the provisions of the
Certificate of Incorporation so as to authorize or create, or to increase
the authorized amount of, any Junior Stock shall not be deemed to affect
adversely the voting powers, rights or preferences of the holders of the
Series A Preferred Stock;
(2) The creation of any shares of any class or series or any
security convertible into shares of any class or series of capital stock
ranking prior to the Series A Preferred Stock in the distribution of
assets on any liquidation, dissolution or winding-up of the Corporation or
in the payment of dividends; or
(3) Any merger or consolidation with or into, or any sale,
transfer, exchange or lease of all or substantially all of the assets of
the Corporation to, any other corporation, in either case that would
adversely affect any of the rights, powers or preferences of outstanding
shares of Series A Preferred Stock.
SECTION 4. REDEMPTION.
(A) If at any time following the Conversion Expiration Date (as
defined below), less than five percent (5%) of the shares of Series A Preferred
Stock issued upon the Exchange Election remain outstanding, such shares of
Series A Preferred Stock are redeemable, at the option of the Corporation, in
whole but not in part, from time to
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time, at a redemption price equal to the liquidation preference, plus
accumulated and unpaid dividends, whether or not earned or declared, to the date
of redemption (the "Redemption Price").
(B) Unless otherwise required by law, notice of redemption will be
sent to the holders of Series A Preferred Stock by first-class mail, postage
prepaid, mailed not less than thirty, nor more than sixty days prior to the
redemption date. Each such notice shall state: (i) the fact that all
outstanding shares of Series A Preferred Stock are being redeemed; (ii) the
redemption date; (iii) the Redemption Price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price; and (v) that dividends on the shares to be redeemed will cease to accrue
on such redemption date. Upon surrender of the certificates for the shares so
called for redemption and not previously converted (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation on the date fixed for redemption at the Redemption Price.
SECTION 5. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(A) Upon any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Corporation, the holders of Series A Preferred
Stock at the time outstanding will be entitled to receive out of the net assets
of the Corporation available for payment to stockholders and subject to the
rights of the holders of any stock of the Corporation ranking senior to or on a
parity with the Series A Preferred Stock in respect of distributions upon
liquidation, dissolution, winding-up or termination of the Corporation, before
any amount shall be paid or distributed with respect to any Junior Stock,
liquidating distributions in the amount of $5,000 per share plus an amount equal
to all accrued and unpaid dividends thereon (whether or not earned or declared)
to the date fixed for distribution. If, upon any liquidation, dissolution,
winding up or termination of the Corporation, the amounts payable with respect
to the Series A Preferred Stock and any Pari Passu Stock are not paid in full,
the holders of the Series A Preferred Stock and such Pari Passu Stock shall
share ratably in any distribution of assets based on the proportion of their
full respective liquidation preference to the entire amount of the unpaid
liquidation preference of the Series A Preferred Stock. After payment of the
full amount to which they are entitled as provided by the foregoing provisions
of this Section 5(A), the holders
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of shares of Series A Preferred Stock shall not be entitled to any further right
or claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or
into any other corporation, nor the merger or consolidation of any other
corporation with or into the Corporation, nor the sale, transfer, exchange or
lease of all or any portion of the assets of the Corporation, shall be deemed to
be a dissolution, liquidation or winding-up of the affairs of the Corporation
for purposes of this Section 5.
(C) Written notice of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to holders of
Series A Preferred Stock in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than twenty days prior to
any payment date stated therein, to the holders of Series A Preferred Stock, at
the address shown on the books of the Corporation or the transfer agent for the
Series A Preferred Stock; PROVIDED, HOWEVER, that a failure to give notice as
provided above or any defect therein shall not affect the Corporation's ability
to consummate a voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation.
SECTION 6. CONVERSION RIGHTS OF SERIES A PREFERRED STOCK.
(A) The shares of Series A Preferred Stock are convertible at any
time before the close of business on the Conversion Expiration Date, at the
option of the holder thereof, into shares of Common Stock at the initial
conversion price, subject to adjustment as provided in Section 7 (as so
adjusted, the "Conversion Price"). For this purpose, each share of Series A
Preferred Stock shall be taken at $5,000.
(B) Holders of record of Series A Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares of Series A Preferred Stock on the corresponding
dividend payment date notwithstanding the conversion thereof following such
dividend payment record date but on or prior to such dividend payment date.
Except as provided in the immediately preceding sentence, the Corporation will
make no payment or allowance for accumulated and unpaid dividends, whether or
not in arrears, on converted shares of Series A Preferred Stock.
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(C) No fractional shares of Common Stock will be issued as a result
of conversion, but in lieu thereof, the Corporation shall pay a cash adjustment
in an amount equal to the same fraction of the Closing Price (as hereinafter
defined) on the date on which the certificate or certificates for such shares
were duly surrendered on conversion, or, if such date is not a Trading Day (as
hereinafter defined), on the next Trading Day.
(D) Shares of Series A Preferred Stock that have been called for
redemption will not be convertible after the close of business on the second
Business Day preceding the date fixed for redemption, unless the Corporation
defaults in making payment of the amount payable on redemption.
(E) Any holder of shares of Series A Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the shares of Series A Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation or the
transfer agent for the Series A Preferred Stock, accompanied by written notice
of conversion, on any day that is a Business Day. Such notice of conversion
shall specify (i) the number of shares of Series A Preferred Stock to be
converted and the name or names in which such holder desires the certificate or
certificates for Common Stock and for any shares of Series A Preferred Stock not
to be so converted to be issued (subject to compliance with applicable legal
requirements if any of such certificates are to be issued in a name other than
the name of the holder), and (ii) the address to which such holder wishes
delivery to be made of such new certificates to be issued upon such conversion.
(F) Upon surrender of a certificate representing a share or shares
of Series A Preferred Stock for conversion, the Corporation shall issue and send
by hand delivery (with receipt to be acknowledged) or by first-class mail,
postage prepaid, to the holder thereof, at the address designated by such
holder, a certificate or certificates representing the number of shares of
Common Stock to which such holder shall be entitled upon conversion. In the
event that there shall have been surrendered a certificate or certificates
representing shares of Series A Preferred Stock, only part of which are to be
converted, the Corpora-
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<PAGE>
tion shall issue and deliver to such holder or such holder's designee in the
manner provided in the immediately preceding sentence a new certificate or
certificates representing the number of shares of Series A Preferred Stock that
shall not have been converted.
(G) The issuance by the Corporation of shares of Common Stock upon
a conversion of shares of Series A Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective upon the surrender
by such holder or such holder's designee of the certificate or certificates for
the shares of Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The person or persons entitled to receive the Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of the close of
business on the effective date of the conversion. No allowance or adjustment
shall be made in respect of dividends payable to holders of Common Stock of
record as of any date prior to such effective date.
(H) (i) On and after _________ __, 1997, the Corporation shall have
the right, at its option, to cause the conversion rights set forth in this
Section to expire, but only if for 20 Trading Days, within any period of 30
consecutive Trading Days, including the last Trading Day of such period, the
Current Market Price (as defined below) of the Common Stock of the Corporation
on each of such 20 Trading Days exceeds 120% of the Conversion Price in effect
on such Trading Day;
(ii) In order to exercise its option to cause the conversion rights
of holders of shares of Series A Preferred Stock to expire, the Corporation must
issue a press release announcing the Conversion Expiration Date (the "Press
Release") prior to the opening of business on the second Trading Day after any
period in which the condition in the preceding paragraph has been met. The
Press Release shall state that the Corporation has elected to exercise its right
to extinguish the conversion rights of holders of shares of Series A Preferred
Stock, specify the Conversion Expiration Date and provide the Conversion Price
of the Series A Preferred Stock and the Current Market Price of the Best Buy
Common Stock, in each case as of the close of business on the Trading Day next
preceding the date of the Press Release. If the Corporation exercises the
option described in this paragraph, the "CONVERSION EXPIRATION DATE" shall be
a date selected by the Corporation which shall be not less
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than 30 or more than 60 days after the date on which the Corporation issues the
Press Release; and
(iii) In addition to the Press Release, notice of the expiration of
conversion rights (a "Notice of Conversion Expiration") must be given by the
Corporation by first-class mail to each record holder of shares of Series A
Preferred Stock not more than four (4) Business Days after the Corporation
issues the Press Release. Each such mailed Notice of Conversion Expiration
shall state, as appropriate: (1) the Conversion Expiration Date; (2) the
Conversion Price of the Series A Preferred Stock and the Current Market Price of
the Common Stock, in each case as of the close of business on the Trading Day
next preceding the date of the Notice of Conversion Expiration; (3) the place or
places at which shares of Series A Preferred Stock are to be surrendered prior
to the Conversion Expiration Date for certificates representing shares of Common
Stock; and/or (4) such other information or instructions as the Corporation
deems necessary or advisable to enable a holder of shares of Series A Preferred
Stock to exercise its conversion right hereunder. For purposes of the
calculation of the Conversion Expiration Date and the dates on which notices are
given pursuant to this paragraph (H), a Notice of Conversion Expiration shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to each holder of Series A Preferred Stock at the address of
the holder appearing in the books and records of the Corporation (whether or not
the holder receives the Notice). No defect in the Notice of Conversion
Expiration or in the mailing thereof with respect to any shares of Series A
Preferred Stock shall affect the validity of such notice with respect to any
other share of Series A Preferred Stock. As of the close of business on the
Conversion Expiration Date, the Series A Preferred Stock shall be deemed to be
non-convertible securities. As used in this Section, "Current Market Price" of
publicly traded shares of Common Stock for any day means the last reported sales
price, regular way on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular way,
in either case as reported on the New York Stock Exchange Consolidated
Transaction Tape.
(I) The Corporation shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for issuance upon the
conversion of shares of Series A Preferred Stock as herein provided, free from
any preemptive or other similar rights, such number of shares of Common Stock as
shall from time to time be issuable upon the conversion of all the shares of
Series A Preferred Stock
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then outstanding. All shares of Common Stock delivered upon conversion of the
Series A Preferred Stock shall be duly authorized, valid, issued, fully paid and
non-assessable, free and clear of all liens, claims, interests and other
encumbrances. The Corporation shall prepare and shall use its best efforts to
obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all applicable
requirements as to registration or qualification of the Common Stock (and all
requirements to list the Common Stock issuable upon conversion of Series A
Preferred Stock that are at the time applicable), in order to enable the
Corporation lawfully to issue and deliver to each holder of record of Series A
Preferred Stock such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series A Preferred
Stock then outstanding and convertible into shares of Common Stock.
SECTION 7. ADJUSTMENT OF CONVERSION PRICE.
(A) ADJUSTMENT OF CONVERSION PRICE. The conversion price at which a
share of Series A Preferred Stock is convertible into Common Stock shall be
subject to adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on any class or series of Capital Stock of the Corporation
exclusively in Common Stock, the conversion price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares constituting
such dividend or other distribution or exchange, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this subparagraph (i),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation shall not pay
any dividend or make any distribution on shares of any class or series of
Capital Stock of the Corporation exclusively in Common Stock held in the
treasury of the Corporation.
(ii) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock consist-
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ing exclusively of, or shall otherwise issue to all holders of its Common Stock,
rights or warrants entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the current market price
per share (determined as provided in subparagraph (vii) of this Section 7(a)) of
the Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights or warrants, the conversion price in effect at
the opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such conversion price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such current market price and the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this subparagraph (ii),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation shall not issue
any rights or warrants in respect of shares of Common Stock held in the treasury
of the Corporation. In case any rights or warrants referred to in this
subparagraph (ii) in respect of which an adjustment shall have been made shall
expire unexercised within 45 days after the same shall have been distributed or
issued by the Corporation, the conversion price shall be readjusted at the time
of such expiration to the conversion price that would have been in effect if no
adjustment had been made on account of the distribution or issuance of such
expired rights or warrants.
(iii) In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the conversion price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of
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business on the day following the day upon which such subdivision or combination
becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in case the
Corporation shall, by dividend or otherwise, distribute to all holders of its
Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights or
warrants referred to in subparagraph (ii) of this Section 7(A), any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in subparagraph (i) of this Section 7(A)), the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this subparagraph (iv) by a fraction
of which the numerator shall be the current market price per share (determined
as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on
the date fixed for the payment of such distribution (the "Reference Date") less
the fair market value (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of the
Board of Directors), on the Reference Date, of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Common Stock and the denominator shall be such current market
price per share of the Common Stock, such reduction to become effective
immediately prior to the opening of business on the day following the Reference
Date. If the Board of Directors determines the fair market value of any
distribution for purposes of this subparagraph (iv) by reference to the actual
or when issued trading market for any securities comprising such distribution,
it must in doing so consider the prices in such market over the same period used
in computing the current market price per share of Common Stock pursuant to
subparagraph (vii) of this Section 7(A). For purposes of this subparagraph
(iv), any dividend or distribution that includes shares of Common Stock or
rights or warrants to subscribe for or purchase shares of Common Stock shall be
deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, shares of capital stock, cash or assets other than such shares of
Common Stock or such rights or warrants (making any conversion price reduction
required by this subparagraph (iv)) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (making
any further conversion price reduction required by subparagraph (i) or (ii) of
this Section 7(A)), except (A) the Reference Date of such dividend or
distribution as defined in this subparagraph (iv) shall be
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substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution," "the date fixed for the
determination of stockholders entitled to receive such rights or warrants" and
"the date fixed for such determination" within the meaning of subparagraphs (i)
and (ii) of this Section 7(A) and (B) any shares of Common Stock included in
such dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of
subparagraph (i) of this Section 7(A).
(v) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding, in the case of
any regular cash dividend on the Common Stock, the portion thereof that does not
exceed the per share amount of the next preceding regular cash dividend on the
Common Stock (as adjusted to appropriately reflect any of the events referred to
in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A)), or
all of such regular cash dividend if the annualized amount thereof per share of
Common Stock does not exceed 15% of the current market price per share
(determined as provided in subparagraph (vii) of this Section 7(A)) of the
Common Stock on the Trading Day (as defined in Section 7(E)) next preceding the
date of declaration of such dividend), the conversion price shall be reduced so
that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this subparagraph (v) by a fraction of which the
numerator shall be the current market price per share (determined as provided in
subparagraph (vii) of this Section 7(A)) of the Common Stock on the date fixed
for the payment of such distribution less the amount of cash so distributed and
not excluded as provided above applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such reduction to become effective immediately prior to the opening of business
on the day following the date fixed for the payment of such distribution.
(vi) In case a tender or exchange offer made by the Corporation or any
subsidiary of the Corporation for all or any portion of the Corporation's Common
Stock shall expire and such tender or exchange offer shall involve the payment
by the Corporation or such subsidiary of consideration per share of Common Stock
having a fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors) at the last time (the "Expiration Time") tenders or
exchanges may be made pursuant
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to such tender or exchange offer (as it shall have been amended) that exceeds
10% of the current market price per share (determined as provided in
subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day
(as defined in Section 7(E)) next succeeding the Expiration Time, the conversion
price shall be reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the
effectiveness of the conversion price reduction contemplated by this
subparagraph (vi) by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
at the Expiration Time multiplied by the current market price per share
(determined as provided in subparagraph (vii) of this Section 7(A)) of the
Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the current market price per share (determined as provided in
subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day
next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Time. Notwithstanding anything contained in this Section 7(A)(vi) to the
contrary, no adjustment shall be made to the conversion price in the case of a
tender offer that complies with Rule 13e-4(h)(v) under the Exchange Act, or any
successor rule thereto.
(vii) For the purpose of any computation under subparagraphs (ii), (iv),
(v) and (vi) of this Section 7(A), the current market price per share of Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices (as defined in Section 7(E)) for the five consecutive
Trading Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and, if
applicable, the day before the "ex" date with respect to the issuance or
distribution requiring such computation; PROVIDED, HOWEVER, that if another
event occurs that would require an adjustment pursuant to subparagraph (i)
through (vi), inclusive, the Board of Directors may make such adjustments to the
Closing Prices during such five Trading Day period as it deems appropriate to
effectuate the
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intent of the adjustments in this Section 7(A), in which case any such
determination by the Board of Directors shall be set forth in a Board Resolution
and shall be conclusive. For purposes of this paragraph, the term "ex" date,
(1) when used with respect to any issuance or distribution, means the first date
on which the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained without the right to
receive such issuance or distribution, and (2) when used with respect to any
tender or exchange offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the Expiration Time of such
offer.
(viii) The Corporation may make such reductions in the conversion price,
in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and
(vi) of this Section 7(A), as it considers to be advisable to avoid or diminish
any income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. The
Corporation from time to time may reduce the conversion price by any amount for
any period of time if the period is at least twenty days, the reduction is
irrevocable during the period, and the Board of Directors of the Corporation
shall have made a determination that such reduction would be in the best
interest of the Corporation, which determination shall be conclusive. Whenever
the conversion price is reduced pursuant to the preceding sentence, the
Corporation shall mail to holders of record of the Series __ Preferred Stock a
notice of the reduction at least fifteen days prior to the date the reduced
conversion price takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(ix) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this subparagraph (ix) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(x) Whenever the conversion price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted conversion price and
shall prepare a certificate signed by the Treasurer of the Corporation
setting forth the adjusted conversion price and showing in reasonable
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detail the facts upon which such adjustment is based, and such certificate
shall forthwith be filed with the transfer agent for the Series A
Preferred Stock; and
(2) a notice stating the conversion price has been adjusted and
setting forth the adjusted conversion price shall as soon as practicable
be mailed by the Corporation to all record holders of shares of Series A
Preferred Stock at their last addresses as they shall appear upon the
stock transfer books of the Corporation.
(B) RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE OF ASSETS. In the
event that the Corporation shall be a party to any transaction (including
without limitation any recapitalization or reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination of the
Common Stock), any consolidation of the Corporation with, or merger of the
Corporation into, any other person, any merger of another person into the
Corporation (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Corporation), any sale or transfer of all or substantially all of the assets
of the Corporation or any compulsory share exchange) pursuant to which the
Common Stock is converted into the right to receive other securities, cash or
other property), then lawful provision shall be made as part of the terms of
such transaction whereby the holder of each share of Series A Preferred Stock
then outstanding shall have the right thereafter, to convert such share only
into (i) in the case of any such transaction other than a Common Stock
Fundamental Change (as defined in Section 7(E)), the kind and amount of
securities, cash and other property receivable upon such transaction by a holder
of the number of shares of Common Stock of the Corporation into which such share
of Series A Preferred Stock could have been converted immediately prior to such
transaction, after giving effect, in the case of any Non-Stock Fundamental
Change, to any adjustment in the conversion price required by the provisions of
Section 7(D), and (ii) in the case of a Common Stock Fundamental Change, common
stock of the kind received by holders of Common Stock as a result of such Common
Stock Fundamental Change in an amount determined pursuant to the provisions of
Section 7(D). The Corporation or the person formed by such consolidation or
resulting from such merger or which acquires such assets or which acquires the
Corporation's shares, as the case may be, shall make provision in its
certificate or articles of incorporation or other constituent document to
establish such right. Such
-17-
<PAGE>
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 7. The above provisions shall similarly apply to successive
transactions of the foregoing type.
(c) PRIOR NOTICE OF CERTAIN EVENTS. In case:
(i) the Corporation shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend payable in cash out of its
retained earnings that would not require an adjustment pursuant to
7(A)(iv) or (v) or (2) authorize a tender or exchange offer that would
require an adjustment pursuant to 7(A)(vi); or
(ii) the Corporation shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or series or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation shall
be required, or of the sale or transfer of all or substantially all of the
assets of the Corporation or of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other property;
or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the holders of record
of the Series A Preferred Stock, at their last addresses as they shall appear
upon the stock transfer books of the Corporation, at least fifteen days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, redemption, repurchase, rights or warrants or, if a
record is not to be taken, the date as of which the holders of Common Stock of
-18-
<PAGE>
record to be entitled to such dividend, distribution, redemption, repurchase,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up (but no failure
to mail such notice or any defect therein or in the mailing thereof shall affect
the validity of the corporate action required to be specified in such notice).
(D) ADJUSTMENTS IN CASE OF FUNDAMENTAL CHANGES. Notwithstanding any
other provision in this Section 7 to the contrary, if any Fundamental Change (as
defined in Section 7(E)) occurs, then the conversion price in effect will be
adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change (as defined in
Section 7(E)), each share of Series A Preferred Stock shall be convertible
solely into common stock of the kind and amount received by holders of Common
Stock as the result of such Common Stock Fundamental Change as more specifically
provided in the following clauses (D)(i) and (D)(ii).
For purposes of calculating any adjustment to be made pursuant to this Section
7(D) in the event of a Fundamental Change, immediately after such Fundamental
Change:
(i) in the case of a Non-Stock Fundamental Change (as defined in Section
7(E)), the conversion price of the Series A Preferred Stock shall thereupon
become the lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Section 7, and (B) the result obtained by
multiplying the greater of the Applicable Price (as defined in Section 7(E)) or
the then applicable Reference Market Price (as defined in Section 7(E)) by a
fraction of which the numerator shall be $_____ and the denominator shall be an
amount per share of Series A Preferred Stock determined by the Corporation in
its sole discretion, after consultation with a nationally recognized investment
banking firm, to be the equivalent of the hypothetical redemption price that
would have been applicable if the Series A Preferred Stock had been redeemable
during such period; and
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<PAGE>
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Series A Preferred Stock in effect immediately prior to such Common
Stock Fundamental Change, but after giving effect to any other prior adjustments
effected pursuant to this Section 7, shall thereupon be adjusted by multiplying
such conversion price by a fraction of which the numerator shall be the
Purchaser Stock Price (as defined in Section 7(E)) and the denominator shall be
the Applicable Price; PROVIDED, HOWEVER, that in the event of a Common Stock
Fundamental Change in which (A) 100% by value of the consideration received by a
holder of Common Stock is common stock of the successor, acquiror or other third
party (and cash, if any, is paid with respect to any fractional interests in
such common stock resulting from such Common Stock Fundamental Change) and (B)
all of the Common Stock shall have been exchanged for, converted into or
acquired for common stock (and cash with respect to fractional interests) of the
successor, acquiror or other third party, the conversion price of the Series A
Preferred Stock in effect immediately prior to such Common Stock Fundamental
Change shall thereupon be adjusted by multiplying such conversion price by a
fraction of which the numerator shall be one (1) and the denominator shall be
the number of shares of common stock of the successor, acquiror, or other third
party received by a stockholder for one share of Common Stock as a result of
such Common Stock Fundamental Change.
(e) DEFINITIONS. The following definitions shall apply to terms used
in this Section 7:
(1) "Applicable Price" shall mean (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Common Stock receive only cash,
the amount of cash received by a stockholder for one share of Common Stock and
(ii) in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the daily Closing Prices of the Common Stock
for the ten consecutive Trading Days prior to and including the record date for
the determination of the holders of Common Stock entitled to receive securities,
cash or other property in connection with such Non-Stock Fundamental Change or
Common Stock Fundamental Change, or, if there is no such record date, the date
upon which the holders of the Common Stock shall have the right to receive such
securities, cash or other property, in each case, as adjusted in good faith by
the Board of Directors of the Corporation to appropriately reflect any of the
events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of
Section 7(A).
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<PAGE>
(2) "Closing Price" of any common stock on any day shall mean the last
reported sale price regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked prices regular
way of such common stock, in each case on the principal national securities
exchange on which such common stock is listed, if the common stock is listed on
a national securities exchange, or the NASDAQ National Market System of the
National Association of Securities Dealers, Inc., or, if the common stock is not
quoted or admitted to trading on such quotation system, on the principal
national securities exchange or quotation system on which the common stock is
listed or admitted to trading or quoted, or, if not listed or admitted to
trading or quoted on any national securities exchange or quotation system, the
average of the closing bid and asked prices of the common stock in the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally accepted reporting
service, or, if not so available in such manner, as furnished by any New York
Stock Exchange member firm selected from time to time by the Board of Directors
of the Corporation for that purpose or, if not so available in such manner, as
otherwise determined in good faith by the Board of Directors.
(3) "Common Stock Fundamental Change" shall mean any Fundamental Change
in which more than 50% by value (as determined in good faith by the Board of
Directors of the Corporation) of the consideration received by holders of Common
Stock consists of common stock that for each of the ten consecutive Trading Days
referred to with respect to such Fundamental Change in Section 7(E)(1) above has
been admitted for listing or admitted for listing subject to notice of issuance
on a national securities exchange or quoted on the NASDAQ National Market System
of the National Association of Securities Dealers, Inc.; PROVIDED, HOWEVER,
that a Fundamental Change shall not be a Common Stock Fundamental Change unless
either (i) the Corporation continues to exist after the occurrence of such
Fundamental Change and the outstanding shares of Series A Preferred Stock
continue to exist as outstanding shares of Series A Preferred Stock, or (ii) not
later than the occurrence of such Fundamental Change, the outstanding shares of
Series A Preferred Stock are converted into or exchanged for shares of
convertible preferred stock of a corporation succeeding to the business of the
Corporation, which convertible preferred stock has powers, preferences and
relative, participating, optional or other rights, and qualifications,
limitations and restrictions, substantially similar to those of the Series A
Preferred Stock.
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<PAGE>
(4) "Fundamental Change" shall mean the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Common Stock shall be exchanged for, converted into, acquired for or
constitute solely the right to receive securities, cash or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); PROVIDED, HOWEVER, in the case of a plan involving more than one
such transaction or event, for purposes of adjustment of the conversion price,
such Fundamental Change shall be deemed to have occurred when substantially all
of the Common Stock of the Corporation shall be exchanged for, converted into,
or acquired for or constitute solely the right to receive securities, cash or
other property, but the adjustment shall be based upon the highest weighted
average of consideration per share which a holder of Common Stock could have
received in such transactions or events as a result of which more than 50% of
the Common Stock of the Corporation shall have been exchanged for, converted
into, or acquired for or constitute solely the right to receive securities, cash
or other property.
(5) "Non-Stock Fundamental Change" shall mean any Fundamental Change
other than a Common Stock Fundamental Change.
(6) "Purchaser Stock Price" shall mean, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Prices of the common stock
received in such Common Stock Fundamental Change for the ten consecutive Trading
Days prior to and including the record date for the determination of the holders
of Common Stock entitled to receive such common stock, or, if there is no such
record date, the date upon which the holders of the Common Stock shall have the
right to receive such common stock, in each case, as adjusted in good faith by
the Board of Directors of the Corporation to appropriately reflect any of the
events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of
Section 7(a);
(7) "Reference Market Price" shall initially mean $_____ and in the event
of any adjustment to the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of $_____ to
the initial conversion price per share.
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<PAGE>
(8) "Trading Day" shall mean a day on which securities are traded on the
national securities exchange or quotation system or in the over-the-counter
market used to determine the Closing Price.
(f) DIVIDEND OR INTEREST REINVESTMENT PLANS. Notwithstanding the
foregoing provisions, the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional amounts
in shares of Common Stock under any such plan, and the issuance of any shares of
Common Stock or options or rights to purchase such shares pursuant to any
employee benefit plan or program of the Corporation or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the Series A Preferred Stock was first designated, shall not be
deemed to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Corporation to which any of the adjustment
provisions described above applies. There shall also be no adjustment of the
conversion price in case of the issuance of any stock (or securities convertible
into or exchangeable for stock) of the Corporation except as specifically
described in this Section 7. If any action would require adjustment of the
conversion price pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment which has the highest absolute value to holders of Series A Preferred
Stock.
(g) DIVIDEND OR INTEREST REINVESTMENT PLANS. Notwithstanding the
foregoing provisions, the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional amounts
in shares of Common Stock under any such plan, and the issuance of any shares of
Common Stock or options or rights to purchase such shares pursuant to any
employee benefit plan or program of the Corporation or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the Series A Preferred Stock is first issued, shall not be deemed
to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Corporation to which any of the adjustment
provisions described above applies. There shall also be no adjustment of the
conversion price in case of the issuance of any stock (or securities convertible
into or exchangeable for stock) of the Corporation except as specifically
described in this Section 7. If any action would require adjustment of the
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<PAGE>
conversion price pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to holders of Series A Preferred
Stock.
(h) CERTAIN ADDITIONAL RIGHTS. In case the Corporation shall, by
dividend or otherwise, declare or make a distribution on its Common Stock
referred to in Section 7(A)(iv) or 7(A)(v) (including, without limitation,
dividends or distributions referred to in the last sentence of Section
7(A)(iv)), the holder of each share of Series A Preferred Stock, upon the
conversion thereof subsequent to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution and prior to
the effectiveness of the conversion price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Common Stock
into which such share of Series A Preferred Stock is converted, the portion of
the shares of Common Stock, rights, warrants, evidences of indebtedness, shares
of capital stock, cash and assets so distributed applicable to one share of
Common Stock; PROVIDED, HOWEVER, that, at the election of the Corporation
(whose election shall be evidenced by a resolution of the Board of Directors)
with respect to all holders so converting, the Corporation may, in lieu of
distributing to such holder any portion of such distribution not consisting of
cash or securities of the Corporation, pay such holder an amount in cash equal
to the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors). If any conversion of a share of Series A Preferred
Stock described in the immediately preceding sentence occurs prior to the
payment date for a distribution to holders of Common Stock which the holder of
the share of Series A Preferred Stock so converted is entitled to receive in
accordance with the immediately preceding sentence, the Corporation may elect
(such election to be evidenced by a resolution of the Board of Directors) to
distribute to such holder a due bill for the shares of Common Stock, rights,
warrants, evidences of indebtedness, shares of capital stock, cash or assets to
which such holder is so entitled, provided that such due bill (i) meets any
applicable requirements of the principal national securities exchange or other
market on which the Common Stock is then traded and (ii) requires payment or
delivery of such shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets no later than the date of
payment or delivery thereof to holders of shares of Common Stock receiving such
distribution.
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<PAGE>
SECTION 8. RANKING; ATTRIBUTABLE CAPITAL AND ADEQUACY OF SURPLUS;
RETIREMENT OF SHARES.
(A) The Series A Preferred Stock shall rank senior to all shares of
Junior Stock as to the payment of dividends and amounts upon the liquidation,
dissolution or winding-up of the Corporation. The ranking of any subsequent
series of Preferred Stock, par value $__ per share, issued by the Corporation as
compared to the Series A Preferred Stock as to the payment of dividends and
amounts upon the liquidation, dissolution or winding-up of the Corporation shall
be as specified in the Certificate of Incorporation, as amended, of the
Corporation, the Certificate of Designations pertaining thereto and, if
appropriate, shall also be subject to the provisions of paragraph (C) of Section
1 and paragraph (B) of Section 3 hereof.
(B) The capital of the Corporation allocable to the Series A
Preferred Stock for purposes of the Minnesota Business Corporation Act (the
"BCA") shall be $___ per share.
(C) Any shares of Series A Preferred Stock acquired by the
Corporation by reason of the conversion or redemption of such shares, or
otherwise so acquired, shall be retired as shares of Series A Preferred Stock
and restored to the status of authorized but unissued shares of Preferred Stock,
par value $1.00 per share, of the Corporation, undesignated as to series, and
may thereafter be reissued as part of a new series of Preferred Stock as
permitted by law.
SECTION 9. MISCELLANEOUS.
(A) All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
thereof or three business days after the mailing thereof if sent by registered
or certified mail (unless first-class mail shall be specifically permitted for
such notice under the terms of this paragraph 9A) with postage prepaid
addressed: (i) if to the Corporation, to its office at Eden Prairie, Minnesota
55344 (Attention: Secretary) or to the transfer agent for the Series A Preferred
Stock, or other agent of the Corporation designated as permitted by this
paragraph 9A, or (ii) if to any holder of the Series A Preferred Stock or
Common Stock, as the case may be, to such holder at the address of such holder
as listed in the stock record books of the Corporation (which may include the
records of any transfer agent for the Series A Preferred Stock or Common
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<PAGE>
Stock, as the case may be) or (iii) to such other address as the Corporation or
any such holder, as the case may be, shall have designated by notice similarly
given.
(B) The term "Common Stock" as used herein means the Corporation's
Common Stock, par value $0.10 per share, as the same exists at the date of
filing of the Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Corporation relating to the Series A Preferred Stock or
any other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. However, subject to
the provisions of Section 7(B), shares of Common Stock issuable on conversion
of share of Series A Preferred Stock shall include only shares of the class
designated as Common Stock of the Corporation at the date of the filing of this
instrument with the state of Minnesota or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation and which are not subject to redemption by the Corporation;
PROVIDED that if at any time there shall be more than one such resulting
class, the shares of each such class then so issuable shall be substantially in
the proportion which the total number of shares of such class resulting from
all such reclassifications bears to the total number of shares of such classes
resulting from all such reclassifications.
(C) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series A Preferred Stock or shares of Common Stock or
other securities issued on account of Series A Preferred Stock pursuant hereto
or certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax that may be payable in respect of
any transfer involving the issuance or delivery of shares of Series A Preferred
Stock or Common Stock or other securities in a name other than that in which the
shares of Series A Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such
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<PAGE>
tax or has established, to the satisfaction of the Corporation, that such tax
has been paid or is not payable.
(D) In the event that a holder of shares of Series A Preferred
Stock shall not by written notice designate the name in which shares of Common
Stock to be issued upon conversion of such shares should be registered or to
whom payment upon redemption of shares of Series A Preferred Stock should be
made or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares, and make such payment, in the name of the holder of such
Series A Preferred Stock as shown on the records of the Corporation and to send
the certificate or certificates representing such shares, or such payment, to
the address of such holder shown on the records of the Corporation.
(E) The Corporation may appoint, and from time to time discharge
and change, a transfer agent for the Series __ Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
A Preferred Stock.
FOURTH: This amendment to the Amended and Restated Certificate of
Incorporation was authorized by resolutions duly adopted by the Board of
Directors of the Corporation at a meeting thereof duly called and held on
__________________, 1994, and by the Executive Committee of the Board of
Directors of the Corporation, acting pursuant to delegated authority, at a
meeting thereof duly called and held on __________________, 1994 at which, in
each case, a quorum was present and acting throughout.
IN WITNESS WHEREOF, we have signed this Certificate this ___ day of
__________________________, 1994.
-----------------------------
[NAME]
[Title]
[SEAL]
-----------------------------
[NAME]
[Title]
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<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF _______ )
_________________ and __________________, being severally duly
sworn, say, and each for himself says, that the said __________________ is the
______________ and the said __________________ is the ____________ of Best Buy
Co., Inc., which is a corporation organized under the laws of the State of
Minnesota and is the corporation described in the foregoing Certificate; that
they have read the said Certificate and know the contents thereof and that the
same is true to their own knowledge.
-----------------------------
[NAME]
[Title]
-----------------------------
[NAME]
[Title]
Subscribed and sworn to before
me this ___ day of _____________, 1994
- ------------------------------
Notary Public [NOTARIAL SEAL]
<PAGE>
EXHIBIT 4.3
DRAFT OF SEPTEMBER 28, 1994
Best Buy Co., Inc.,
Best Buy Capital, L.P.
TO
.......................................
Trustee
________________
Indenture
Dated as of ___________ __, 1994
________________
$............
____% Convertible Subordinated Debentures
Due _____________ __, 2024
<PAGE>
.....................................
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
- --------------- ---------
Section 310(a)(1) .................................... 609
(a)(2) .................................... 609
(a)(3) .................................... Not
Applicable
(a)(4) .................................... Not
Applicable
(b) .................................... 608
610
Section 311(a) .................................... 613
(b) .................................... 613
Section 312(a) .................................... 701
702(a)
(b) .................................... 702(b)
(c) .................................... 702(c)
Section 313(a) .................................... 703(a)
(a)(4) .................................... 101
1004
(b) .................................... 703(a)
(c) .................................... 703(a)
(d) .................................... 703(b)
Section 314(a) .................................... 704
(b) .................................... Not
Applicable
(c)(1) .................................... 102
(c)(2) .................................... 102
(c)(3) .................................... Not
Applicable
(d) .................................... Not
Applicable
(e) .................................... 102
Section 315(a) .................................... 601
(b) .................................... 602
(c) .................................... 601
(d) .................................... 601
(e) .................................... 514
<PAGE>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
Section 316(a) ................................. 101
(a)(1)(A) ................................. 502
512
(a)(1)(B) ................................. 513
(a)(2) ................................. Not
Applicable
(b) ................................. 508
(c) ................................. 104(c)
Section 317(a)(1) ................................. 503
(a)(2) ................................. 504
(b) ................................. 1003
Section 318(a) ................................. 107
______________
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS
PAGE
Parties........................................................... 1
Recitals of the Company and Best Buy Capital...................... 1
ARTICLE ONE
Definitions and Other Provisions of
General Application
SECTION 101. Definitions:
Act............................................. 3
Additional Interest............................. 3
Affiliate; control.............................. 3
Applicable Price................................ 3
Bank Agreement.................................. 3
Best Buy Capital................................ 4
Board of Directors.............................. 4
Board Resolution................................ 4
Business Day.................................... 4
Capital Lease Obligation........................ 4
Closing Price................................... 4
Commission...................................... 4
Common Stock.................................... 4
Common Stock Fundamental Change................. 5
Company......................................... 5
Company Request; Company Order.................. 5
Conversion Agent................................ 5
Conversion Date................................. 5
Corporate Trust Office.......................... 5
corporation..................................... 5
Defaulted Interest.............................. 5
Designated Senior Holder........................ 6
Event of Default................................ 6
exchange date................................... 6
Expiration Date................................. 6
Fundamental Change.............................. 6
General Partner Contribution.................... 6
Guarantee; primary obligor...................... 6
Holder.......................................... 7
Incur........................................... 7
Indebtedness.................................... 7
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
-i-
<PAGE>
PAGE
Indenture....................................... 7
Interest Payment Date........................... 7
Junior Subordinated Payment..................... 7
Limited Partnership Agreement................... 7
Maturity........................................ 7
Non-Stock Fundamental Change.................... 8
Notice of Conversion............................ 8
Notice of Exchange.............................. 8
Officers' Certificate........................... 8
Opinion of Counsel.............................. 8
Outstanding..................................... 8
Parent Guarantee................................ 9
Paying Agent.................................... 9
Payment Blockage Period......................... 9
Person.......................................... 9
Predecessor Security............................ 9
Preferred Securities............................ 10
Proceeding...................................... 10
Purchased Shares................................ 10
Purchaser Stock Price........................... 10
Redeemable Interest............................. 10
Redemption Date................................. 10
Redemption Price................................ 10
Reference Date.................................. 10
Reference Market Price.......................... 10
Regular Record Date............................. 10
Responsible Officer............................. 10
Securities...................................... 11
Securities Payment.............................. 11
Security Register;
Security Registrar............................ 11
Senior Indebtedness............................. 11
Senior Nonmonetary Default...................... 12
Senior Payment Default.......................... 13
Series A Preferred Stock........................ 13
Special Record Date............................. 13
Stated Maturity................................. 13
Subsidiary...................................... 13
Trading Day..................................... 13
Trustee......................................... 13
Trust Indenture Act............................. 13
Vice President.................................. 13
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
-ii-
<PAGE>
PAGE
SECTION 102. Compliance Certificates and
Opinions...................................... 14
SECTION 103. Form of Documents
Delivered to Trustee.......................... 14
SECTION 104. Acts of Holders; Record Dates................... 15
SECTION 105. Notices, Etc., to Trustee, Company
and Best Buy Capital.......................... 16
SECTION 106. Notice to Holders; Waiver....................... 17
SECTION 107. Conflict with Trust Indenture Act............... 17
SECTION 108. Effect of Headings and
Table of Contents............................. 18
SECTION 109. Successors and Assigns.......................... 18
SECTION 110. Separability Clause............................. 18
SECTION 111. Benefits of Indenture........................... 18
SECTION 112. Governing Law................................... 18
SECTION 113. Legal Holidays.................................. 18
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally................................. 19
SECTION 202. Form of Face of Security........................ 19
SECTION 203. Form of Reverse of Security..................... 23
SECTION 204. Form of Trustee's
Certificate of Authentication................. 26
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
ARTICLE THREE
The Securities
SECTION 301. Title and Terms................................. 26
SECTION 302. Denominations................................... 28
SECTION 303. Execution, Authentication,
Delivery and Dating........................... 28
SECTION 304. Temporary Securities............................ 29
SECTION 305. Registration, Registration of
Transfer and Exchange......................... 29
SECTION 306. Mutilated, Destroyed,
Lost and Stolen Securities.................... 30
SECTION 307. Payment of Interest;
Interest Rights Preserved..................... 31
SECTION 308. Persons Deemed Owners........................... 33
SECTION 309. Cancellation.................................... 34
SECTION 310. Computation of Interest......................... 34
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and
Discharge of Indenture........................ 34
SECTION 402. Application of Trust Money...................... 36
ARTICLE FIVE
Remedies
SECTION 501. Events of Default............................... 36
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
SECTION 502. Acceleration of Maturity;
Rescission and Annulment...................... 39
SECTION 503. Collection of Indebtedness and
Suits for Enforcement by
Trustee....................................... 40
SECTION 504. Trustee May File Proofs of Claim................ 41
SECTION 505. Trustee May Enforce Claims
Without Possession of
Securities.................................... 41
SECTION 506. Application of Money Collected.................. 42
SECTION 507. Limitation on Suits............................. 42
SECTION 508. Unconditional Right of Holders to
Receive Principal and
Interest to Convert........................... 43
SECTION 509. Restoration of Rights and Remedies.............. 43
SECTION 510. Rights and Remedies Cumulative.................. 44
SECTION 511. Delay or Omission Not Waiver.................... 44
SECTION 512. Control by Holders.............................. 44
SECTION 513. Waiver of Past Defaults......................... 45
SECTION 514. Undertaking for Costs........................... 45
SECTION 515. Waiver of Stay or Extension Laws................ 45
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and
Responsibilities.............................. 46
SECTION 602. Notice of Defaults.............................. 46
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
SECTION 603. Certain Rights of Trustee....................... 47
SECTION 604. Not Responsible for Recitals
or Issuance of Securities..................... 48
SECTION 605. May Hold Securities............................. 48
SECTION 606. Money Held in Trust............................. 49
SECTION 607. Compensation and Reimbursement . ............... 49
SECTION 608. Disqualification; Conflicting
Interests...................................... 49
SECTION 609. Corporate Trustee Required;
Eligibility................................... 50
SECTION 610. Resignation and Removal;
Appointment of Successor...................... 50
SECTION 611. Acceptance of Appointment by
Successor..................................... 52
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business..................... 52
SECTION 613. Preferential Collection of
Claims Against Company........................ 53
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names
and Addresses of Holders...................... 53
SECTION 702. Preservation of Information;
Communications to Holders..................... 53
SECTION 703. Reports by Trustee.............................. 54
SECTION 704. Reports by Company.............................. 54
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc.,
Only on Certain Terms......................... 55
SECTION 802. Successor Substituted........................... 56
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without
Consent of Holders............................ 56
SECTION 902. Supplemental Indentures with
Consent of Holders............................ 57
SECTION 903. Execution of Supplemental Indentures............ 59
SECTION 904. Effect of Supplemental Indentures............... 59
SECTION 905. Conformity with Trust Indenture Act............. 59
SECTION 906. Reference in Securities to
Supplemental Indentures....................... 59
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal
and Interest.................................. 60
SECTION 1002. Maintenance of Office or Agency................. 60
SECTION 1003. Money for Security Payments to
Be Held in Trust.............................. 60
SECTION 1004. Statement by Officers as to
Default....................................... 62
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
SECTION 1005. Existence....................................... 62
SECTION 1006. Maintenance of Properties....................... 62
SECTION 1007. Payment of Taxes and Other Claims............... 63
SECTION 1008. Additional Covenants............................ 63
SECTION 1009. Representations and Warranties.................. 64
ARTICLE ELEVEN
Subordination of Securities
SECTION 1101. Securities Subordinate to Senior
Indebtedness.................................. 65
SECTION 1102. Payment Over of Proceeds Upon
Dissolution, Etc. ............................ 66
SECTION 1103. No Payment When Senior
Indebtedness in Default....................... 69
SECTION 1104. Payment Permitted If No Default................. 69
SECTION 1105. Subrogation to Rights of Holders
of Senior Indebtedness........................ 69
SECTION 1106. Provisions Solely to Define
Relative Rights............................... 70
SECTION 1107. Trustee to Effectuate Subordination............. 71
SECTION 1108. No Waiver of Subordination
Provisions.................................... 71
SECTION 1109. Notice to Trustee............................... 72
SECTION 1110. Reliance on Judicial Order or
Certificate of Liquidating Agent.............. 73
SECTION 1111. Trustee Not Fiduciary for Holders
of Senior Indebtedness........................ 74
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
SECTION 1112. Rights of Trustee as Holder of
Senior Indebtedness;
Preservation of Trustee's
Rights........................................ 74
SECTION 1113. Article Applicable to Paying
Agents........................................ 74
ARTICLE TWELVE
Conversion of Securities
SECTION 1201. Conversion Rights................................... 75
SECTION 1202. Conversion Price Adjustments........................ 77
ARTICLE THIRTEEN
Redemption of Securities
SECTION 1301. Conditional Right of Redemption..................... 90
SECTION 1302. Applicability of Article............................ 90
SECTION 1303. Election to Redeem; Notice
to Trustee........................................ 90
SECTION 1304. Notice of Redemption................................ 90
SECTION 1305. Deposit of Redemption Price......................... 91
SECTION 1306. Securities Payable on
Redemption Date................................... 91
ARTICLE FOURTEEN
Exchange
SECTION 1401. Optional Exchange for Depositary
Shares Representing Series A
Preferred Stock............................... 92
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
PAGE
TESTIMONIUM....................................................... 95
SIGNATURES AND SEALS.............................................. 95
ACKNOWLEDGEMENTS.................................................. 96
ANNEX A: Form of Amended and Restated Agreement of Limited Partnership
of Best Buy Capital, L.P., dated as of _________ __, 1994.
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
INDENTURE, dated as of September __, 1994, among Best Buy Co., Inc.,
a corporation duly organized and existing under the laws of the State of
Minnesota (herein called the "COMPANY"), having its principal office at 7075
Flying Cloud Drive, Eden Prairie, Minnesota 55344, Best Buy Capital, L.P., a
limited partnership organized under the laws of the State of Delaware (herein
called "Best Buy Capital"), having its principal office at c/o Best Buy Co.
Inc., 7075 Flying Cloud Drive, Eden Prairie, Minnesota and __________
________________________, a _____________________ duly organized and existing
under the laws of ___________ __________________________, as Trustee (herein
called the "TRUSTEE"). Unless otherwise defined herein, all capitalized items
used herein shall have the meanings ascribed to them in the Amended and Restated
Agreement of Limited Partnership of Best Buy Capital, dated as of __________,
1994 (the "LIMITED PARTNERSHIP AGREEMENT"), as in effect on the date hereof,
the form of which is attached as Annex A hereto.
RECITALS OF THE COMPANY AND BEST BUY CAPITAL
WHEREAS, Best Buy Capital may pursuant to the Underwriting Agreement
dated _________ __, 1994 among the Company, Best Buy Capital and the
Underwriters named therein issue up to $__________ aggregate liquidation
preference of its ___% Convertible Monthly Income Preferred Securities (the
"PREFERRED SECURITIES") with a liquidation preference of $50 per Preferred
Security;
WHEREAS, the Company is guaranteeing the payment of Dividends on the
Preferred Securities, and payment of the Redemption Price and payments on
liquidation with respect to the securities, to the extent provided in the
Guarantee Agreement dated ___________, 1994, between the Company and Best Buy
Capital (the "PARENT GUARANTEE") for the benefit of the holders of the
Preferred Securities;
WHEREAS, the Company wishes to sell to Best Buy Capital, and Best
Buy Capital wishes to purchase from the Company, Securities in an aggregate
principal amount equal to the sum of capital contributed by the Company to Best
Buy Capital as the general partner thereof (the "GENERAL PARTNER
CONTRIBUTION") and the aggregate stated liquidation preference of the Preferred
Securities issued and sold by Best Buy Capital pursuant to the Underwriting
Agreement, less $______, which is equal to 1% of such sum;
WHEREAS, so long as Best Buy Capital is a Holder of Securities and
any Preferred Securities are outstanding,
<PAGE>
the Limited Partnership Agreement provides that (i) the holders of Preferred
Securities may, on or before the Conversion Expiration Date, cause the
Conversion Agent to exchange such Preferred Securities for Securities held by
Best Buy Capital and immediately convert such Securities into Common Stock and
(ii) under certain circumstances the holders of Preferred Securities may cause
the Conversion Agent to exchange such Preferred Securities for Securities held
by Best Buy Capital and immediately exchange such Securities for Depositary
Shares, each representing a 1/100th interest in a share of Series A Preferred
Stock;
WHEREAS, the Company has duly authorized the creation of an issue of
its ___% Convertible Subordinated Debentures Due _________ 2024 (the
"SECURITIES"), of substantially the tenor and amount hereinafter set forth and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture; and
WHEREAS, all things necessary to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
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<PAGE>
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles
and, except as otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally accepted at the
date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"ACT", when used with respect to any Holder, has the meaning
specified in Section 104.
"ADDITIONAL INTEREST" means interest that shall accrue on any
interest on the Securities that is not paid when due on or during an extension
of an interest payment period, which shall accrue at the rate of ___% per annum
compounded monthly.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to
the foregoing.
"APPLICABLE PRICE" has the meaning specified in Section 1202.
"BANK AGREEMENT" means the Credit Agreement dated as of August __,
1994, between the Company and First Bank National Association, as such Agreement
may hereafter be amended, restated, supplemented or otherwise modified from time
to time, together with all other documents executed in connection therewith.
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<PAGE>
"BEST BUY CAPITAL" means the Person specified as such in the first
paragraph of this instrument.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or any duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY" means any day other than a day on which banking
institutions in New York City are authorized or obligated by law or executive
order to close.
"CAPITAL LEASE OBLIGATION" of any Person means the obligation to
pay rent or other payment amounts under a lease of (or other Indebtedness
arrangements conveying the right to use) real or personal property of such
Person which is required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles. The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"CLOSING PRICE" has the meaning specified in Section 1202.
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"COMMON STOCK" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article 12, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock of
the Company at the date of this instrument or shares of any class or classes
resulting from any reclassification or
-4-
<PAGE>
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; PROVIDED that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
"COMMON STOCK FUNDAMENTAL CHANGE" has the meaning specified in
Section 1202.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"CONVERSION AGENT" means the Person appointed under the Limited
Partnership Agreement to act on behalf of the holders of Preferred Securities in
effecting the conversion of Preferred Securities as and in the manner set forth
in the Limited Partnership Agreement and Section 1201 hereof and in effecting
the exchange of Preferred Securities for Depositary Shares representing Best Buy
Preferred Stock as and in the manner set forth in the Limited Partnership
Agreement and Section 1401 hereof.
"CONVERSION DATE" has the meaning specified in Section 1201.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee
in ______________ at which at any particular time its corporate trust business
shall be administered.
"CORPORATION" means a corporation, association, company,
joint-stock company or business trust.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
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<PAGE>
"DESIGNATED SENIOR HOLDER" means (i) with respect to the Bank
Agreement, the agent bank or such other Person designated as such thereunder and
(ii) with respect to any Senior Indebtedness, the Person designated as such in
accordance with the terms of the instrument evidencing such Senior Indebtedness.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE DATE" has the meaning specified in Section 1401.
"EXPIRATION DATE" has the meaning specified in Section 1202.
"FUNDAMENTAL CHANGE" has the meaning specified in Section 1202.
"GENERAL PARTNER CONTRIBUTION" has the meaning specified in the
Recitals to this instrument.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Indebtedness of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Indebtedness, (ii) to purchase property,
securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Indebtedness
(and "GUARANTEED," "GUARANTEEING" and "GUARANTOR" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
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<PAGE>
"HOLDER" means a Person in whose name a Security is registered in
the Security Register.
"INCUR" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Indebtedness
or other obligation as a liability on the balance sheet of such Person (and
"INCURRENCE," "INCURRED," "INCURRABLE" and "INCURRING" shall have
meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in
generally accepted accounting principles that results in an obligation of such
Person that exists at such time becoming Indebtedness shall not be deemed an
Incurrence of such Indebtedness.
"INDEBTEDNESS" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
(i) all Indebtedness described in clauses (i)-(vii) of the definition of Senior
Indebtedness (all references to Best Buy in such definition being deemed to
refer to such Person) and (ii) the maximum fixed redemption or repurchase price
of Redeemable Interests of such Person at the time of determination.
"INDENTURE" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"INTEREST PAYMENT DATE" means the Stated Maturity of each
installment of interest on the Securities, which shall be on the last day of
each calendar month of each year commencing ___________ __, 1994 until the
principal of the Securities is paid or duly provided for.
"JUNIOR SUBORDINATED PAYMENT" has the meaning specified in Section
1102.
"LIMITED PARTNERSHIP AGREEMENT" has the meaning specified in the
first paragraph of this instrument.
"MATURITY", when used with respect to any Security, means the date
on which the principal of such Security
-7-
<PAGE>
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption or otherwise.
"NON-STOCK FUNDAMENTAL CHANGE" has the meaning specified in
Section 1202.
"NOTICE OF CONVERSION" means the notice to be given by a holder of
Preferred Securities to the Conversion Agent directing the Conversion Agent to
exchange such Preferred Securities for Securities and convert such Securities
into Common Stock on behalf of such holders.
"NOTICE OF EXCHANGE" has the meaning specified in Section 1401.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman
of the Board, a Vice Chairman of the Board, the President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
"OPINION OF COUNSEL" means a written opinion of counsel, who may
be counsel for the Company, and who shall be acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, EXCEPT:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; PROVIDED that, if such Securities
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made; and
-8-
<PAGE>
(iii) Securities which have been paid pursuant to Section 306,
converted into Common Stock pursuant to Section 1201, exchanged for Series
A Preferred Stock pursuant to Section 1401 or in exchange for or in lieu
of which other Securities have been authenticated and delivered pursuant
to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor.
"PARENT GUARANTEE" has the meaning specified in the Recitals to
this instrument.
"PAYING AGENT" means any Person authorized by the Company to pay
the principal of or interest on any Securities on behalf of the Company.
"PAYMENT BLOCKAGE PERIOD" has the meaning specified in Section
1103.
"PERSON" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"PREDECESSOR SECURITY" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange
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<PAGE>
for or in lieu of a mutilated, destroyed, lost or stolen Security shall be
deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"PREFERRED SECURITIES" has the meaning specified in the Recitals
to this instrument.
"PROCEEDING" has the meaning specified in Section 1102.
"PURCHASED SHARES" has the meaning specified in Section 1202.
"PURCHASER STOCK PRICE" has the meaning specified in Section 1202.
"REDEEMABLE INTEREST" of any Person means any equity security of
or other ownership interest in such Person that by its terms or otherwise is
required to be redeemed prior to the Stated Maturity of the principal of the
Securities or is or may be redeemable at the option of the holder thereof at any
time prior to the Stated Maturity of the principal of the Securities;
PROVIDED, HOWEVER, that interests which are redeemable solely for any equity
security of or other ownership interest in such Person that by its terms or
otherwise is not required to be redeemed prior to the Stated Maturity of the
principal of the Securities shall not constitute Redeemable Interests.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REFERENCE DATE" has the meaning specified in Section 1202.
"REFERENCE MARKET PRICE" has the meaning specified in Section
1202.
"REGULAR RECORD DATE" for the interest payable on any Interest
Payment Date means the Business Day next preceding such Interest Payment Date.
"RESPONSIBLE OFFICER", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman
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of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"SECURITIES" has the meaning specified in the Recitals to this
instrument.
"SECURITIES PAYMENT" has the meaning specified in Section 1102.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any,
interest on and any other payment due pursuant to any of the following, whether
Incurred on or prior to the date hereof or hereafter Incurred:
(i) all obligations of Best Buy for money borrowed (including
all obligations of Best Buy under the Bank Agreement, including all
reborrowings, if any, by Best Buy);
(ii) all obligations of Best Buy evidenced by notes, debentures,
bonds or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(iii) all Capital Lease Obligations of Best Buy;
(iv) all reimbursement obligations of Best Buy with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of Best Buy;
(v) all obligations of Best Buy issued or assumed as the
deferred purchase price of property or services (but excluding trade
accounts payable, accrued liabilities resulting from the sale of extended
service plans, or accrued liabilities arising in the ordinary course of
business);
(vi) all payment obligations of Best Buy under interest rate
swap or similar agreements or foreign
-11-
<PAGE>
currency hedge, exchange or similar agreements at the time of
determination, including any such obligations Incurred by Best Buy solely
to act as a hedge against increases in interest rates that may occur under
the terms of other outstanding variable or floating rate Indebtedness of
Best Buy;
(vii) all obligations of Best Buy under secured inventory
financing credit lines;
(viii) all obligations under master lease transactions pursuant to
which Best Buy or any of its Subsidiaries are treated as the owner of the
subject property for federal income tax purposes,
(ix) all obligations of the type referred to in clauses (i)
through (viii) above of another Person and all dividends of another Person
the payment of which, in either case, Best Buy has assumed or Guaranteed
or for which Best Buy is responsible or liable, directly or indirectly,
jointly or severally, as obligor, Guarantor or otherwise; and
(x) all amendments, modifications, renewals, extensions,
refinancings, replacements and refundings by Best Buy of any such
Indebtedness referred to in clauses (i) through (viii) above (and of any
such amended, modified, renewed, extended, refinanced, refunded or
replaced Indebtedness); and
PROVIDED, HOWEVER, that the following shall not constitute Senior
Indebtedness: (A) any Indebtedness owed to a Person when such Person is a
Subsidiary of Best Buy, (B) any Indebtedness which by the terms of the
instrument creating or evidencing the same expressly provides that it is not
superior in right of payment to the Securities, or (C) any Indebtedness to the
extent Incurred in violation of this Indenture. For purposes of this
definition, "INDEBTEDNESS" includes any obligation to pay principal, premium
(if any), interest, penalties, reimbursement or indemnity amounts, fees and
expenses (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Best Buy whether or not a claim for
post-petition interest is allowed in such proceeding). Such Senior Indebtedness
shall continue to be Senior Indebtedness and entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
"SENIOR NONMONETARY DEFAULT" has the meaning specified in Section
1103.
"SENIOR PAYMENT DEFAULT" has the meaning specified in Section
1103.
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"SERIES A PREFERRED STOCK" means the Series A Cumulative
Convertible Preferred Stock par value $1.00 per share, of the Company having a
liquidation preference of $5,000.00 per share.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal, together with any accrued and unpaid
interest (including Additional Interest), of such Security or such installment
of interest is due and payable.
"SUBSIDIARY" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"TRADING DAY" has the meaning specified in Section 1202.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; PROVIDED,
HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"VICE PRESIDENT", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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SECTION 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to
any record date, only the Holders on such date (or their duly designated
proxies)
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shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY AND BEST BUY CAPITAL.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: ____________________,
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the
Company, or
(3) Best Buy Capital by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to Best Buy Capital addressed to it at the address of its
principal office specified in the first paragraph of this instrument or
at any other
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address previously furnished in writing to the Trustee by Best Buy
Capital.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at his address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
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SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company or
Best Buy Capital shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. BENEFITS OF INDENTURE.
The Company's obligations under this Indenture and the Securities
will also be for the benefit of the holders from time to time of the Preferred
Securities. Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness, the holders of Preferred
Securities and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity of any Security or the last date on which a Holder has the right
to convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal or conversion of the
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Securities need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity, or on such last day for
conversion, PROVIDED that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificates of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
SECTION 202. FORM OF FACE OF SECURITY.
BEST BUY CO., INC.
___% Convertible Subordinated Debentures
Due ___________, 2024
No._________ $___________
Best Buy Co., Inc., a corporation duly organized and existing under
the laws of the State of Minnesota
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(herein called "BEST BUY", which term includes any successor corporation under
the Indenture hereinafter referred to), for value received, hereby promises to
pay to _____________________________, or registered assigns, the principal sum
of _________ Dollars on the earliest of (i) ____________, 2024 or (ii) the date
upon which Best Buy Capital, L.P. ("BEST BUY CAPITAL") is dissolved, wound up
or terminated, and to pay interest thereon at the rate of ____% per annum from
______________, 1994, payable monthly in arrears on the last day of each
calendar month of each year (each an "INTEREST PAYMENT DATE"), commencing
___________, 1994, until the principal hereof is paid or made available for
payment. Interest will compound monthly and will accrue at the rate of ____%
per annum on any interest installment that is not paid at the end of any monthly
interest period or when otherwise due ("ADDITIONAL INTEREST"). The amount of
interest payable for any period will be computed on the basis of twelve 30-day
months and a 360-day year and, for any period shorter than a full monthly
interest period, will be computed on the basis of the actual number of days
elapsed in such period. In the event that any date on which interest is payable
on this Security is not a Business Day, then a payment of the interest payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. A "BUSINESS DAY" shall mean
any day other than a day on which banking institutions in New York City are
authorized or required by law to close. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the Business Day next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
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Best Buy shall have the right at any time and from time to time
during the term of this Security to extend interest payment periods for up to 60
months, during which periods interest will compound monthly and Best Buy shall
have the right to make partial payments of interest on any Interest Payment
Date, and at the end of which periods Best Buy may pay all interest then accrued
and unpaid (together with Additional Interest); PROVIDED that during any such
extended interest payment period neither Best Buy nor any majority-owned
Subsidiary of Best Buy may declare or pay any dividend on, or redeem, purchase,
acquire for value or make a liquidation payment with respect to, any of its
common or preferred stock (other than as a result of a reclassification of such
common or preferred stock or the exchange or conversion of one class or series
of common or preferred stock for another class or series of common or preferred
stock), or make any guarantee payments with respect to the foregoing (other than
payments under the Parent Guarantee or dividends or guarantee payments to Best
Buy from a majority-owned Subsidiary of Best Buy). Prior to the termination of
any such extended interest payment period, Best Buy may further extend the
interest payment period, PROVIDED that such extended interest payment period
together with all such further extensions thereof may not exceed 60 months.
Best Buy shall give the Holder of this Security and the Trustee notice of its
selection of an extended interest payment period one Business Day prior to the
first scheduled Interest Payment Date on which the scheduled interest payment
shall be deferred pursuant to such selection.
Payment of the principal of and interest on this Security will be
made at the office or agency of Best Buy maintained for that purpose in
_________________, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that at the option of Best Buy payment of interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer in
immediately available funds at such place and to such account as may be
designated by the Person entitled thereto as specified in the Security Register.
Reference is hereby made to the further provisions of the Indenture
summarized on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse
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<PAGE>
hereof by manual signature, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Best Buy has caused this instrument to be duly
executed under its corporate seal.
Dated: ___________ __, 1994
BEST BUY CO., INC.
By:___________________________
Name:
Title:
[SEAL]
Attest:_______________________
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SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of Securities of
Best Buy, designated as its ___% Convertible Subordinated Debentures Due
___________ __, 2024 (herein called the "SECURITIES"), limited in aggregate
principal amount to $____________, issued and to be issued under an Indenture,
dated as of _____________ (herein called the "INDENTURE"), among Best Buy,
Best Buy Capital and ________________, as Trustee (herein called the
"TRUSTEE", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of Best Buy, Best Buy Capital, the Trustee, the holders of
Senior Indebtedness and the holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. All terms
used in this Security which are defined in the Indenture or in the Limited
Partnership Agreement attached as Annex A thereto shall have the meanings
assigned to them in the Indenture or the Limited Partnership Agreement, as the
case may be.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default with respect to the Securities shall occur
and be continuing, the principal of the Securities may be declared due and
payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of Best
Buy, Best Buy Capital and the rights of the Holders of the Securities under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of 66-2/3% in aggregate principal amount of the Securities at the time
Outstanding. Any such consent by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the
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registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent is made upon this Security.
Subject to and in compliance with the provisions of the Indenture,
the Securities are convertible at any time before the close of business on the
date of their Stated Maturity at the option of the Holder into fully paid and
nonassessable shares of Common Stock of Best Buy at an initial conversion price
of $______ aggregate principal amount of Securities per share of Common Stock of
Best Buy, subject to adjustment as provided for in the Indenture. The Holder of
the Securities will be entitled to receive the interest payable on the
Securities on the Interest Payment Date notwithstanding the conversion thereof
following the Regular Record Date immediately preceding such Interest Payment
Date. Each conversion will be deemed to have been effected immediately prior to
the close of business on the day on which notice was received by the Conversion
Agent from a holder of the Preferred Securities effecting a conversion thereof
pursuant to its conversion rights under the Limited Partnership Agreement and as
provided in the Indenture. No fractional shares of the Common Stock of Best Buy
will be issued as a result of conversion, but in lieu thereof, in the sole
discretion of Best Buy, such fractional interest will be paid in cash by Best
Buy.
In the event that, following the Conversion Expiration Date, less
than 5% of the original aggregate principal amount of the Securities remain
Outstanding, such Securities shall be subject to redemption at the option of
Best Buy upon not less than 30 days' nor more than 60 days' notice, at a
Redemption Price equal to 100% of the principal amount, together with accrued
and unpaid interest (including Additional Interest) to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
The Securities are exchangeable (in whole but not in part) at the
request of the Holders of the Securities following the occurrence of an Exchange
Event at the Exchange Price for Depositary Shares, each representing a
fractional interest in a share of Best Buy Series A Preferred Stock as provided
under the terms of the Indenture.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter
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or impair the obligation of Best Buy, which is absolute and unconditional, to
pay the principal of and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of Best Buy in ____________, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to Best Buy and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons
in denominations of $50 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but Best Buy may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, Best Buy, the Trustee and any agent of Best Buy or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither Best Buy,
the Trustee nor any such agent shall be affected by notice to the contrary.
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SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF
AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
_________________________,
AS TRUSTEE
By: _______________________
AUTHORIZED OFFICER
ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $___________,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1201.
The Securities shall be known and designated as the "__% Convertible
Subordinated Debentures Due ___________ __, 2024" of the Company. Their Stated
Maturity shall be the earliest of ___________ __, 2024 or the date upon which
Best Buy Capital is dissolved, wound-up or terminated, and they shall bear
interest at the rate of ____% per annum, from ___________, 1994 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, payable monthly, in arrears, on the last day of each
calendar month of each year, commencing ___________, 1994 until the principal
thereof is paid or made available for payment. Interest will compound monthly
and will accrue at the rate of ___% per annum of any interest installment that
is not paid when due or during an extension of an interest payment period as set
forth below in this Section 301. In the event that any date on which interest
is payable on the Securities is not a Business Day, then a payment of the
interest payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business
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Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
The Company shall have the right, at any time and from time to time
during the term of the Securities, to extend an interest payment period for up
to 60 months, provided that during the period of any such extension, interest
will continue to accrue and compound monthly. The Company shall have the right
to make partial payments of interest during any such extended interest payment
period. At the end of any such extended interest payment period, the Company
shall pay all interest then accrued and unpaid (together with Additional
Interest thereon). Prior to the termination of any such extended interest
payment period, the Company may further extend the interest payment period,
provided that such extended interest payment period together with all such
further extensions thereof may not exceed 60 months. The Company shall give the
Holders of the Securities and the Trustee notice of its selection of an extended
interest payment period one Business Day prior to the first scheduled Interest
Payment Date on which the scheduled interest payment shall be deferred pursuant
to such selection. In addition, at any time when any Preferred Securities are
outstanding, the Company shall give Best Buy Capital notice of its selection of
an extended interest payment period at least one Business Day prior to the
earlier of (i) the Interest Payment Date and (ii) the date Best Buy Capital is
required to give notice of the record or payment date of any Dividend payable on
the Preferred Securities to the New York Stock Exchange or other applicable
self-regulatory organization or to holders of the Preferred Securities, but in
any event not less than two Business Days prior to such record date. The
Company, as general partner of Best Buy Capital, shall give notice of the
Company's selection of an extended interest payment period to the holders of the
Preferred Securities.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in _______________ maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose; PROVIDED, HOWEVER, that at the option of the Company payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Security
Register.
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The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Eleven.
The Securities shall be convertible as provided in Article Twelve.
The Securities shall be redeemable as provided in Article Thirteen.
The Securities shall be exchangeable as provided in Article
Fourteen.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $50 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY
AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
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No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
1002, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "SECURITY REGISTER") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "SECURITY REGISTRAR" for the
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purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1201 not involving any transfer.
SECTION 306. MUTILATED, DESTROYED, LOST AND
STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security
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of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST
RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
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Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to
each Holder at his address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities
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(or their respective Predecessor Securities) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed
payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue (including in each such case Additional Interest),
which were carried by such other Security.
In the case of any Security which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date (other
than any Security whose Maturity is prior to such Interest Payment Date),
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security which is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable, and the Company shall
not make nor be required to make any other payment, adjustment or allowance with
respect to accrued but unpaid interest on the Securities being converted.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
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Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest (including Additional Interest) on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months and, for any period shorter than a full
monthly interest period, shall be computed on the basis of the actual number of
days elapsed in such period.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
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(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal and interest (including
Additional Interest) to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
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(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request.
ARTICLE FIVE
Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Eleven or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order,
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rule or regulation of any administrative or governmental body):
(1) failure to pay any principal of the Securities when due;
(2) failure to pay any interest on the Securities, including
any Additional Interest, when due and such failure continues for a
period of 10 days; PROVIDED that a valid extension of the interest
payment period by the Company pursuant to this Indenture shall not
constitute a default in the payment of interest for this purpose;
(3) failure by the Company to issue the Series A Preferred
Stock or Common Stock upon an election to convert the Securities for
Common Stock or exchange the Securities for Depositary Shares
representing Series A Preferred Stock;
(4) failure by the Company to perform in any material respect
any other covenant herein for the benefit of the holders of Securities
continued for a period of 60 days after written notice to the Company
from any Holder of the Securities or any holder of Preferred
Securities;
(5) the dissolution, winding up, liquidation or termination of
Best Buy Capital; or
(6) entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Company or Best Buy
Capital in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or Best Buy
Capital a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or Best Buy
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Capital under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or Best Buy Capital or of any
substantial part of the property of either, or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree
or order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or
(7) the commencement by the Company or Best Buy Capital of a
voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by either the Company or Best Buy Capital to the entry of
a decree or order for relief in respect of itself in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy or insolvency case or proceeding against either the
Company or Best Buy Capital, or the filing by either of them of a
petition or answer or consent seeking reorganization or relief under
any applicable Federal or State law, or the consent by either the
Company or Best Buy Capital to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or Best Buy Capital or of any substantial part of the
property of either of them, or the making by either of them of an
assignment for the benefit of creditors, or the admission by either of
them in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company or Best
Buy Capital in furtherance of any such action.
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SECTION 502. ACCELERATION OF MATURITY; RESCISSION
AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have the right to declare the principal of and
the interest on all the Securities (including any Additional Interest) and any
other amounts payable hereunder to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders) and to
enforce any and all other rights of Holders of Securities as creditors with
respect to the Securities. Upon any such declaration such principal and all
accrued interest shall become immediately due and payable.
The Company expressly acknowledges that, under the terms of the
Preferred Securities, the holders of outstanding Preferred Securities shall have
the right to appoint a Special General Partner, which Special General Partner
shall be authorized to exercise the right of the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities to accelerate
the principal amount of the Securities and to enforce the Holders' other rights
hereunder and under the Securities.
At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including any Additional
Interest) on all Securities,
(B) the principal of any Securities which have become
due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon
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overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS
FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest (including
any Additional Interest) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of any
Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest (including any Additional Interest), and,
to the extent that payment thereof shall be legally enforceable, interest on any
overdue principal and on any overdue interest (including any Additional
Interest), at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and
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enforce its rights and the rights of the Holders by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS
WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its
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agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Eleven, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal or interest (including any Additional Interest), upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest (including any Additional Interest) on the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
principal and interest (including any Additional Interest),
respectively.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
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(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO
RECEIVE PRINCIPAL AND INTEREST
AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 307) interest
(including any Additional Interest) on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to convert such Security in accordance with Article Twelve
and to institute suit for the enforcement of any such payment and right to
convert, and such rights shall not be impaired without the consent of such
Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the
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Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, PROVIDED that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture; and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
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SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of or interest (inlcuding
any Additional Interest) on any Security; or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or in any suit for the
enforcement of the right to receive the principal of and interest (including any
Additional Interest) on any Security, or convert any Security in accordance with
Article Twelve.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the
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covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided
by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default hereunder
as and to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER,
that in the case of any default of the character specified in Section 501(4), no
such notice to Holders shall be given until at least 30 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.
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SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or
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matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS
OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar, any
Conversion Agent or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Paying Agent, Security Registrar,
Conversion Agent or such other agent.
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SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
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SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000 and its Corporate
Trust Office in _________________________________________. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL;
APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
a majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to
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resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
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SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; PROVIDED that, on request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION
OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
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SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. COMPANY TO FURNISH TRUSTEE
NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than _______ and ______ in each
year, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of a date not more than 15
days prior to the delivery thereof, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in
its capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION;
COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
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(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
(a) The Trustee shall transmit to Holders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; PROVIDED that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission.
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. COMPANY MAY CONSOLIDATE, ETC.,
ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties
and assets of the Company substantially as an entirety shall be a
corporation, partnership or trust, shall be organized and validly
existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the principal of and interest (including any Additional Interest) on
all the Securities and the performance or observance of every covenant
of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance
with Section 1201;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company
or a Subsidiary as a result of such transaction as having been
incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or
lapse of time or
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both, would become an Event of Default, shall have happened and be
continuing;
(3) such consolidation or merger or conveyance, transfer or
lease of properties or assets of the Company is permitted under, and
does not give rise to any breach or violation of, the Limited
Partnership Agreement; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT
OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by
a Board Resolution, Best Buy Capital, when authorized by a resolution of the
General Partner, and
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the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1201; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, PROVIDED that such action
pursuant to this clause (5) shall not adversely affect the interests
of the Holders or, so long as any of the Preferred Securities shall
remain outstanding, the holders of the Preferred Securities.
SECTION 902. SUPPLEMENTAL INDENTURES
WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than 66 2/3% in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, Best Buy Capital, when authorized by resolution of the General
Partner, and the Trustee may enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER,
that no such supplemental indenture
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shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest (including any Additional Interest) on, any
Security, or reduce the principal amount thereof or the rate of interest
thereon, or change the place of payment where, or the coin or currency in
which, any Security or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to convert any Security
as provided in Article Twelve (except as permitted by Section 901(4)), or
modify the provisions of this Indenture with respect to the subordination
of the Securities in a manner adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1008, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby;
PROVIDED, that, so long as any of the Preferred Securities remains
outstanding, no such amendment shall be made that adversely affects the holders
of the Preferred Securities, and no termination of this Agreement shall occur,
and no waiver of any Event of Default or compliance with any covenant under this
Agreement shall be effective, without the prior consent of the holders of at
least 66-2/3% of the aggregate liquidation preference of the outstanding
Preferred Securities unless and until the Subordinated Debentures and all
accrued and unpaid interest (including any Additional Interest) thereon have
been paid in full.
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It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES
TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
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ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in ______________ an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange, where Securities
may be surrendered for conversion and where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside ______) where the Securities may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; PROVIDED, HOWEVER, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in __________ for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE
HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the
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principal of or interest on any of the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of or interest on
any Security and remaining unclaimed for two years after such principal or
interest has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease.
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SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company is in default in the performance and observance of
any of the terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct
of its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED,
HOWEVER, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
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SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary;
PROVIDED, HOWEVER, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
SECTION 1008. ADDITIONAL COVENANTS.
The Company agrees that neither it nor any of its Subsidiaries of it
will declare or pay any dividend on, or redeem, purchase, acquire for value or
make a liquidation payment with respect to, any of its Common Stock or preferred
stock (other than as a result of reclassification of such Common Stock or
preferred stock or the exchange or conversion of one class or series of Common
Stock or preferred stock for another class or series of Common Stock or
preferred stock), or make any guarantee payments with respect to the foregoing
(other than payments under the Parent Guarantee or dividends or guarantee
payments to the Company from a Subsidiary) if at such time (a) there shall have
occurred any event that, with the giving of notice or the lapse of time or both,
would constitute an Event of Default hereunder or under the Securities, (b) the
Company shall be in default with respect to its payment or other obligations
under the Parent Guarantee or (c) the Company shall have given notice of its
selection of an extended interest payment period as provided herein and such
period, or any extension thereof, shall be continuing. The Company also
covenants (i) to remain the General Partner of Best Buy Capital; PROVIDED that
any permitted successor of the Company under the Limited Partnership Agreement
may succeed to the Company's duties as General Partner, (ii) to cause at least
21% of the total value of Best Buy Capital and at least 21% of all interests in
the capital, income, gain, loss, deduction and credit of Best Buy Capital to be
held by the Company, as a General Partner of Best Buy Capital, (iii) not to
voluntarily dissolve, wind-up or liquidate Best Buy Capital, (iv) to perform
timely all of its duties as General Partner (including the duty to declare and
pay Dividends on the Preferred Securities), (v) to maintain
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direct ownership of all partnership interests of Best Buy Capital other than the
Preferred Securities and any Special General Partnership Interest, except as may
be permitted by the Limited Partnership Agreement, (vi) to use its reasonable
efforts to cause Best Buy Capital to remain a limited partnership and otherwise
to continue to be treated as a partnership for United States federal income tax
purposes and (vii) to issue Series A Preferred Stock in the form of Depositary
Shares or Common Stock upon an election by Holders to exchange or convert the
Securities.
The Company also covenants that so long as any Securities are held
by Best Buy Capital, the General Partner shall not (i) direct the time, method
and place of conducting any proceeding for any remedy available to the Special
General Partner, or exercising any trust or power conferred on the Special
General Partner with respect to the Securities, (ii) waive any past default
which is waivable under this Agreement, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Securities shall be due and
payable, or (iv) consent to any amendment, modification or termination of the
Securities or of this Indenture without, in each case, obtaining the prior
approval of the holders of at least 66 2/3% or more of the aggregate liquidation
preference of the Preferred Securities then outstanding, PROVIDED, HOWEVER,
that where a consent under the Securities would require the consent of each
holder affected thereby, no such consent shall be given by the General Partner
without the prior consent of each holder of the Preferred Securities. The
General Partner shall not revoke any action previously authorized or approved by
a vote of Preferred Securities, without the approval of the holders of Preferred
Securities representing 66 2/3% or more of the aggregate liquidation preference
of the Preferred Securities.
SECTION 1009. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants that:
(a) It is a corporation, validly existing and in good standing
under the laws of the State of Minnesota, with all power and authority
(corporate and other) to own its properties and conduct its business as
now being conducted.
(b) It has full power and authority to enter into this Indenture
and to incur and perform the obligations provided for herein, all of which
have been duly authorized by all proper and necessary corporate action.
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(c) The execution and delivery of this Indenture and the
performance by the Company of all its obligations hereunder will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, fiscal agency agreement or other agreement
or instrument to which the Company is a party or by which the Company is
bound or subject, nor will this Indenture result in a violation of the
provisions of the Company's Certificate of Incorporation or By-laws.
(d) This Indenture and the Securities have been duly authorized,
executed and delivered by the Company and constitute the valid and legally
binding obligation of the Company enforceable in accordance with their
respective terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
ARTICLE ELEVEN
Subordination of Securities
SECTION 1101. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article (subject to Article Four),
the payment of the principal of (and premium, if any) and interest on each and
all of the Securities are hereby expressly made subordinate and subject in right
of payment to the prior payment in full in cash of all Senior Indebtedness.
This Article Eleven shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions. Holders of Senior Indebtedness need not prove reliance
on the subordination provisions hereof.
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SECTION 1102. PAYMENT OVER OF PROCEEDS UPON
DISSOLUTION, ETC.
Upon any payment or distribution of assets of the Company to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshalling of assets or liabilities or
any bankruptcy, insolvency or similar proceedings of the Company, (each such
event, if any, herein sometimes referred to as a "PROCEEDING"):
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all amounts due on or to become due on or in
respect of all Senior Indebtedness, before the Holders of the Securities
are entitled to receive any payment (including any payment to holders of
the Securities made in respect of any other Indebtedness of the Company
subordinated to the payment of the Securities, such payment or
distribution being hereinafter referred to as a "JUNIOR SUBORDINATED
PAYMENT"), on account of the principal of (and premium, if any) or
interest on the Securities or on account of any purchase, redemption or
other acquisition of Securities by the Company, any Subsidiary of the
Company, the Trustee or any Paying Agent (all such payments,
distributions, purchases, redemptions and acquisitions, whether or not in
connection with a Proceeding, herein referred to, individually and
collectively, as a "SECURITIES PAYMENT"); and
(2) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the Holders of the Securities or the Trustee would be
entitled but for the provisions of this Article (including, without
limitation, any Junior Subordinated Payment) shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Indebtedness or
their representative or representatives or to the trustee or trustees
under any indenture under which any
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instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full in cash of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment to the holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received in
connection with any Proceeding any Securities Payment before all Senior
Indebtedness is paid in full or payment thereof provided for in cash, then and
in such event such Securities Payment shall be paid over or delivered forthwith
to the trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of assets of the
Company for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash
after giving effect to any concurrent payment to or for the holders of Senior
Indebtedness.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment
authorized by an order or decree of a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law or of any other
corporation provided for by such plan of reorganization or readjustment which
stock or securities are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent, or to a greater extent
than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of all or substantially all of its properties and assets as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a Proceeding for the purposes of this Section if the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance or transfer such properties and assets as an
entirety, as the case may be, shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions set forth in Article Eight.
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SECTION 1103. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
In the event that any Senior Payment Default (as defined below)
shall have occurred, then no Securities Payment shall be made, unless and
until such Senior Payment Default shall have been cured or waived in writing or
shall have ceased to exist or all amounts then due and payable in respect of
such Senior Indebtedness (including amounts that have become and remain due by
acceleration) shall have been paid in full in cash. "SENIOR PAYMENT DEFAULT"
means any default in the payment of principal of (or premium, if any) or
interest on any Senior Indebtedness when due, whether at the stated maturity of
any such payment or by declaration of acceleration, call for redemption,
mandatory payment or prepayment or otherwise.
In the event that any Senior Nonmonetary Default (as defined below)
shall have occurred and be continuing, then, upon the receipt by the Company and
the Trustee of written notice of such Senior Nonmonetary Default from the
Designated Senior Holder of such certain Senior Indebtedness, no Securities
Payment shall be made, during the period (the "PAYMENT BLOCKAGE PERIOD")
commencing on the date of such receipt of such written notice and ending
(subject to any blockage of payments that may then or thereafter be in effect as
the result of any Senior Payment Default) on the earlier of (i) the date on
which the Senior indebtedness to which such Senior Nonmonetary Default relates
is discharged or such Senior Nonmonetary Default shall have been cured or waived
in writing or shall have ceased to exist and any acceleration of Senior
Indebtedness to which such Senior Nonmonetary Default relates shall have been
rescinded or annulled or (ii) the 179th day after the date of such receipt of
such written notice. No more than one Payment Blockage Period may be commenced
with respect to the Securities during any period of 360 consecutive days and
there shall be a period of at least 181 consecutive days in each period of 360
consecutive days when no Payment Blockage Period is in effect. Following the
commencement of any Payment Blockage Period, the holders of the Senior
Indebtedness will be precluded from commencing a subsequent Payment Blockage
Period until the conditions set forth in the preceding sentence are satisfied.
For all purposes of this paragraph, no Senior Nonmonetary Default that existed
or was continuing on the date of commencement of any Payment Blockage Period
with respect to the Senior Indebtedness initiating such Payment Blockage Period
shall be, or be made, the basis for the commencement of a subsequent Payment
Blockage Period
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by holders of Senior Indebtedness or their representatives unless such Senior
Nonmonetary Default shall have been cured for a period of not less than 90
consecutive days. "SENIOR NONMONETARY DEFAULT" means any default (other than a
Senior Payment Default) or any event which, after notice or lapse of time (or
both), would become an event of default, under the terms of any instrument or
agreement pursuant to which any Senior Indebtedness is outstanding, permitting
(after notice or lapse of time or both) one or more holders of such Senior
Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare
such Senior Indebtedness due and payable prior to the date on which it would
otherwise become due and payable, other than a Senior Payment Default.
In the event that, notwithstanding the foregoing, the Company shall
make any Securities Payment to the Trustee or any Holder prohibited by the
foregoing provisions of this Section, then and in such event such Securities
Payment shall be paid over and delivered forthwith to the Designated Senior
Holders under the Senior Indebtedness or, if such Senior Indebtedness has been
repaid in full, to the Company.
The provisions of this Section shall not apply to any Securities
Payment with respect to which Section 1102 hereof would be applicable.
SECTION 1104. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or
in any of the Securities shall prevent the Company, at any time except during
the pendency of any Proceeding referred to in Section 1102 hereof or under the
conditions described in Section 1103 hereof, from making Securities Payments.
SECTION 1105. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full in cash of all Senior Indebtedness,
the Holders of the Securities shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments and distributions of cash,
property and securities applicable to the Senior Indebtedness until the
principal of and interest on the Securities shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of
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the Senior Indebtedness of any cash, property or securities to which the Holders
of the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
SECTION 1106. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional (and which, subject to the rights
under this Article of the holders of Senior Indebtedness, is intended to rank
equally with all other general obligations of the Company), to pay to the
Holders of the Securities the principal of and interest on the Securities as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the Holders of the
Securities and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder or, under the conditions
specified in Section 1103, to prevent any payment prohibited by such section or
enforce their rights pursuant to the penultimate paragraph in Section 1103.
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SECTION 1107. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the Indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file a proper claim at least 30 days before the expiration of the time
to file such claim, then the holders of the Senior Indebtedness and their
agents, trustees or other representatives are authorized to do so (but shall in
no event be liable for any failure to do so) for and on behalf of the Holders of
the Securities.
SECTION 1108. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) permit the Company to borrow,
repay and then reborrow any or all of the Senior Indebtedness; (iii) sell,
exchange, release or otherwise deal with any
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property pledged, mortgaged or otherwise securing Senior Indebtedness; (iv)
release any Person liable in any manner for the collection of Senior
Indebtedness; (v) exercise or refrain from exercising any rights against the
Company and any other Person; and (vi) apply any sums received by them to Senior
Indebtedness.
SECTION 1109. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company, any holder of Senior Indebtedness, any
Designated Senior Holder or from any trustee, fiduciary or agent therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601 hereof, shall be entitled in all respects to assume
that no such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least three Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal or
Purchase Amount of or interest on any Security), then, anything herein contained
to the contrary notwithstanding, but without limiting the rights and remedies of
the holders of Senior Indebtedness or any trustee, fiduciary or agent therefor,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within two
Business Days prior to such date. Any notice required or permitted to be given
to the Trustee by a holder of Senior Indebtedness or by any Designated Senior
Holder shall be in writing and shall be sufficient for every purpose hereunder
if in writing and either (i) sent via facsimile to the Trustee, the receipt of
which shall be confirmed via telephone, or (ii) mailed, first class postage
prepaid, or sent by overnight carrier, to the Trustee addressed to it at the
address of its principal office specified in the first paragraph of this
instrument or at any other address furnished in writing to such holder of Senior
Indebtedness by the Trustee.
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Subject to the provisions of Section 601 hereof, the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness or Designated Senior
Holder (or a trustee, fiduciary or agent therefor) to establish that such notice
has been given by a holder of Senior Indebtedness or Designated Senior Holder or
a trustee, fiduciary or agent therefor). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness or Designated Senior
Holder to participate in any payment or distribution pursuant to this Article,
the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Notwithstanding anything else contained herein, no notice, request
or other communication to or with the Trustee shall be deemed given unless
received by a Responsible Officer at the Trustee's principal corporate trust
office.
SECTION 1110. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee, subject to the provisions of Section 601
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article, provided that the foregoing shall
apply only if such court has been apprised of the provisions of this Article.
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SECTION 1111. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
or otherwise.
SECTION 1112. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 607 hereof.
SECTION 1113. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee;
PROVIDED, HOWEVER, that Section 1111 hereof shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
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ARTICLE TWELVE
Conversion of Securities
SECTION 1201. CONVERSION RIGHTS.
(a) The Securities are convertible, at the option of the Holder, at
any time before the close of business on the date two Business Days prior to
their Stated Maturity, unless previously exchanged pursuant to Article Fourteen,
into fully paid and nonassessable shares of Common Stock of the Company at an
initial conversion price of $__________ aggregate principal amount of Securities
per share of Common Stock, subject to adjustment as described in Section 1202.
A Holder of Securities may convert any portion of the principal amount of the
Securities into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing the principal amount of the Securities to be converted by
such conversion price.
(b) In order to convert a portion of the Securities, the Holder
shall deliver to the Conversion Agent an irrevocable Notice of Conversion
setting forth the principal amount of Securities to be converted, together with
the name or names, if other than the Holder, in which the shares of Common Stock
should be issued upon conversion. A holder of Preferred Securities wishing to
exercise its right under the Limited Partnership Agreement to convert a
Preferred Security into Common Stock shall deliver to the Conversion Agent an
irrevocable Notice of Conversion setting forth the information called for by the
preceding sentence and directing it (i) to exchange such Preferred Security for
a portion of the Securities held by Best Buy Capital (at an exchange rate of $50
principal amount of Securities for each Preferred Security) and (ii) to
immediately convert such Securities, on behalf of such holder, into Common Stock
of Best Buy pursuant to this Article Twelve. If such Notice of Conversion is
delivered before the close of business on the Conversion Expiration Date with
respect to the Preferred Securities, Best Buy Capital shall deliver Securities
held by it to the Conversion Agent for exchange in accordance with this
paragraph. If a Notice of Conversion is given on the Regular Record Date, the
Holder will be entitled to receive the interest payable on the portion of
Securities to be converted on the subsequent Interest Payment Date
notwithstanding the conversion thereof prior to such Interest Payment Date.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the day on which the Notice of Conversion was
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received (the "CONVERSION DATE") by the Conversion Agent from a holder of the
Preferred Securities effecting a conversion thereof pursuant to its conversion
rights under the Limited Partnership Agreement. The Person or Persons entitled
to receive the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock as of the
Conversion Date. As promptly as practicable on or after the Conversion Date,
the Company shall issue and deliver at the office of the Conversion Agent,
unless otherwise directed by the Holder in the Notice of Conversion, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with the cash payment, if any, in lieu
of any fraction of any share to the Person or Persons entitled to receive the
same. The Conversion Agent shall deliver such certificate or certificates to
such Person or Persons.
(c) The Company's delivery to the Holder of the fixed number of
shares of Common Stock into which the Securities are convertible (together with
the cash payment, if any, in lieu of fractional shares) shall be deemed to
satisfy the Company's obligation to pay the principal amount at Maturity of the
portion of Securities so converted and any unpaid interest accrued on such
Securities at the time of such conversion.
(d) No fractional shares of Common Stock will be issued as a
result of conversion, but in lieu thereof, such fractional interest will be paid
in cash by the Company.
(e) In the event of the conversion of any Security in part only, a
new Security or Securities for the unconverted portion thereof will be issued in
the name of the Holder thereof upon the cancellation thereof in accordance with
Section 305.
(f) In effecting the conversion and exchange transactions
described in this Section, the Conversion Agent is acting as agent of the
holders of Preferred Securities directing it to effect such conversion or
exchange transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities held by Best Buy Capital from time to time for Preferred
Securities in connection with the conversion or exchange of such Preferred
Securities in accordance with Articles Twelve and Thirteen hereof, (ii) to
convert all or a portion of the Securities into Common Stock and thereupon to
deliver such shares of Common Stock in accordance with the provisions of this
Article Twelve and to deliver to Best Buy Capital a new Security or Securities
for any resulting unconverted principal amount and (iii) to
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exchange all of the Securities following the occurrence of an Exchange Event for
Depositary Shares representing Series A Preferred Stock in accordance with the
provisions of Article Thirteen hereof and thereupon to deliver such Depositary
Shares to the Persons entitled to receive them.
SECTION 1202. CONVERSION PRICE ADJUSTMENTS.
(a) The conversion price shall be subject to adjustment from time
to time as follows:
(i) In case the Company shall pay or make a dividend or other
distribution on any class or series of capital stock of the Company exclusively
in Common Stock, the conversion price in effect at the opening of business on
the day following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be reduced by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution or exchange, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this subparagraph (i), the number of shares
of Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not pay any dividend or make any
distribution on shares of any class or series of Capital Stock of the Company
exclusively in Common Stock held in the treasury of the Company.
(ii) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights or warrants entitling the
holders thereof to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share (determined as provided
in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the date
fixed for the determination of stockholders entitled to receive such rights or
warrants, the conversion price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares
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of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this subparagraph (ii), the number of shares
of Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company. In case
any rights or warrants referred to in this subparagraph (ii) in respect of which
an adjustment shall have been made shall expire unexercised within 45 days after
the same shall have been distributed or issued by the Company, the conversion
price shall be readjusted at the time of such expiration to the conversion price
that would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(iii) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced and, conversely,
in case outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the conversion price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(iv) Subject to the last sentence of this subparagraph (iv), in case
the Company shall, by dividend or otherwise, distribute to all holders of its
Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights or
warrants referred to in subparagraph (ii) of this Section 1202(a), any dividend
or distribution paid exclusively in cash and any dividend or distribution
referred to in subparagraph (i) of this Section 1202(a)), the conversion price
shall be reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the
effectiveness of
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the conversion price reduction contemplated by this subparagraph (iv) by a
fraction of which the numerator shall be the current market price per share
(determined as provided in subparagraph (vii) of this Section 1202(a)) of the
Common Stock on the date fixed for the payment of such distribution (the
"REFERENCE DATE") less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors), on the Reference Date, of the portion
of the evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following the Reference Date. If the Board of Directors determines the fair
market value of any distribution for purposes of this subparagraph (iv) by
reference to the actual or when issued trading market for any securities
comprising such distribution, it must in doing so consider the prices in such
market over the same period used in computing the current market price per share
of Common Stock pursuant to subparagraph (vii) of this Section 1202(a). For
purposes of this subparagraph (iv), any dividend or distribution that includes
shares of Common Stock or rights or warrants to subscribe for or purchase shares
of Common Stock shall be deemed instead to be (1) a dividend or distribution of
the evidences of indebtedness, shares of capital stock, cash or assets other
than such shares of Common Stock or such rights or warrants (making any
conversion price reduction required by this subparagraph (iv)) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (making any further conversion price reduction required
by subparagraph (i) or (ii) of this Section 1202(a), except (A) the Reference
Date of such dividend or distribution as defined in this subparagraph (iv) shall
be substituted as "the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution," "the date fixed for the
determination of stockholders entitled to receive such rights or warrants" and
"the date fixed for such determination" within the meaning of subparagraphs (i)
and (ii) of this Section 1202(a) and (B) any shares of Common Stock included in
such dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of
subparagraph (i) of this Section 1202(a).
(v) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding, in the case of
any regular cash
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dividend on the Common Stock, the portion thereof that does not exceed the per
share amount of the next preceding regular cash dividend on the Common Stock (as
adjusted to appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv), (v) and (vi) of this Section 1202(a)), or all of such
regular cash dividend if the annualized amount thereof per share of Common Stock
does not exceed 15% of the current market price per share (determined as
provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on
the Trading Day (as defined in Section 1202(e)) next preceding the date of
declaration of such dividend), the conversion price shall be reduced so that the
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph (v) by a fraction of which the numerator shall
be the current market price per share (determined as provided in subparagraph
(vii) of this Section 1202(a)) of the Common Stock on the date fixed for the
payment of such distribution less the amount of cash so distributed and not
excluded as provided above applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such reduction to become effective immediately prior to the opening of business
on the day following the date fixed for the payment of such distribution.
(vi) In case a tender or exchange offer made by the Company or any
subsidiary of the Company for all or any portion of Best Buy's Common Stock
shall expire and such tender or exchange offer shall involve the payment by the
Company or such subsidiary of consideration per share of Common Stock having a
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) at the last time (the "EXPIRATION TIME") tenders or exchanges may
be made pursuant to such tender or exchange offer (as it shall have been
amended) that exceeds 10% of the current market price per share (determined as
provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on
the Trading Day (as defined in Section 1202(e)) next succeeding the Expiration
Time, the conversion price shall be reduced so that the same shall equal the
price determined by multiplying the conversion price in effect immediately prior
to the effectiveness of the conversion price reduction contemplated by this
subparagraph (vi) by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
at the Expiration Time multiplied by the current market price per share
(determined as provided in subparagraph (vii) of this Section 1202(a))
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of the Common Stock on the Trading Day next succeeding the Expiration Time and
the denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "PURCHASED SHARES") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the current market price per share (determined as provided in
subparagraph (vii) of this Section 1202(a)) of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Time.
(vii) For the purpose of any computation under subparagraphs (ii),
(iv), (v) and (vi) of this Section 1202(a), the current market price per share
of Common Stock on any date in question shall be deemed to be the average of the
daily Closing Prices (as defined in Section 1202(e)) for the five consecutive
Trading Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and, if
applicable, the day before the "ex" date with respect to the issuance or
distribution requiring such computation; PROVIDED, HOWEVER, that if another
event occurs that would require an adjustment pursuant to subparagraph (i)
through (vi), inclusive, the Board of Directors may make such adjustments to the
Closing Prices during such five Trading Day period as it deems appropriate to
effectuate the intent of the adjustments in this Section 1202(a), in which case
any such determination by the Board of Directors shall be set forth in a Board
Resolution and shall be conclusive. For purposes of this paragraph, the term
"ex" date, (1) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant exchange
or in the relevant market from which the Closing Prices were obtained without
the right to receive such issuance or distribution, and (2) when used with
respect to any tender or exchange offer means the first date on which the Common
Stock trades regular way on such exchange or in such market after the Expiration
Time of such offer.
(viii) The Company may make such reductions in the conversion price,
in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and
(vi) of this Section 1202(a), as it considers to be advisable to avoid or
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diminish any income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. The Company
from time to time may reduce the conversion price by any amount for any period
of time if the period is at least twenty days, the reduction is irrevocable
during the period, and the Board of Directors of the Company shall have made a
determination that such reduction would be in the best interest of the Company,
which determination shall be conclusive. Whenever the conversion price is
reduced pursuant to the preceding sentence, the Company shall mail to holders of
record of the Securities a notice of the reduction at least fifteen days prior
to the date the reduced conversion price takes effect, and such notice shall
state the reduced conversion price and the period it will be in effect.
(ix) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this subparagraph (ix) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(x) Whenever the conversion price is adjusted as herein provided:
(1) the Company shall compute the adjusted conversion price
and shall prepare a certificate signed by the Treasurer of the
Company setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based, and
such certificate shall forthwith be filed with the transfer agent
for the Preferred Securities; and
(2) a notice stating the conversion price has been adjusted
and setting forth the adjusted conversion price shall as soon as
practicable be mailed by the Company to all record holders of
Preferred Securities at their last addresses as they appear upon the
stock transfer books of the Company.
(b) RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE OF ASSETS.
In the event that the Company shall be a party to any transaction (including
without limitation any recapitalization or reclassification of the Common Stock
(other than a change in par value, or from par value to no
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par value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), any sale or transfer of all or substantially all of the assets of
the Company or any compulsory share exchange) pursuant to which the Common Stock
is converted into the right to receive other securities, cash or other property,
then lawful provision shall be made as part of the terms of such transaction
whereby the holder of each Security then outstanding shall have the right
thereafter to convert such Security only into (i) in the case of any such
transaction other than a Common Stock Fundamental Change (as defined in Section
1202(e)), the kind and amount of securities, cash and other property receivable
upon such transaction by a holder of the number of shares of Common Stock of the
Company into which such Security could have been converted immediately prior to
such transaction, after giving effect, in the case of any Non-Stock Fundamental
Change, to any adjustment in the conversion price required by the provision of
Section 1202(d), and (ii) in the case of a Common Stock Fundamental Change,
common stock of the kind received by holders of Common Stock as a result of such
Common Stock Fundamental Change in an amount determined pursuant to the
provisions of Section 1202(d). The Company or the person formed by such
consolidation or resulting from such merger or which acquired such assets or
which acquires the Company's shares, as the case may be, shall make provision in
its certificate or articles of incorporation or other constituent document to
establish such right. Such certificate or articles of incorporation or other
constituent document shall provide for adjustments which, for events subsequent
to the effective date of such certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 1202. The above provisions shall
similarly apply to successive transactions of the foregoing type.
(c) PRIOR NOTICE OF CERTAIN EVENTS. In case:
(i) the Company shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend payable in cash that would not
require an adjustment pursuant to 1202(a)(iv) or (v) or (2) authorize a
tender or exchange offer that would require an adjustment pursuant to
Section 1202(a)(vi);
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(ii) the Company shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or series or of any other rights or warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company shall be
required, or of the sale or transfer of all or substantially all of the
assets of the Company or of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other property;
or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed with the transfer agent for the
Preferred Securities, and shall cause to be mailed to the holders of record of
the Preferred Securities, at their last addresses as they shall appear upon the
stock transfer books of the Company, at least fifteen days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, redemption, repurchase, rights or warrants or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, redemption, repurchase,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up (but no failure
to mail such notice or any defect therein or in the mailing thereof shall affect
the validity of the corporate action required to be specified in such notice).
(d) ADJUSTMENTS IN CASE OF FUNDAMENTAL CHANGES. Notwithstanding
any other provision in this Section 1202 to the contrary, if any Fundamental
Change (as defined in Section 1202(e)) occurs, then the conversion price in
effect will be adjusted immediately after such Fundamental Change as described
below. In addition, in the event of a Common
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Stock Fundamental Change (as defined in Section 1202(e)), each Security shall be
convertible solely into common stock of the kind and amount received by holders
of Common Stock as the result of such Common Stock Fundamental Change as more
specifically provided in the following clauses (d)(i) and (d)(ii).
For purposes of calculating any adjustment to be made pursuant to this Section
1202(d) in the event of a Fundamental Change, immediately after such Fundamental
Change:
(i) in the case of a Non-Stock Fundamental Change (as defined in
Section 1202(e)), the conversion price of the Securities shall thereupon
become the lower of (A) the conversion price in effect immediately prior
to such Non-Stock Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to this Section 1202, and (B) the
result obtained by multiplying the greater of the Applicable Price (as
defined in Section 1202(e)) or the then applicable Reference Market Price
(as defined in Section 1202(e)) by a fraction of which the numerator shall
be $50 and the denominator shall be an amount per Security determined by
the General Partner in its sole discretion, after consultation with a
nationally recognized investment banking firm, to be the equivalent of the
hypothetical redemption price that would have been applicable if the
Securities had been redeemable during such period; and
(ii) in the case of a Common Stock Fundamental Change, the
conversion price of the Securities in effect immediately prior to such
Common Stock Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to this Section 1202, shall thereupon
be adjusted by multiplying such conversion price by a fraction of which
the numerator shall be the Purchaser Stock Price (as defined in Section
1202(e)) and the denominator shall be the Applicable Price; PROVIDED,
HOWEVER, that in the event of a Common Stock Fundamental Change in which
(A) 100% of the value of the consideration received by a holder of Common
Stock is common stock of the successor, acquiror or other third party (and
cash, if any, is paid with respect to any fractional interests in such
common stock resulting from such Common Stock Fundamental Change) and (B)
all of the Common Stock shall have been exchanged for, converted into or
acquired for common stock (and cash with respect to fractional interests)
of the successor, acquiror or other third party, the conversion price of
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the Securities in effect immediately prior to such Common Stock
Fundamental Change shall thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator shall be one (1) and
the denominator shall be the number of shares of common stock of the
successor, acquiror, or other third party received by a stockholder for
one share of Common Stock as a result of such Common Stock Fundamental
Change.
(e) DEFINITIONS. The following definitions shall apply to terms
used in this Section 1202:
(1) "APPLICABLE PRICE" shall mean (i) in the event of a
Non-Stock Fundamental Change in which the holders of the Common Stock
receive only cash, the amount of cash received by a stockholder for one
share of Common Stock and (ii) in the event of any other Non-Stock
Fundamental Change or any Common Stock Fundamental Change, the average of
the daily Closing Prices of the Common Stock for the ten consecutive
Trading Days prior to and including the record date for the determination
of the holders of Common Stock entitled to receive securities, cash or
other property in connection with such Non-Stock Fundamental Change or
Common Stock Fundamental Change, or, if there is no such record date, the
date upon which the holders of the Common Stock shall have the right to
receive such securities, cash or other property, in each case, as adjusted
in good faith by the Board of Directors of Best Buy to appropriately
reflect any of the events referred to in subparagraphs (i), (ii), (iii),
(iv), (v) and (vi) of Section 1202(a).
(2) "CLOSING PRICE" of any common stock on any day shall mean
the last reported sale price regular way on such day or, in case no such
sale takes place on such day, the average of the reported closing bid and
asked prices regular way of such common stock, in each case on the
principal national securities exchange on which such common stock is
listed, if the common stock is listed on a national securities exchange,
or the National Market System of the National Association of Securities
Dealers, Inc., or, if the common stock is not quoted or admitted to
trading on such quotation system, on the principal quotation system on
which the common stock is listed or admitted to trading or quoted, or, if
not listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked
prices of the common stock in the over-the-counter market on the day in
question as reported by the National
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Quotation Bureau Incorporated, or a similarly generally accepted reporting
service, or, if not so available in such manner, as furnished by any New
York Stock Exchange member firm selected from time to time by the Board of
Directors of Best Buy for that purpose or, if not so available in such
manner, as otherwise determined in good faith by the Board of Directors.
(3) "COMMON STOCK FUNDAMENTAL CHANGE" shall mean any Fundamental
Change in which more than 50% of the value (as determined in good faith by
the Board of Directors) of the consideration received by holders of Common
Stock consists of common stock that for each of the ten consecutive
Trading Days referred to with respect to such Fundamental Change in
Section 1202(e)(1) above has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the National Market System of the National Association of
Securities Dealers, Inc.; PROVIDED, HOWEVER, that a Fundamental Change
shall not be a Common Stock Fundamental Change unless either (i) the
Company continues to exist after the occurrence of such Fundamental Change
and the outstanding Securities continue to exist as outstanding
Securities, or (ii) not later than the occurrence of such Fundamental
Change, the outstanding Securities are converted into or exchanged for
convertible subordinated debentures of a corporation succeeding to the
business of the Company, which convertible subordinated debentures have
terms substantially similar to those of the Securities.
(4) "FUNDAMENTAL CHANGE" shall mean the occurrence of any
transaction or event in connection with a plan pursuant to which all or
substantially all of the Common Stock shall be exchanged for, converted
into, acquired for or constitute solely the right to receive securities,
cash or other property (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); PROVIDED, HOWEVER,
in the case of a plan involving more than one such transaction or event,
for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the
Common Stock of the Company shall be exchanged for, converted into, or
acquired for or constitute solely the right to receive securities, cash or
other property, but the adjustment shall be based upon the highest
weighted average of consideration per share which a holder of Common Stock
could have received in
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such transactions or events as a result of which more than 50% of the
Common Stock of the Company shall have been exchanged for, converted into,
or acquired for or constitute solely the right to receive securities, cash
or other property.
(5) "NON-STOCK FUNDAMENTAL CHANGE" shall mean any Fundamental
Change other than a Common Stock Fundamental Change.
(6) "PURCHASER STOCK PRICE" shall mean, with respect to any
Common Stock Fundamental Change, the average of the daily Closing Prices
of the common stock received in such Common Stock Fundamental Change for
the ten consecutive Trading Days prior to and including the record date
for the determination of the holders of Common Stock entitled to receive
such common stock, or, if there is no such record date, the date upon
which the holders of the Common Stock shall have the right to receive such
common stock, in each case, as adjusted in good faith by the Board of
Directors to appropriately reflect any of the events referred to in
subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 1202(a).
(7) "REFERENCE MARKET PRICE" shall initially mean $_____ and in
the event of any adjustment to the conversion price other than as a result
of a Non-Stock Fundamental Change, the Reference Market Price shall also
be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such adjustment shall always
be the same as the ratio of $_____ to the initial conversion price per
share.
(8) "TRADING DAY" shall mean a day on which securities are
traded on the national securities exchange or quotation system or in the
over-the-counter market used to determine the Closing Price.
(f) DIVIDEND OR INTEREST REINVESTMENT PLANS. Notwithstanding the
foregoing provisions, the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Company and the investment of additional optional amounts in
shares of Common Stock under any such plan, and the issuance of any shares of
Common Stock or options or rights to purchase such shares pursuant to any
employee benefit plan or program of the Company or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the
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Securities were first issued, shall not be deemed to constitute an issuance of
Common Stock or exercisable, exchangeable or convertible securities by the
Company to which any of the adjustment provisions described above applies.
There shall also be no adjustment of the conversion price in case of the
issuance of any stock (or securities convertible into or exchangeable for stock)
of Best Buy except as specifically described in this Section 1202. If any
action would require adjustment of the conversion price pursuant to more than
one of the provisions described above, only one adjustment shall be made and
such adjustment shall be the amount of adjustment that has the highest absolute
value to the holder of the Securities.
(g) CERTAIN ADDITIONAL RIGHTS. In case the Company shall, by
dividend or otherwise, declare or make a distribution on its Common Stock
referred to in Section 1202(a)(iv) or 1202(a)(v) (including, without limitation,
dividends or distributions referred to in the last sentence of Section
1202(a)(iv)), the holder of the Securities, upon the conversion thereof
subsequent to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution and prior to the
effectiveness of the conversion price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Common Stock
into which the Securities are converted, the portion of the shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash and assets so distributed applicable to one share of Common Stock;
PROVIDED, HOWEVER, that, at the election of the Company (whose election
shall be evidenced by a resolution of the Board of Directors) with respect to
all holders so converting, the Company may, in lieu of distributing to such
holder any portion of such distribution not consisting of cash or securities of
the Company, pay such holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors). If any conversion of Securities described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the holder of Securities so converted is entitled
to receive in accordance with the immediately preceding sentence, the Company
may elect (such election to be evidenced by a resolution of the Board of
Directors) to distribute to such holder a due bill for the shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash or assets to which such holder is so entitled, PROVIDED that such due
bill (i) meets any applicable requirements of the principal national securities
exchange or other market on which the
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Common Stock is then traded and (ii) requires payment or delivery of such shares
of Common Stock, rights, warrants, evidences of indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery thereof to
holders of shares of Common Stock receiving such distribution.
ARTICLE THIRTEEN
Redemption of Securities
SECTION 1301. CONDITIONAL RIGHT OF REDEMPTION.
In the event that, following the Conversion Expiration Date in
respect of the Preferred Securities, less than 5% of the original aggregate
principal amount of the Securities remain Outstanding, the Securities shall be
subject to redemption, in whole but not in part, at the option of the Company at
the Redemption Price specified in the form of Security hereinbefore set forth,
together with accrued interest (including Additional Interest) to the Redemption
Date.
SECTION 1302. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as
permitted by Section 1301, shall be made in accordance with such provision and
this Article.
SECTION 1303. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem Securities pursuant to Section
1301 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 30 days and no more than 60
days prior to the Redemption Date fixed by the Company, notify the Trustee of
such Redemption Date and of the principal amount of Securities to be redeemed
and provide a copy of the notice of redemption given to Holders of Securities to
be redeemed pursuant to Section 1304.
SECTION 1304. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than
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60 days prior to the Redemption Date, to each Holder of Securities to be
redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date, and
(4) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1305. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent, (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
SECTION 1306. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more
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Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
ARTICLE FOURTEEN
Exchange
SECTION 1401. OPTIONAL EXCHANGE FOR DEPOSITARY SHARES REPRESENTING SERIES A
PREFERRED STOCK.
For so long as any Preferred Securities are outstanding, the
Securities shall be exchangeable at the request of Holders thereof, following an
Exchange Election by a Majority in Liquidation Preference of the Preferred
Securities, for Depositary Shares, each representing ownership of 1/100th of a
fully paid and non-assessable share of Series A Preferred Stock, subject to the
following terms and conditions:
(a) The Company shall, following the occurrence of an Exchange
Event, if so requested by the Conversion Agent pursuant to a Notice of
Exchange, exchange all (but not less than all) of the Securities for
Depositary Shares, each representing a 1/100th interest in a fully paid
and non-assessable share of its Series A Preferred Stock and evidenced by
Depositary Receipts, at the rate of one Depositary Share for each $50
principal amount of Securities (which rate is equivalent to one Depositary
Share or 1/100th of a share of Series A Preferred Stock for each Preferred
Security).
(b) The failure of Holders of Preferred Securities (including any
such failure following an election by Best Buy to extend interest payments
on the Securities in accordance with their terms) to receive, for 15
consecutive months the full amount of dividend payments (including
Additional Dividends) accumulated on the Preferred Securities shall
constitute an "Exchange Event".
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(c) The Conversion Agent, upon receiving irrevocable notice of an
Exchange Election by the holders of a Majority in Liquidation Preference
of the Preferred Securities (a "NOTICE OF EXCHANGE"), shall (i) exchange
all (but not less than all) outstanding Preferred Securities for all (but
not less than all) Securities held by Best Buy Capital (at an exchange
rate of $50 principal amount of Securities, plus accrued interest
(including any Additional Interest), for each Preferred Security, plus
accumulated dividends (including any Additional Dividends)) and (ii)
deliver a copy of the Notice of Exchange to the Company and the Trustee.
At the request of the Conversion Agent following receipt by it of the
Notice of Exchange, Best Buy Capital shall deliver all Securities held by
it to the Conversion Agent for exchange in accordance with this paragraph.
Upon receipt from the Conversion Agent of a copy of the Notice of
Exchange, the Company shall, in exchange for the principal amount of the
Securities then outstanding, issue and deposit with the Depositary,
pursuant to the Deposit Agreement, a certificate or certificates for the
number of fully paid and non-assessable shares of Series A Preferred Stock
issuable at the rate referred to in paragraph (a) above upon such exchange
in return for a Depositary Receipt or Receipts issued by the Depositary
evidencing a proportionate number of Depositary Shares in respect of the
Series A Preferred Stock so deposited. The Company shall request that the
Depositary Receipts be issued in the names of the holders of Preferred
Securities designated in the Notice of Exchange. Any accrued but unpaid
interest on the Securities surrendered for exchange, including any
Additional Interest accrued thereon, shall from and after the time of such
exchange be treated as accumulated and unpaid dividends on the Series A
Preferred Stock issued in exchange for the Securities. Preferred
Securities shall be deemed to have been exchanged immediately prior to the
close of business on the date of the Exchange Election (the "EXCHANGE
DATE"). The Person or Persons entitled to receive the Series A Preferred
Stock issuable upon an exchange of the Preferred Securities shall be
treated for all purposes as the record holder or holders of such Series A
Preferred Stock at such time. As promptly as practicable on or after the
exchange date, the Company shall deliver at the office of the Conversion
Agent the Depositary Receipt or Receipts representing the Series A
Preferred Stock issuable upon such exchange. The Conversion Agent shall
deliver such Depositary Receipt or Receipts to the Person or persons
entitled to receive the same.
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____________________
This instrument may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
BEST BUY CO., INC.
By: __________________________
Attest:
__________________________
BEST BUY CAPITAL, L.P.
By: Best Buy Co., Inc.,
General Partner
By: __________________________
Attest:
__________________________
______________________________
Trustee
By: _________________________
Attest:
___________________________
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STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1994, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [HE --SHE] is ____________________________________________
_______ of Best Buy Co., Inc., one of the corporations or limited partnerships
described in and which executed the foregoing instrument; that [HE -- SHE]
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that [HE -- SHE] signed [HIS -- HER] name
thereto by like authority.
______________________________
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1994, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [HE --SHE] is ____________________________________________
_______ of Best Buy Co., Inc., as general partner of Best Buy Capital, L.P., a
limited partnership described in and which executed the foregoing instrument;
and that [HE -- SHE] signed [HIS -- HER] name thereto by authority of the
Board of Directors of such general partner.
______________________________
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STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1994, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [HE --SHE] is ____________________________________________
_______ of _______________________________, one of the corporations or limited
partnerships described in and which executed the foregoing instrument; that [HE
- -- SHE] knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that [HE -- SHE] signed [HIS --
HER] name thereto by like authority.
______________________________
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EXHIBIT 4.5
Draft of September 28, 1994
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT (this "Guarantee"), dated as of ____________,
1994, is executed and delivered by Best Buy Co., Inc., a corporation organized
under the laws of the State of Minnesota ("Best Buy"), for the benefit of the
Holders (as hereinafter defined) from time to time of the Preferred Securities
(as hereinafter defined) of Best Buy Capital, L.P., a Delaware limited
partnership ("Best Buy Capital" or the "Partnership").
WHEREAS, Best Buy Capital is issuing up to ________ shares of its
___% Convertible Monthly Income Preferred Securities, with a liquidation
preference of $__ per share (the "Preferred Securities"), and Best Buy desires
to issue this Guarantee for the benefit of the Holders, as provided herein;
WHEREAS, Best Buy Capital will purchase the Subordinated Debentures
(as hereinafter defined) issued pursuant to the Indenture (as hereinafter
defined) with substantially all of the proceeds from the issuance and sale of
the Preferred Securities and its other partnership interests (the "Partnership
Interests"); and
WHEREAS, Best Buy desires hereby to unconditionally and irrevocably
agree, to the extent set forth herein, to pay to the Holders the Guarantee
Payments (as hereinafter defined) and to perform the other obligations set forth
herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
the Preferred Securities, which purchase Best Buy hereby agrees shall benefit
Best Buy, Best Buy executes and delivers this Guarantee for the benefit of the
Holders.
Article I
DEFINITIONS
As used in this Guarantee, the terms set forth below shall, unless
the context otherwise requires, have the following meanings. Capitalized terms
used herein but not otherwise defined herein shall have the meanings ascribed to
such terms in the Amended and Restated Limited Partnership Agreement of Best Buy
Capital L.P., dated as of ________, 1994 (the "Limited Partnership
Agreement").
1.1 "Additional Dividends" means Dividends that shall be declared
and paid by the Partnership on any Dividend arrearages in respect of the
Preferred Securities at the rate of __% per annum compounded monthly.
<PAGE>
1.2 "Bank Agreement" means the Credit Agreement dated as of August
__, 1994, between Best Buy and First Bank National Association, as such
Agreement may hereafter be amended, restated, supplemented or otherwise modified
from time to time, together with all other documents executed in connection
therewith.
1.3 "Best Buy Common Stock" shall mean the shares of common stock,
par value $.10 per share, of Best Buy.
1.4 "Best Buy Preferred Stock" shall mean the Series __
Cumulative Convertible Preferred Stock of Best Buy, liquidation preference $ __
per share.
1.5 "Capital Lease Obligation" of any Person means the obligation
to pay rent or other payment amounts under a lease of (or other Indebtedness
arrangements conveying the right to use) real or personal property of such
Person which is required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles. The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
1.6 "Conversion Agent" shall mean ______________ and its
successors, acting as agent of the Holders in effecting the conversion of
Preferred Securities into shares of Best Buy Common Stock or the exchange of
Preferred Securities for Depositary Shares, in each case as and in the manner
set forth in the Limited Partnership Agreement.
1.7 "Deposit Agreement" shall mean the Deposit Agreement dated as
of _____________, 1994, among Best Buy, ______________, and the holders from
time to time of the Depositary Receipts.
1.8 "Depositary" shall mean ___________________ and its successors
and assignor.
1.9 "Depositary Receipt" shall mean one of the depositary
receipts, issued by the Depositary under the Deposit Agreement, each
representing any number of whole Depositary Shares.
1.10 "Depositary Share" shall mean one of the depositary shares,
each representing a one one-hundredth (1/100th) interest in a share of Best Buy
Preferred Stock deposited with the Depositary pursuant to the Deposit Agreement.
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1.11 "Dividends" means the cumulative cash distributions from the
Partnership with respect to the Interests represented by the Preferred
Securities, accruing from the first Closing Date and payable monthly in arrears
on the last day of each calendar month of the year, commencing _____________,
1994.
1.12 "General Partner" means Best Buy in its capacity as general
partner in Best Buy Capital or any permitted successor general partner in Best
Buy Capital admitted as such pursuant to the applicable provisions of the
Limited Partnership Agreement.
1.13 "Guarantee" by any Person shall mean (for purposes of the
definitions of Incur and Senior Indebtedness herein) any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Indebtedness, (ii) to purchase property,
securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Indebtedness
(and "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
1.14 "Guarantee Payments" shall mean the following payments,
without duplication, to the extent not paid by Best Buy Capital: (a) any
accumulated and unpaid Dividends (including any Additional Dividends accrued
thereon) which have been theretofore declared on the Preferred Securities from
funds legally available therefor; (b) the Redemption Price (including all
accumulated and unpaid Dividends and distributions) payable with respect to
Preferred Securities called for redemption by Best Buy Capital out of funds
legally available therefor; and (c) upon a liquidation of Best Buy Capital, the
lesser of (i) the Liquidation Distribution and (ii) the amount of assets of Best
Buy Capital available for distribution to Holders in liquidation of Best Buy
Capital.
1.15 "Holder" shall mean any holder from time to time of any
Preferred Securities of Best Buy Capital; PROVIDED, HOWEVER, that in
determining whether the Holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include
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Best Buy or any Subsidiary thereof, either directly or indirectly.
1.16 "Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Indebtedness
or other obligation on the balance sheet of such Person (and "Incurrence,"
"Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that a change in generally accepted
accounting principles that results in an obligation of such Person that exists
at such time becoming Indebtedness shall not be deemed an Incurrence of such
Indebtedness.
1.17 "Indebtedness" means (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such
Person, (i) all Indebtedness described in clauses (i)-(vii) of the definition of
Senior Indebtedness (all references to Best Buy in such definition being deemed
to refer to such Person) and (ii) the maximum fixed redemption of repurchase
price of Redeemable Interests of such Person at the time of determination.
1.18 "Indenture" shall mean the Indenture dated as of
___________, 1994, between Best Buy, Best Buy Capital and ______
_________________________.
1.19 "Liquidation Distribution" shall mean the aggregate of the
stated liquidation preference of $__ per Preferred Security and all accumulated
and unpaid dividends and distributions (whether or not declared) to the date of
payment, including any Additional Dividends accrued thereon.
1.20 "Redeemable Interest" of any Person means any equity security
of or other ownership interest in such Person that by its terms or otherwise is
required to be redeemed prior to the stated maturity of the principal of the
Subordinated Debentures or is or may be redeemable at the option of the holder
thereof at any time prior to the stated maturity of the principal of the
Subordinated Debentures; PROVIDED, HOWEVER, that interests which are
redeemable solely for any equity security of or other ownership interest in such
Person that by its terms or otherwise is not required to be redeemed prior to
the stated maturity of the principal of the Subordinated Debentures shall not
constitute Redeemable Interests.
1.21 "Redemption Price" shall have the meaning ascribed to such
term in the Limited Partnership Agreement.
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1.22 "Senior Indebtedness" shall mean the principal of, premium, if
any, interest on and any other payment due pursuant to any of the following,
whether Incurred on or prior to the date hereof or hereafter Incurred:
(i) all obligations of Best Buy for money borrowed (including all
obligations of Best Buy under the Bank Agreement, including all
reborrowings, if any, by Best Buy);
(ii) all obligations of Best Buy evidenced by notes, debentures,
bonds or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(iii) all Capital Lease Obligations of Best Buy;
(iv) all reimbursement obligations of Best Buy with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of Best Buy;
(v) all obligations of Best Buy issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable, accrued liabilities resulting from the sale of extended service
plans, or accrued liabilities arising in the ordinary course of business);
(vi) all payment obligations of Best Buy under interest rate swap
or similar agreements or foreign currency hedge, exchange or similar
agreements at the time of determination, including any such obligations
Incurred by Best Buy solely to act as a hedge against increases in
interest rates that may occur under the terms of other outstanding
variable or floating rate Indebtedness of Best Buy;
(vii) all obligations of Best Buy under secured inventory financing
credit lines;
(viii) all obligations under master lease transactions pursuant to
which Best Buy or any of its subsidiaries are treated as the owner of the
subject property for federal income tax purposes;
(ix) all obligations of the type referred to in clauses (i)
through (viii) above of another Person and all dividends of another Person
the payment of which, in either case, Best Buy has assumed or Guaranteed
or for which Best Buy is responsible or liable, directly or indirectly,
jointly or severally, as obligor, Guarantor or otherwise; and
(x) all amendments, modifications, renewals, extensions,
refinancings, replacements and refundings by Best Buy of any such
Indebtedness referred to in clauses (i) through (viii) above (and of any
such amended, modified, renewed, extended, refinanced, refunded or
replaced Indebtedness); and
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PROVIDED, HOWEVER, that the following shall not constitute Senior
Indebtedness: (A) any Indebtedness owed to a Person when such Person is a
Subsidiary of Best Buy, (B) any Indebtedness which by the terms of the
instrument creating or evidencing the same expressly provides that it is not
superior in right of payment to the Subordinated Debentures, or (C) any
Indebtedness to the extent Incurred in violation of the Indenture. For purposes
of this definition, "Indebtedness" includes any obligation to pay principal,
premium (if any), interest, penalties, reimbursement or indemnity amounts, fees
and expenses (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to Best Buy whether or not a claim
for post-petition interest is allowed in such proceeding). Such Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
1.23 "Subordinated Debentures" shall mean the ___% Convertible
Subordinated Debentures issued pursuant to the Indenture and sold by Best Buy to
the Partnership in connection with the issuance and sale by the Partnership of
the Preferred Securities. The Subordinated Debentures will evidence the loan to
be made by the Partnership to Best Buy from time to time of the proceeds
received by the Partnership from the issuance and sale of the Preferred
Securities and substantially all of the Partnership Interests.
1.24 "Subsidiary" of any Person means a corporation more than 50%
of the outstanding voting stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries, or by such Person and one or
more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
Article II
GUARANTEE
2.1 GENERAL. Best Buy irrevocably and unconditionally agrees to
pay in full to the Holders the Guarantee Payments, as and when due (except to
the extent paid by Best Buy Capital), regardless of any defense, right of
set-off or counterclaim which Best Buy Capital may have or assert. This
Guarantee is continuing, irrevocable, unconditional and absolute. Best Buy's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by Best Buy to the Holders or by causing Best Buy Capital to
pay such amounts to the Holders.
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2.2 WAIVER OF CERTAIN RIGHTS. Best Buy hereby waives notice of
acceptance of this Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
2.3 OBLIGATIONS NOT AFFECTED. The obligations, covenants,
agreements and duties of Best Buy under this Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by Best Buy Capital of any express
or implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by Best Buy
Capital;
(b) the extension of time for the payment by Best Buy
Capital of all or any portion of the Dividends, distributions,
Additional Dividends, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities
or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Preferred
Securities;
(c) any, failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of Best
Buy Capital granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, Best Buy Capital or any of the assets
of Best Buy Capital;
(e) any invalidity of, or defect or deficiency in, any of
the Preferred Securities; or
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred.
There shall be no obligation of the Holders to give notice to, or obtain any
consent of, Best Buy with respect to the happening of any of the foregoing.
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2.4 HOLDERS MAY PROCEED DIRECTLY AGAINST BEST BUY. This
Guarantee is a guarantee of payment and not of collection. A Holder may enforce
this Guarantee directly against Best Buy, and Best Buy waives any right or
remedy to require that any action be brought against Best Buy Capital or any
other person or entity before proceeding against Best Buy. Subject to Section
2.5 hereof, all waivers herein contained shall be without prejudice to the
Holders' right at the Holders' option to proceed against Best Buy Capital,
whether by separate action or by joinder. Best Buy agrees that this Guarantee
shall not be discharged except by payment of the Guarantee Payments in full.
2.5 SUBROGATION. Best Buy shall be subrogated to all (if any)
rights of the Holders against Best Buy Capital in respect of any amounts paid to
the Holders by Best Buy under this Guarantee and shall have the right to waive
payment of any amount of dividends or distributions in respect of which payment
has been made to the Holders by Best Buy pursuant to Section 2.1 hereof;
PROVIDED, HOWEVER, that Best Buy shall not (except to the extent required by
mandatory provisions of law) exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of a payment under this Guarantee, if, at the time of any such payment,
any amounts are due and unpaid under this Guarantee. If any amount shall be
paid to Best Buy in violation of the preceding sentence, Best Buy agrees to pay
over such amount to the Holders.
2.6 INDEPENDENT OBLIGATIONS. Best Buy acknowledges that its
obligations hereunder are independent of the obligations of Best Buy Capital
with respect to the Preferred Securities and that Best Buy shall be liable as
principal and sole debtor under this Guarantee to make Guarantee Payments
pursuant to the terms of this Guarantee notwithstanding the occurrence of any
event referred to in subsections (a) through (f), inclusive, of Section 2.3
hereof.
2.7 TERMINATION. This Guarantee shall terminate and be of no
further force and effect upon full payment of the Redemption Price of all
Preferred Securities, upon full payment of the amounts payable to the Holders
upon liquidation of Best Buy Capital or upon the conversion or exchange (in the
manner provided in the Limited Partnership Agreement) of all Subordinated
Debentures into Best Buy Common Stock or Depositary Shares representing Best Buy
Preferred Stock, as the case may be, and the distribution of such stock or
Depositary Shares to the Holders of the Preferred Securities then outstanding;
PROVIDED, HOWEVER, that this Guarantee shall continue to be effective or
shall be reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Guarantee for any reason whatsoever. Best Buy agrees to indemnify
each Holder
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and hold it harmless from and against any loss it may suffer in such
circumstances.
Article III
CERTAIN COVENANTS OF BEST BUY
3.1 DIVIDENDS AND OTHER PAYMENTS. So long as any Preferred
Securities remain outstanding, neither Best Buy, nor any Subsidiary of Best Buy,
shall declare or pay any dividend or distribution on, or redeem, purchase or
otherwise acquire or make a liquidation payment with respect to, any of its
capital stock (other than as a result of a reclassification of capital stock or
the exchange or conversion of one class or series of capital stock for another
class or series of capital stock) or make any guarantee payments with respect to
the foregoing (other than payments under this Guarantee or dividends or
guarantee payments to Best Buy by a majority-owned subsidiary of Best Buy), if
at such time Best Buy shall be in default with respect to its payment or other
obligations hereunder or there shall have occurred any event that, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default under the Subordinated Debentures. Best Buy shall take all actions
necessary to ensure the compliance of its subsidiaries with this Section 3.1.
3.2 CERTAIN OTHER COVENANTS. Best Buy covenants that, so long
as any Preferred Securities remain outstanding: (a) to maintain direct 100%
ownership of the Partnership Interests and any other interests in Best Buy
Capital other than the Preferred Securities; (b) to cause at least 21% of the
total value of Best Buy Capital and at least 21% of all interest in the capital,
income, gain, loss, deduction and credit of Best Buy Capital to be held by Best
Buy as a General Partner; (c) not to voluntarily dissolve, wind up or liquidate
itself or Best Buy Capital; (d) to remain the General Partner of Best Buy
Capital and to timely perform all of its duties as General Partner (including
the duty to cause Best Buy Capital to declare and pay dividends on the Preferred
Securities), unless a permitted successor General Partner is appointed pursuant
to the Limited Partnership Agreement; and (e) subject to the terms of the
Preferred Securities, to use reasonable efforts to cause Best Buy Capital to
remain a Delaware limited partnership and otherwise continue to be treated as a
partnership for United States federal income tax purposes.
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Article IV
SUBORDINATION
4.1 SUBORDINATION. Best Buy covenants and agrees that this
Guarantee constitutes an unsecured obligation of Best Buy ranking (i)
subordinate and junior in right of payment to all Senior Indebtedness of Best
Buy, (ii) PARI PASSU with the most senior preferred shares now or hereafter
issued by Best Buy and with any guarantee now or hereafter entered into by Best
Buy in respect of any preferred or preference stock of any affiliate of Best Buy
and (iii) senior to Best Buy Common Stock and any other class or series of
capital stock issued by Best Buy or any of its affiliates which by its express
terms ranks junior in the payment of dividends and amounts on liquidation,
dissolution and winding-up to the Preferred Securities.
Article V
CONVERSION AND EXCHANGE OF PREFERRED SECURITIES
5.1 ISSUANCE OF BEST BUY COMMON STOCK. Best Buy hereby agrees
that, upon the request of the Conversion Agent, on behalf of one or more Holders
of Preferred Securities, to convert Subordinated Debentures into Best Buy Common
Stock pursuant to the request of such Holders to effect such conversion in
accordance with the terms of the Limited Partnership Agreement, Best Buy shall
deliver to the Conversion Agent certificates representing the full number of
shares of Best Buy Common Stock issuable upon conversion of such Subordinated
Debentures in accordance with the terms of the Indenture and such Subordinated
Debentures. Best Buy has reserved and will keep available for issuance, solely
for the purpose of affecting the conversion of the Subordinated Debentures, the
full number of shares of Best Buy Common Stock deliverable by the Conversion
Agent to the Holders upon the conversion of all outstanding Preferred Securities
not theretofore converted by the Holders.
5.2 VALIDITY OF BEST BUY COMMON STOCK. All shares of Best Buy
Common Stock delivered by Best Buy upon such conversion will be duly and validly
issued and fully paid and nonassessable.
5.3 ISSUANCE OF BEST BUY PREFERRED STOCK AND DEPOSITARY SHARES.
Best Buy hereby agrees, upon the making of an Exchange Election by the Holders
of a majority in outstanding liquidation preference of the Preferred Securities
in accordance with the terms of the Limited Partnership Agreement, to issue one
one-hundredth (1/100th) of a share of Best Buy Preferred Stock in respect of
each $50 principal amount of Subordinated Debentures then outstanding. Best Buy
further agrees to deposit as soon as may be practicable after the Exchange
Election the full number of
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<PAGE>
shares of Best Buy Preferred Stock so issuable with the Depositary and to
deliver to the Conversion Agent the Depositary Receipts representing Depositary
Shares issued in respect of the deposited shares of Best Buy Preferred Stock.
Best Buy shall reserve and keep available for issuance, solely for the purpose
of effecting such exchange, the full number of shares of Best Buy Preferred
Stock issuable upon exchange of all outstanding Preferred Securities.
5.4 VALIDITY OF BEST BUY PREFERRED STOCK AND DEPOSITARY SHARES.
All shares of Best Buy Preferred Stock issued by Best Buy upon such exchange
will be duly and validly issued and fully paid and nonassessable. Upon due
issuance by the Depositary of Depositary Receipts evidencing the Depositary
Shares against the deposit of shares of Best Buy Preferred Stock in accordance
with the provisions of the Deposit Agreement, such Depositary Receipts will be
duly and validly issued and will entitle the holders thereof to the rights
specified in such Depositary Receipts and in the Deposit Agreement.
5.5 TERMINATION OF OBLIGATION TO ISSUE BEST BUY COMMON STOCK AND
BEST BUY PREFERRED STOCK. Best Buy's obligations under this Article V to issue
Best Buy Common Stock shall terminate upon the termination of the right of
Holders of Preferred Securities to request the Conversion Agent to effect such
conversion as set forth in the Limited Partnership Agreement and, with respect
to a particular Holder, upon such conversion. Best Buy's obligations under this
Article V to issue Best Buy Preferred Stock shall terminate upon the termination
of the right of Holders of Preferred Securities to make an Exchange Election as
set forth in the Limited Partnership Agreement and upon such exchange.
Article VI
MISCELLANEOUS
6.1 THIRD PARTY BENEFICIARIES. All of Best Buy's obligations
under this Guarantee shall be directly enforceable by the Holders from time to
time of the Preferred Securities. Each Holder of Preferred Securities is an
intended third-party beneficiary of this Guarantee.
6.2 SUCCESSORS AND ASSIGNS. All guarantees and agreements
contained in this Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of Best Buy and shall inure to the benefit of the
Holders. Except as permitted by Section 6.4, Best Buy shall not assign its
rights or delegate its obligations hereunder without the prior approval of the
Holders of not less than 66-2/3% of the aggregate liquidation preference of all
Preferred Securities then outstanding.
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6.3 AMENDMENTS. Except with respect to any changes which do not
adversely affect the rights of Holders (in any of which cases no vote will be
required), this Guarantee may only be amended by an instrument in writing signed
by Best Buy with the prior approval of the Holders of not less than 66-2/3% of
the aggregate liquidation preference of all Preferred Securities then
outstanding.
6.4 MERGER OR CONSOLIDATION. Best Buy may, without the consent
of any Holders of Preferred Securities, merge or consolidate with or into
another entity or may permit another entity to merge or consolidate with or into
Best Buy, or may sell, transfer or lease all or substantially all of Best Buy's
assets to another entity, if (a) at such time no Event of Default (as defined in
the Indenture) shall have occurred and be continuing, or would occur as a result
of such merger, consolidation, sale, transfer or lease and (b) the successor is
an entity organized under the laws of the United States or any state thereof,
becomes the General Partner, assumes all of Best Buy's obligations under this
Guarantee and has a net worth equal to at least 10% of the total capital
contributions in Best Buy Capital.
6.5 NOTICES. Any notice, request or other communication
required or permitted to be given hereunder to Best Buy shall be given in
writing by delivering the same against receipt therefor by registered mail, hand
delivery, facsimile transmission (confirmed by registered mail) or telex,
addressed to Best Buy, as follows (and if so given, shall be deemed given when
mailed; upon receipt of facsimile confirmation, if sent by facsimile
transmission; or upon receipt of an answer-back, if sent by telex):
Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Attention:
Telecopy: (612) 947-2706
Any notice, request or other communication required or permitted to
be given hereunder to the Holders shall be given by Best Buy in the same manner
as notices are sent by Best Buy Capital to the Holders.
6.6 GENDERS. The masculine and neuter genders used herein shall
include the masculine, feminine and neuter genders.
6.7 GUARANTEE NOT SEPARATELY TRANSFERABLE. This Guarantee is
solely for the benefit of the Holders and is not separately transferable from
the Preferred Securities.
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6.8 GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6.9 SEVERABILITY. In case any provision of this Guarantee
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.10 HEADINGS. The Article and section headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, Best Buy has caused this Guarantee to be duly
executed as of the day and year first above written.
BEST BUY CO., INC.
By:
-------------------------------
Name:
Title:
ATTEST:
- ----------------------------------
Secretary
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EXHIBIT 4.6
Draft of September 28, 1994
DEPOSIT AGREEMENT
dated as of _______, 1994
among
BEST BUY CO., INC.,
a Minnesota corporation,
___________________,
a ____________ trust company,
AND THE HOLDERS FROM TIME TO TIME
OF THE RECEIPTS DESCRIBED HEREIN.
WHEREAS, it is desired to provide, as hereinafter set forth in this
Deposit Agreement, for the deposit of shares of Series A Cumulative Convertible
Preferred Stock, par value $1.00 per share, of BEST BUY CO., INC. with the
Depositary (as defined herein) for the purposes set forth in this Deposit
Agreement and for the issuance hereunder of Receipts (as defined herein) by the
Depositary evidencing Depositary Shares (as defined herein) in respect of the
Stock (as defined herein) so deposited; and
WHEREAS, the Receipts are to be substantially in the form of
EXHIBIT A hereto, with appropriate insertions, modifications and omissions as
provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises contained herein
and such other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall for all purposes, unless otherwise
indicated, apply to the respective terms used in this Deposit Agreement and the
Receipts (as defined herein):
"Certificate" shall mean the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock filed with the
Department of State of the State of Minnesota establishing the Stock as a series
of preferred stock of the Company, as it may be amended from time to time in
accordance with its terms.
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"Common Stock" shall mean the Company's Common Stock, par value $.10
per share.
"Company" shall mean Best Buy Co., Inc., a Minnesota corporation,
and its successors.
"Deposit Agreement" shall mean this Deposit Agreement as amended or
supplemented from time to time in accordance with the terms hereof.
"Depositary" shall mean ____________________, a _____________ trust
company, and any successor Depositary hereunder.
"Depositary Shares" shall mean the Depositary Shares, each
representing a one-one hundreth (1/100th) interest in a share of Stock and
evidenced by a Receipt.
"Depositary's Agent" shall mean an agent appointed by the Depositary
pursuant to Section 7.05.
"Depositary's Office" shall mean the principal office of the
Depositary at which at any particular time its depositary business shall be
administered.
"Receipt" shall mean one of the depositary receipts, whether in
definitive or temporary form, issued hereunder by the Depositary, each
representing any number of whole Depositary Shares.
"Record Holder" or "Holder" with respect to a Receipt shall mean the
individual, entity or person in whose name a Receipt is registered on the books
of the Depositary or any register of any Registrar maintained for such purpose
at a given time.
"Registrar" shall mean any bank or trust company that shall be
appointed by the Depositary to register ownership and transfers of Receipts as
herein provided and may include the Depositary.
"Stock" shall mean shares of the Company's
Series A Cumulative Convertible Preferred Stock, par value $1.00 per share
(liquidation preference $5,000.00 per share).
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ARTICLE II
FORM OF RECEIPTS; DEPOSIT OF STOCK; EXECUTION AND DELIVERY,
TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS
SECTION 2.01. FORM AND TRANSFER OF RECEIPTS. Definitive Receipts
shall be engraved or printed or lithographed with steel-engraved borders and
shall be substantially in the form set forth in EXHIBIT A hereto, with
appropriate insertions, modifications and omissions, as hereinafter provided.
Pending the preparation of definitive Receipts, the Depositary, upon the written
order of the Company delivered in compliance with Section 2.02, shall execute
and deliver temporary Receipts, which shall be printed, lithographed,
typewritten, mimeographed or otherwise substantially of the tenor of the
definitive Receipts in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the persons
executing such Receipts may determine, as evidenced by their execution of such
Receipts. If temporary Receipts are issued, the Company and the Depositary will
cause definitive Receipts to be prepared without unreasonable delay. After the
preparation of definitive Receipts, the temporary Receipts shall be exchangeable
for definitive Receipts upon surrender of the temporary Receipts at the
Depositary's Office, without charge to the holder. Upon surrender for
cancellation of any one or more temporary Receipts, the Depositary shall execute
and deliver in exchange therefor definitive Receipts representing the same
number of Depositary Shares as represented by the surrendered temporary Receipt
or Receipts registered in the name (and only the name) of the holder of the
temporary Receipt. Such exchange shall be made at the Company's expense and
without any charge therefor to the holder. Until so exchanged, the temporary
Receipts shall in all respects be entitled to the same benefits under this
Deposit Agreement, and with respect to the Stock, as definitive Receipts.
Receipts shall be executed by the Depositary by the manual signature
of a duly authorized officer of the Depositary; PROVIDED, that such signature
may be a facsimile if a Registrar for the Receipts (other than the Depositary)
shall have been appointed and such Receipts are countersigned by manual
signature of a duly authorized officer of the Registrar. No Receipt shall be
entitled to any benefits under this Deposit Agreement or be valid or obligatory
for any purpose unless it shall have been
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executed manually by a duly authorized officer of the Depositary or, if a
Registrar for the Receipts (other than the Depositary) shall have been
appointed, by facsimile signature of a duly authorized officer of the Depositary
and countersigned manually by a duly authorized officer of such Registrar. The
Depositary shall record on its books each Receipt so signed and delivered as
hereinafter provided. The manual or facsimile signatures of individuals who
were at any time proper officers of the Depositary or the Registrar, as the case
may be, shall constitute adequate signatures hereunder, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
delivery of Receipts bearing such signatures or did not hold such offices on the
date of delivery of such Receipts.
Receipts shall be in denominations of any number of whole Depositary
Shares.
Receipts may be endorsed with or have incorporated in the text
thereof such legends or recitals or changes not inconsistent with the provisions
of this Deposit Agreement as may be required by the Depositary and approved by
the Company or required to comply with any applicable law or regulation or with
the rules and regulations of any securities exchange upon which the Stock, the
Depositary Shares or the Receipts may be listed or to conform with any usage
with respect thereto, or to indicate any special limitations or restrictions to
which any particular Receipts are subject.
Title to any Receipt (and to the Depositary Shares evidenced by such
Receipt) that is properly endorsed, or accompanied by a properly executed
instrument of transfer, shall be transferable by delivery of such Receipt with
the same effect as if such receipt were a negotiable instrument; PROVIDED,
HOWEVER, that until transfer of a Receipt shall be registered on the books of
the Registrar, on behalf of the Depositary, as provided in Section 2.04, the
Depositary may, notwithstanding any notice to the contrary, treat the record
holder as the absolute owner thereof for the purpose of determining the person
entitled to distributions of dividends or other distributions with respect to
the Stock or to any notice provided for in this Deposit Agreement and for all
other purposes.
The Depositary shall not lend any Stock deposited hereunder.
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SECTION 2.02. DEPOSIT OF STOCK; EXECUTION AND DELIVERY OF RECEIPTS
IN RESPECT THEREOF. Subject to the terms and conditions of this Deposit
Agreement, the Company may from time to time deposit shares of Stock with the
Depositary under this Deposit Agreement by delivery to the Depositary of a
certificate or certificates representing the Stock to be deposited; PROVIDED,
HOWEVER, that other than in the case of splits, combinations or other
reclassifications affecting the Stock, or in the case of dividends or other
distributions of Stock, if any, there shall be deposited with the Depositary
hereunder not more than __________ shares of Stock. Such certificate or
certificates representing the Stock shall be properly endorsed or accompanied,
if required by the Depositary, by a duly executed instrument of transfer or
endorsement, in form satisfactory to the Depositary, together with all such
certifications as may be required by the Depositary in accordance with the
provisions of this Deposit Agreement, and together with a written order of the
Company directing the Depositary to execute and deliver to the person or persons
named in such order a Receipt or Receipts evidencing in the aggregate the number
of Depositary Shares representing such deposited Stock.
All Stock deposited by the Company with the Depositary shall be held
by the Depositary at the Depositary's Office or at such other place or places as
the Depositary shall determine.
If required by the Depositary, Stock presented for deposit at any
time (except for the initial deposit of Stock and any subsequent deposit by the
Company), whether or not the register of stockholders of the Company is closed,
shall also be accompanied by an agreement or assignment, or other instrument
satisfactory to the Depositary, that will provide for the prompt transfer to the
Depositary or its nominee of any dividend or right to subscribe for additional
Stock or to receive other property that any person in whose name the Stock is or
has been registered may thereafter receive upon or in respect of such deposited
Stock, or in lieu thereof such agreement of indemnity or other agreement as
shall be satisfactory to the Depositary.
Upon receipt by the Depositary of a certificate or certificates
representing Stock deposited with the Depositary by the Company in accordance
with the provisions of this Section, together with the other documents required
as above specified, and upon recordation of the Stock so
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deposited on the books of the Company in the name of the Depositary, the
Depositary shall execute and deliver, to the person or persons named in the
written order delivered to the Depositary referred to in the first paragraph of
this Section 2.02, a Receipt or Receipts evidencing in the aggregate the number
of Depositary Shares relating to the Stock so deposited. Such Receipt or
Receipts shall be registered by the Depositary or the Registrar in such name or
names as may be requested by the person or persons named in the written order of
the Company delivered to the Depositary. The Depositary shall execute and
deliver such Receipts at the Depositary's Office or such other offices, if any,
as such person may designate. Delivery at other offices shall be at the risk
and expense of the person requesting such delivery. In each case, delivery will
be made only upon payment by the Company to the Depositary of all taxes and
other governmental charges and any fees payable in connection with such deposit
and the transfer of the deposited Stock.
The Company shall deliver to the Depositary from time to time such
quantities of blank Receipts as the Depositary may request to enable it to
perform its obligations under this Deposit Agreement.
SECTION 2.03. REDEMPTION OF STOCK. Whenever the Company shall
elect to redeem shares of Stock in accordance with the provisions of the
Certificate, it shall (unless otherwise agreed in writing with the Depositary)
mail notice to the Depositary of such redemption, by first-class mail, postage
prepaid, on the same date on which the Company first publicly announces such
redemption which date shall not be less than 30 days prior to the date of such
redemption. On the date of such redemption, provided that the Company shall
then have deposited with the Depositary a number of shares of Common Stock
required pursuant to the Certificate in order to effect a redemption of the
number of shares of Stock specified in the notice of redemption and any other
amounts per share payable with respect to the Stock, the Depositary shall redeem
the Depositary Shares relating to such Stock. The Depositary shall provide
notice of such redemption and the simultaneous redemption of the number of
Depositary Shares relating to the Stock to be redeemed to the record holders of
the Receipts evidencing the Depositary Shares to be so redeemed on the record
date fixed pursuant to Section 4.04 hereof by first-class mail, postage prepaid,
at the addresses of such holders as they appear on the records of the
Depositary, or by publication in THE WALL
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<PAGE>
STREET JOURNAL or THE NEW YORK TIMES, or if neither such newspaper is then
being published, any other daily newspaper of national circulation, not less
than 30 and not more than 60 days prior to the date fixed for redemption of such
Stock and Depositary Shares (the "Redemption Date") and in no case later than
four business days after the Company first publicly announces such redemption.
If the Depositary elects to provide such notice by publication, it shall also
promptly mail notice of such redemption to the holders of the Depositary Shares
to be redeemed. Neither failure to mail any such notice to one or more such
holders nor any defect in any notice or in the mailing thereof to one or more
such holders shall affect the validity of the proceedings for redemption of any
Depositary Shares as to other holders. Each such notice of redemption provided
by the Depositary to the holder shall state, as appropriate: (i) the Redemption
Date; (ii) the number of Depositary Shares to be redeemed and, if less than all
the Depositary Shares held by any such holder are to be redeemed, the number of
such Depositary Shares held by such holder to, be so redeemed and the method by
which the Depositary Shares will be chosen for redemption; (iii) the redemption
price per Depositary Share (expressed as a number of shares of Common Stock) and
any other amounts per share payable with respect to the Depositary Shares; (iv)
the place or places where Receipts evidencing Depositary Shares are to be
surrendered for certificates representing shares of Common Stock; (v) the
then-current conversion price; and (vi) that dividends in respect of the Stock
to be redeemed, which are represented by the Depositary Shares to be redeemed,
will cease to accrue at the close of business on such Redemption Date, except as
otherwise provided in the Certificate. If less than all the outstanding
Depositary Shares are to be redeemed, the Depositary Shares to be so redeemed
shall be selected by lot or pro rata as may be determined by the Depositary.
Notice having been mailed by the Depositary as aforesaid, from and
after the Redemption Date (unless the Company shall have failed to deliver to
the Depositary certificates representing a number of shares of Common Stock
sufficient to redeem the shares of Stock to be redeemed by it or any other
amounts per share payable with respect to the Stock as set forth in the
Company's notice provided for in the preceding paragraph), all dividends in
respect of the shares of Stock so called for redemption shall cease to accrue
(except as otherwise provided in the Certificate), the Depositary Shares being
redeemed shall be deemed no
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longer to be outstanding, all rights of the holders of Receipts evidencing such
Depositary Shares (except the right to receive the number of shares of Common
Stock required to redeem such Depositary Shares and any other amounts per Share
payable with respect to the Stock) shall, to the extent of such Depositary
Shares, cease and terminate and, upon surrender in accordance with such notice
of the Receipts evidencing any such Depositary Shares (properly endorsed or
assigned for transfer, if the Depositary shall so require), such Depositary
Shares shall be redeemed by the Depositary for a number of shares of Common
Stock per Depositary Share equal to 1/100th of the number of shares of Common
Stock required by the Certificate to be delivered in respect of one share of
Stock plus all money and other property, if any, underlying such Depositary
Shares, including all amounts paid by the Company in respect of dividends that,
on the Redemption Date, have accrued on the shares of Stock to be so redeemed
and relate to dividend periods ending on or prior to the Redemption Date or to
the extent provided in the Certificate, to the dividend period ending after the
Redemption Date, and have not theretofore been paid.
If less than all the Depositary Shares evidenced by a Receipt are
called for redemption, the Depositary will deliver to the holder of such Receipt
upon its surrender to the Depositary, together with the delivery of a number of
shares of Common Stock sufficient to redeem the shares of Stock to be redeemed
and any other amounts per share payable with respect to the Stock, a new Receipt
evidencing such number of Depositary Shares as were evidenced by such prior
Receipt and not called for redemption.
The Depositary shall not be required (a) to issue, transfer or
exchange any Receipts for a period beginning at the close of business on the day
the Company first publicly announces the redemption of Stock and ending at the
close of business on the day the Depositary mails the notices of redemption of
Depositary Shares or (b) to transfer or exchange for another Receipt any Receipt
evidencing Depositary Shares called or being called for redemption in whole or
in part, except as provided in the preceding paragraph of this Section 2.03.
Upon any redemption, the Company shall deliver to the Depositary
certificates representing a number of shares of Common Stock required by the
Certificate in order to effect the redemption of the number of shares of Stock
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<PAGE>
specified in the notice of redemption mailed by the Company to the Depositary
pursuant to this Section 2.03 and a sufficient amount of immediately available
funds to pay any other amounts per share payable with respect to the Stock. The
shares of Common Stock so delivered shall be duly executed by proper officers of
the Company and duly countersigned by the transfer agent and registrar for the
Common Stock and shall be registered in such names as the Depositary shall
request. The Depositary shall deliver to each holder of a Receipt surrendered
for redemption a number of shares of Common Stock equal to the number required
by the Certificate to effect a redemption of the number of Depositary Shares
evidenced by such Receipt to be redeemed. The Company shall bear all costs and
expenses associated with the exchange of the Receipts for shares of Common
Stock.
If the shares of Common Stock are to be delivered to a person or
persons other than the record holder of the Receipt or Receipts being
surrendered for redemption, such holder shall execute and deliver to the
Depositary a written order so directing the Depositary and the Depositary may
require that the Receipt or Receipts surrendered by such holder for redemption
be accompanied by a properly executed instrument of transfer or endorsement
properly executed in blank.
No fractional shares of Common Stock shall be issuable upon
redemption of Stock underlying the Depositary Shares. If any holder of Receipts
surrendered for redemption would be entitled to a fractional share of Common
Stock upon such redemption, the Company shall cause to be delivered to such
holder an amount of money for such fractional shares as provided in the
Certificate.
SECTION 2.04. REGISTRATION OF TRANSFER OF RECEIPTS. Subject to
the terms and conditions of this Deposit Agreement, the Registrar, on behalf of
the Depositary, shall register on its books transfers of Receipts from time to
time upon notice to the Registrar by the Depositary of the surrender of a
Receipt for transfer by the holder in person or by duly authorized attorney,
which Receipt in each case must be properly endorsed or accompanied by a
properly executed instrument of transfer or endorsement together with evidence
of the payment of any transfer taxes as may be required by law. Upon surrender
of a properly endorsed Receipt or a Receipt accompanied by an instrument of
transfer or endorsement, the Depositary shall
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execute a new Receipt or Receipts evidencing the same aggregate number of
Depositary Shares as those evidenced by the Receipt or Receipts surrendered and
deliver such new Receipt or Receipts to or upon the order of the transferee
named in the endorsement or instrument of transfer.
SECTION 2.05. SPLIT-UPS AND COMBINATIONS OF RECEIPTS, SURRENDER OF
RECEIPTS AND WITHDRAWAL OF STOCK. Upon surrender of a Receipt or Receipts at
the Depositary's Office or at such other office as it may designate for the
purpose of effecting a split-up or combination of such Receipt or Receipts, the
Depositary will execute and deliver a new Receipt or Receipts to the holder
thereof or to such holder's order in the denominations requested, evidencing the
aggregate number of Depositary Shares evidenced by the Receipt or Receipts
surrendered. The Depositary shall give prompt notice of such action and the
certificate numbers to the Registrar for the purpose of recording such split-up
or consolidation.
Any holder of at least ___________ Depositary Shares which have not
been previously called for redemption may withdraw the number of whole shares of
Stock underlying such Depositary Shares and all money and other property, if
any, represented thereby by surrendering such Receipt or Receipts at the
Depositary's Office or at such other offices as the Depositary may designate for
such withdrawals. Thereafter, without unreasonable delay, the Depositary shall
deliver to such holder, or to the person or persons designated by such holder as
hereinafter provided, the number of whole shares of Stock and all money and
other property, if any, represented by the Receipt or Receipts so surrendered
for withdrawal, but holders of such whole shares of Stock will not thereafter be
entitled to deposit such Stock hereunder or to receive Depositary Shares
therefor. If the Receipt or Receipts delivered by the holder to the Depositary
in connection with such withdrawal shall evidence in the aggregate a number of
Depositary Shares in excess of the number of Depositary Shares representing the
number of whole shares of Stock to be so withdrawn, the Depositary shall at the
same time, in addition to such number of whole shares of Stock and such money
and other property, if any, to be so withdrawn, deliver to such holder, or
(subject to Sections 2.04 and 3.02) upon his order, a new Receipt evidencing
such excess number of Depositary Shares. Delivery of the Stock and the money
and other property being withdrawn may be made by the delivery of such
certificates,
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documents of title and other instruments as the Depositary may deem appropriate.
If the Stock and the money and other property being withdrawn are to
be delivered to a person or persons other than the record holder of the Receipt
or Receipts being surrendered for withdrawal of Stock, such holder shall execute
and deliver to the Depositary a written order so directing the Depositary and
the Depositary may require that the Receipt or Receipts surrendered by such
holder for withdrawal of such shares of Stock be properly endorsed in blank or
accompanied by a properly executed instrument of transfer in blank.
Delivery of the Stock and the money and other property, if any,
represented by Receipts surrendered for withdrawal shall be made by the
Depositary at the Depositary's Office, except that, at the request, risk and
expense of the holder surrendering such Receipt or Receipts and for the account
of the holder thereof, such delivery may be made at such other place as may be
designated by such holder.
SECTION 2.06. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER,
SURRENDER AND EXCHANGE OF RECEIPTS. As a condition precedent to the execution
and delivery, registration of transfer, split-up, combination, surrender or
exchange of any Receipt, the Depositary, any of the Depositary's Agents or the
Company may require payment to it of a sum sufficient for the payment (or, in
the event that the Depositary or the Company shall have made such payment, the
reimbursement to it) of any taxes, charges or expenses payable by the holder of
a Receipt pursuant to Sections 3.02 and 5.07, may require the production of
evidence satisfactory to it as to the identity and genuineness of any signature
and may also require compliance with the rules and regulations of any
governmental body, any stock exchange or any applicable self-regulatory body,
including, without limitation, the National Association of Securities Dealers,
Inc. (the "NASD") or such procedures, if any, as the Depositary or the Company
may establish consistent with the provisions of this Deposit Agreement.
The delivery of Receipts against Stock deposited with the Depositary
may be suspended, the registration of transfer Receipts may be refused and the
registration of transfer, surrender, exchange, split-up or combination of
outstanding Receipts may be suspended and the deposit of
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Stock may be refused (i) during any period when the register of stockholders
Company is closed or (ii) if any such action is deemed necessary by the
Depositary, any of the Depositary's Agents or the Company at any time or from
time to time because of any requirement of law or of any government,
governmental body or commission, stock exchange or the NASD.
SECTION 2.07. LOST RECEIPTS, ETC. If any mutilated Receipt is
surrendered to the Depositary, the Depositary shall execute and deliver in
exchange therefor a new Receipt of like form and tenor in exchange and
substitution for such mutilated Receipt. In case any Receipt shall be
destroyed, lost or stolen, the Depositary shall execute and deliver a Receipt to
the holder thereof of like form and tenor in exchange and substitution for such
destroyed as lost or stolen Receipt, upon (i) the filing by the holder thereof
with the Depositary of evidence satisfactory to the Depositary of such
destruction or loss or theft of such Receipt, of the authenticity thereof and of
such holder's ownership thereof and (ii) the holder's furnishing the Depositary
with reasonable indemnification satisfactory to such Depositary and (iii)
payment of any expenses including fees, charges and expenses of the Depositary
in connection with such execution and delivery. Every new Receipt issued
pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen
Receipt shall constitute an original additional contractual obligation under
this Deposit Agreement, whether or not the mutilated, destroyed, lost or stolen
Receipt shall be at any time enforceable by anyone.
SECTION 2.08. CANCELLATION AND DESTRUCTION OF SURRENDERED
RECEIPTS. All Receipts surrendered to the Depositary or any Depositary's Agent
shall be canceled by the Depositary. Except as prohibited by applicable law or
regulation, the Depositary is authorized to destroy all Receipts so cancelled.
SECTION 2.09. STOCK PURCHASE PLANS. Upon receipt of instructions
from the Company, the Depositary shall take such action as shall be reasonable
to permit the record holders of the Depositary Shares to participate in any
dividend reinvestment or other stock purchase plan sponsored by the Company that
permits the participation by such holders on such terms and conditions as the
Company may determine.
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SECTION 2.10. CONVERSION OF STOCK INTO COMMON STOCK. Receipts
may be surrendered with written instructions to the Depositary to instruct the
Company to cause the conversion of any specified number of whole or fractional
shares of Stock represented by the Depositary Shares evidenced thereby into
whole shares of Common Stock at the conversion price then in effect for the
Stock (and, therefore, for the Depositary Shares) specified in the Certificate,
as such conversion price may be adjusted by the Company from time to time as
provided in the Certificate. Subject to the terms and conditions of this
Deposit Agreement and the Certificate, a holder of a Receipt or Receipts
evidencing Depositary Shares representing whole or fractional shares of Stock
may surrender such Receipt or Receipts at the Depositary's Office or to such
office or to such Depositary's Agents as the Depositary may designate for such
purpose, together with a notice of conversion duly completed and executed,
thereby directing the Depositary to instruct the Company to cause the conversion
of the number of shares or fractions thereof of underlying Stock specified in
such notice of conversion into shares of Common Stock, and an assignment of such
Receipt or Receipts to the Company or in blank, duly completed and executed. To
the extent that a holder delivers to the Depositary for conversion a Receipt or
Receipts which in the aggregate are convertible into less than one whole share
of Common Stock, the holder shall receive payment in lieu of such fractional
shares of Common Stock otherwise issuable. If more than one Receipt shall be
delivered for conversion at one time by the same holder, the number of whole
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of Receipts so delivered.
Upon receipt by the Depositary of a Receipt or Receipts, together
with notice of conversion, duly completed and executed, directing the Depositary
to instruct the Company to cause the conversion of a specified number of shares
or fractions thereof of Stock and an assignment of such Receipt or Receipts to
the Company or in blank, duly completed and executed, the Depositary shall
instruct the Company to cause (i) the conversion of the Depositary Shares
evidenced by the Receipts so surrendered for conversion as specified in the
written notice to the Depositary and (ii) the delivery to the holders of such
Receipts of a certificate or certificates evidencing the number of whole shares
of Common Stock and the amount of money, if any, to be delivered to the holders
of Receipts surrendered for conversion in payment of any accrued and unpaid
dividends
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and in lieu of fractional shares of Common Stock otherwise issuable. The
Company shall as promptly as practicable after receipt thereof cause the
delivery of (i) a certificate or certificates evidencing the number of whole
shares of Common Stock into which the Stock represented by the Depositary Shares
evidenced by such Receipt or Receipts has been converted, and (ii) any money or
other property to which the holder is entitled. Upon such conversions the
Depositary (i) shall deliver to the holder a Receipt evidencing the number of
Depositary Shares, if any, which such holder has elected not to convert and
evidencing the number of Depositary Shares, if any, in excess of the number of
Depositary Shares representing Stock which has been so converted, (ii) shall
cancel the Depositary Shares evidenced by Receipts surrendered for conversion
and (iii) shall deliver to the Company or its transfer agent for the Stock for
cancellation the shares of Stock represented by the Depositary Shares evidenced
by the Receipts so surrendered and so converted.
If any Stock shall be called by the Company for redemption, the
Depositary Shares representing such Stock may be converted into Common Stock, as
provided in this Deposit Agreement until and including, but not after, the close
of business on the Redemption Date unless the Company shall default in making
payment of the shares of Common Stock and other amounts payable upon such
redemption, in which case the Depositary Shares representing such Stock may
continue to be converted into Common Stock until and including, but not after,
the close of business on the date on which the Company makes full payment of the
shares of Common Stock and other amounts payable on such redemption. Upon
receipt by the Depositary of a Receipt or Receipts, together with a properly
completed and executed notice of conversion, representing any Stock called for
redemption, the shares of Stock held by the Depositary represented by such
Depositary Shares for which conversion is requested shall be deemed to have been
received by the Company for conversion as of the close of business on the date
of such receipt.
The record holder of Depositary Shares on any dividend payment
record date established by the Depositary pursuant to Section 4.04 shall be
entitled to receive the dividend payable with respect to such Depositary Shares
on the corresponding dividend payment date notwithstanding the subsequent
conversion of the shares of Stock to which such Depositary Shares relate. If a
share of Stock is converted
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between the record date with respect to any dividend payment on the Stock and
the next succeeding dividend payment date, any holder of Receipts surrendered
with instructions to the Depositary for conversion of the underlying Stock
(except for Depositary Shares converted after the issuance of a notice of
redemption with respect to a Redemption Date during such period which shall be
entitled to such dividend on the dividend payment date) shall pay to the
Depositary an amount equal to the dividend payable on such dividend payment date
on the Depositary Shares represented by the Receipts being surrendered for
conversion. Any holder of Receipts on a dividend payment record date who (or
whose transferee) surrenders the Receipts with instructions to the Depositary
for conversion of the underlying Stock on the corresponding dividend payment
date will receive the dividend payable with respect to the Depositary Shares
underlying such Receipts and will not be required to include payment of the
amount of such dividend upon surrender of the Receipts for conversion.
Upon the conversion of any shares of Stock for which a request for
conversion has been made by the holder of Depositary Shares representing such
shares, all dividends in respect of such Depositary Shares shall cease to
accrue, such Depositary Shares shall be deemed no longer outstanding, all rights
of the holder of the Receipt with respect to such Depositary Shares (except the
right to receive the Common Stock, any cash payable with respect to any
fractional shares of Common Stock as provided herein and any cash payable on
account of accrued dividends and any Receipts evidencing Depositary Shares not
so converted) shall terminate, and the Receipt evidencing such Depositary Shares
shall be cancelled in accordance with Section 2.08 hereof.
No fractional shares of Common Stock shall be issuable upon
conversion of Stock underlying the Depositary Shares. If any holder of Receipts
surrendered with instructions to the Depositary for conversion of the underlying
Stock would be entitled to a fractional share of Common Stock upon such
conversion, the Company shall cause to be delivered to such holder an amount in
cash for such fractional share as provided in the Certificate.
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ARTICLE III
CERTAIN OBLIGATIONS OF THE HOLDERS
OF RECEIPTS AND THE COMPANY
SECTION 3.01. FILING PROOFS, CERTIFICATES AND OTHER INFORMATION.
Except for the initial deposit of Stock by the Company and any subsequent
deposit by the Company, any person presenting Stock for deposit or any holder of
a Receipt may be required from time to time to file such proof of residence, or
other matters or other information, to obtain such guaranties of signature, to
execute such certificates and to make such customary representations and
warranties consistent with the terms of the Stock as the Depositary or the
Company may reasonably deem necessary or proper. The Depositary or the Company
may withhold the delivery, or delay the registration of transfer, conversion,
redemption or exchange, of any Receipt or the distribution of any dividend or
other distribution or the sale of any rights or of the proceeds thereof until
such proof or other information is filed or such certificates are executed or
such representations and warranties are made.
SECTION 3.02. PAYMENT OF TAXES OR OTHER GOVERNMENTAL CHARGES.
Holders of Receipts shall be obligated to make payments to the Depositary of
certain charges and expenses as provided in Section 5.07. Registration of
transfer of any Receipt and delivery of all money or other property, if any,
represented by the Depositary Shares evidenced by such Receipt may be refused
until any such payment due is made, and any dividends, interest payments or
other distributions may be withheld or all or any part of the Stock or other
property represented by the Depositary Shares evidenced by such Receipt and not
theretofore sold may be sold for the account of the holder thereof (after
attempting by reasonable means to notify such holder prior to such sale), and
such dividends, interest payments or other distributions or the proceeds of any
such sale may be applied to any payment of such charges or expenses, the holder
of such Receipt remaining liable for any deficiency.
SECTION 3.03. WARRANTY AS TO STOCK. The Company hereby
represents and warrants to the Depositary that the Stock, when issued, will be
validly issued, fully paid and nonassessable. Such representation and warranty
shall survive the deposit of the Stock and the issuance of Receipts.
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SECTION 3.04. COVENANTS AND WARRANTIES AS TO COMMON STOCK. The
Company covenants that it will keep reserved or otherwise available a sufficient
number of authorized and unissued shares of Common Stock or its issued shares of
Common Stock held in its treasury, or both, to meet conversion requirements in
respect of the Stock and that it will give written notice to the Depositary of
any adjustments in the conversion price as set forth in the Certificate. The
Company represents and warrants that the Common Stock issued upon conversion or
redemption of Stock, when issued, will be validly issued, fully paid and
nonassessable. Such representation and warranty shall survive the conversion or
redemption of the Stock into such Common Stock.
ARTICLE IV
THE DEPOSITED SECURITIES; NOTICES
SECTION 4.01. CASH DISTRIBUTIONS. Whenever the Depositary shall
receive any cash dividend or other cash distribution with respect to the Stock,
the Depositary shall, subject to Section 3.02, distribute to record holders of
Receipts on the record date fixed pursuant to Section 4.04 such amounts, as
nearly as practicable, of such dividend or distribution as are applicable to the
number of Depositary Shares evidenced by the Receipts held by such holders;
PROVIDED, HOWEVER, that if the Company or the Depositary shall be required
to withhold and shall withhold any monies from any cash dividend or other cash
distribution in respect of the Stock on account of taxes or as otherwise
required by law, regulation or court order, the distribution in respect of
Depositary Shares shall be reduced accordingly. The Depositary shall distribute
or make available for distribution, as the case may be, only such amount,
however, as can be distributed without attributing to any holder of Depositary
Shares a fraction of one cent, and any balance not so distributable shall be
held by the Depositary (without liability for interest thereon) and shall be
added to and be treated as part of the next succeeding distribution to record
holders of Receipts then outstanding.
SECTION 4.02. DISTRIBUTIONS OTHER THAN CASH. Whenever the
Depositary shall receive any property (including securities) for distribution in
a form other than cash with respect to the Stock, the Depositary shall,
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subject to Section 3.02, distribute to record holders of Receipts on the record
date fixed pursuant to Section 4.04 such amounts, as nearly as practicable, of
such property (including securities) received by it as are applicable to the
number of Depositary Shares evidenced by the Receipts held by such holders, in
any manner that the Depositary may deem equitable and practicable for
accomplishing such distribution. If, in the opinion of the Depositary, such
distribution cannot be made proportionately among such record holders, or if for
any other reason (including any requirement that the Company or that Depositary
withhold an amount on account of taxes or as otherwise required by law,
regulation or court order) the Depositary deems, after consultation with the
Company, such distribution not to be feasible, the Depositary may, with the
approval of the Company, adopt such method as it deems equitable and practicable
for the purpose of effecting such distribution, including the sale of the
property thus received, or any part thereof, in a commercially reasonable
manner. The net proceeds of any such sale shall, subject to Section 3.02, be
distributed or made available for distribution, as the case may be, by the
Depositary to record holders of Receipts in accordance with the provisions of
Section 4.01 for a distribution received in cash.
SECTION 4.03. SUBSCRIPTION RIGHTS, PREFERENCES OR PRIVILEGES. If
the Company shall at any time offer or cause to be offered to the persons in
whose names Stock is recorded on the books of the Company any rights,
preferences or privileges to subscribe for or to purchase any securities or any
rights, preferences or privileges of any other nature, such rights, preferences
or privileges shall in each such instance be made available by the Depositary to
the record holders of Receipts in such manner as the Depositary may determine,
either by the issue to such record holders of warrants representing such rights,
preferences or privileges or by such other method as may be approved by the
Depositary in its discretion with the approval of the Company; PROVIDED,
HOWEVER, that (i) if at the time of issue or offer of any such rights,
preferences or privileges the Depositary determines that it is not lawful or
(after consultation with the Company) not feasible to make such rights,
preferences or privileges available to holders of Receipts by the issue of
warrants or otherwise, or (ii) if and to the extent so instructed by holders of
Receipts who do not desire to exercise such rights, preferences or privileges,
then the Depositary, in its discretion (with the approval of the Company, in any
case where the Depositary has determined
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that it is not feasible to make such rights, preferences or privileges
available), may, if applicable laws or the terms of such rights, preferences or
privileges permit such transfer, sell such rights, preferences or privileges at
public or private sale, at such place or places and upon such terms as it may
deem proper. The net proceeds of any such sales shall be distributed by the
Depositary to the record holders of Receipts entitled thereto as provided by
Section 4.01 in the case of a distribution received in cash.
If any action under the laws of any jurisdiction or any governmental
or administrative authorization, consent or permit is required in order for such
rights, preferences or privileges to be made available to holders of Receipts,
the Company agrees with the Depositary that the Company will use its best
efforts to take such action or obtain such authorization, consent or permit
sufficiently in advance of the expiration of such rights, preferences or
privileges to enable such holders to exercise such rights, preferences or
privileges.
SECTION 4.04. NOTICE OF DIVIDENDS, ETC.; FIXING OF RECORD DATE FOR
HOLDERS OF RECEIPTS. Whenever any cash dividend or other cash distribution
shall become payable or any distribution of property (including securities)
other than cash shall be made, or if rights, preferences or privileges shall at
any time be offered, with respect to Stock, or whenever the Depositary shall
receive notice of (i) any meeting at which holders of Stock are entitled to vote
or of which holders of Stock are entitled to notice, or (ii) any election on the
part of the Company to redeem any shares of Stock, the Depositary, in each such
instance, shall fix a record date (which shall be the same date as the record
date fixed by the Company with respect to the Stock) for the determination of
the holders of Receipts who shall be entitled hereunder to receive a
distribution in respect of such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof, or to give instructions for
the exercise of voting rights at any such meeting, or to receive notice of such
meeting.
SECTION 4.05. VOTING RIGHTS. Upon receipt of notice of any
meeting at which the holders of Stock are entitled to vote, the Depositary
shall, as soon as practicable thereafter, mail to the record holders of Receipts
a notice which shall be provided by the Company and which shall contain (i) such
information as is contained in such notice of meeting and (ii) a statement that
the holders
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of record at the close of business on the specified record date fixed pursuant
to Section 4.04 will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of Stock (or portion thereof)
underlying their respective Depositary Shares and (iii) a brief statement to the
manner in which such instructions may be given. Upon the written request of the
holders of Receipts on the applicable record date, the Depositary shall
endeavor, insofar as practicable, to vote or cause to be voted, in accordance
with the instructions forth in such requests, the votes relating to the shares
of stock (or portion thereof) underlying the Depositary Shares evidenced by all
Receipts as to which any particular voting instructions are received. The
Company hereby agrees to take all necessary action in order to enable the
Depositary to vote such Stock (or portion thereof) or cause such Stock (or
portion thereof) to be voted. Absent specific instructions from the holder of a
Receipt, the Depositary will abstain from voting (but, at its discretion, not
from appearing at any meeting with respect to such Stock unless directed to the
contrary by the holders of all the Receipts) to the extent of the Stock (or
portion thereof) underlying the Depositary Shares evidenced by such Receipt.
SECTION 4.06. CHANGES AFFECTING DEPOSITED SECURITIES AND
RECLASSIFICATIONS, RECAPITALIZATIONS, ETC. Upon any change in par or stated
value, split-up, combination or any other reclassification of the Stock, or upon
any recapitalization, reorganization, merger, amalgamation or consolidation to
which the Company is a party or sale of all or substantially all of the
Company's assets (each of the foregoing being referred to herein as a
"Transaction"), the Depositary may with the approval of, and shall upon the
instructions of, the Company, and (in either case) in such manner as to retain
as nearly as possible the percentage ownership interest in Stock of holders of
Receipts immediately prior to such event, (i) make such adjustments in (a) the
fraction of an interest in one share of Stock underlying one Depositary Share,
(b) the ratio of the redemption price per Depositary Share to the redemption
price of a share of Stock and (c) the ratio of the conversion price per
Depositary Share to the conversion price of a share of Stock, in each case as
may be necessary to reflect fully the effects of such Transaction, and (ii)
treat any securities received by the Depositary in exchange for, upon conversion
or in respect of, the Stock as new deposited securities so received in exchange
for, or upon conversion or in respect of, the Stock. In any such case
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the Depositary may, with the approval of the Company, execute and deliver
additional Receipts, or may call for surrender of all outstanding Receipts to be
exchanged for new Receipts specifically describing such new deposited
securities.
Anything to the contrary herein or in the Receipt notwithstanding,
holders of Receipts shall have the right from and after the effective date of
any such Transaction, to the extent that holders of Stock had the right, prior
to or on the applicable effective date, to convert, exchange or surrender shares
of Stock into or for other stock, securities, property or cash, to surrender
such Receipts to the Depositary with instructions to convert, exchange or
surrender the Stock represented thereby only into or for, as the case may be,
the kind and amount of shares of stock and other securities and property and
cash into which such Stock represented by such Receipts has been converted or
for which such Stock might have been exchanged or surrendered immediately prior
to the effective date of such transaction.
SECTION 4.07. INSPECTION OF REPORTS. The Depositary shall make
available for inspection by holders of Receipts during normal business hours at
the Depositary's office, and at such other places as it may from time to time
deem advisable, any reports and communications received from the Company that
are both received by the Depositary as the holder of Stock and made generally
available to the holders of Stock.
SECTION 4.08. LIST OF RECEIPT HOLDERS. Promptly upon request by,
and at the expense of, the Company, the Depositary shall furnish to it a list,
as of a specified date, of the names and addresses of all persons in whose names
Receipts are registered on the books of the Depositary, and the amount of Stock
represented thereby.
ARTICLE V
THE DEPOSITARY, THE DEPOSITARY'S AGENTS,
THE REGISTRAR AND THE COMPANY
SECTION 5.01. MAINTENANCE OF OFFICES, AGENCIES AND TRANSFER BOOKS
BY THE DEPOSITARY; REGISTRAR. Upon execution of this Deposit Agreement, the
Depositary shall maintain, at the Depositary's Office, facilities for the
execution and delivery, registration and registration of
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transfer, surrender and exchange of Receipts, and at the offices of the
Depositary's Agents, if any, facilities for the delivery, registration of
transfer, surrender and exchange of Receipts, all in accordance with the
provisions of this Deposit Agreement.
The Depositary shall, with the approval of the Company, appoint a
Registrar for registration of such Receipts or Depositary Shares in accordance
with any requirements of any applicable stock exchange in which the Receipts or
the Depositary Shares are listed. Such Registrar (which may be the Depositary
if so permitted by the requirements of such exchange) may be removed and a
substitute Registrar appointed by the Depositary upon the request or with the
approval of the Company. If the Receipts, the Depositary Shares or the Stock
are listed on one or more other stock exchanges, the Depositary will, at the
request of the Company, arrange such facilities for the delivery, registration,
registration of transfer, surrender and exchange of such Receipts, such
Depositary Shares or such Stock as may be required by law or applicable stock
exchange regulation.
The Registrar shall maintain books at the Depositary's Office for
the registration and registration of transfer of Receipts or at such other place
as shall be approved by the Company and of which the holders of Receipts shall
have reasonable notice, which books at all reasonable times during normal
business hour shall be open for inspection by the record holders of Receipts;
PROVIDED, that any such holder requesting to exercise such rights shall
certify in writing to the Registrar that such inspection shall be for a proper
purpose reasonably related to such person's interest as an owner of Depositary
Shares evidenced by the Receipts.
The Depositary may cause the Registrar to close the books with
respect to the Receipts, at any time or from time to time, when the register of
stockholders of the Company is closed with respect to the Stock or when such
action is deemed necessary or advisable by the Depositary, any Depositary's
Agent or the Company because of any requirement of law or of any government,
governmental body or commission, stock exchange or any applicable
self-regulatory body, including, without limitation, the NASD.
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SECTION 5.02. PREVENTION OF OR DELAY IN PERFORMANCE BY THE
DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR OR THE COMPANY. Neither the
Depositary nor any Depositary's Agent nor any Registrar nor the Company shall
incur any liability to any holder of any Receipt if by reason of any provision
of any present or future law, or regulation thereunder, of the United States of
America or of any other governmental authority or by reason of any provision,
present or future, of the Company's Amended and Restated Certificate of
Incorporation (including the Certificate of Amendment) or by reason of any act
of God, war or civil disorder, failure of power, fire or other casualty damage
or governmental requirements or restrictions, the Depositary, the Depositary's
Agent, the Registrar or the Company shall be prevented, delayed or forbidden
from doing or performing any act or thing that the terms of this Deposit
Agreement provide shall be done or performed; nor shall the Depositary, any
Depositary's Agent, any Registrar or the Company incur any liability or be
subject to any obligation (i) by reason of any nonperformance or delay, caused
as aforesaid, in the performance of any act or thing that the terms of this
Deposit Agreement provide shall or may be done or performed, or (ii) by reason
of any exercise of, or failure to exercise, any discretion provided for in this
Deposit Agreement, except in the event of the gross negligence or willful
misconduct of the party charged with such exercise or failure to exercise.
SECTION 5.03. OBLIGATIONS OF THE DEPOSITARY, THE DEPOSITARY'S
AGENTS, THE REGISTRAR AND THE COMPANY. Neither the Depositary nor any
Depositary's Agent nor any Registrar nor the Company shall be under any
obligation to appear in, prosecute or defend any action, suit or other
proceeding in respect of the Stock, the Depositary Shares or the Receipts that
in its opinion may involve it in expense or liability unless indemnity
satisfactory to such party against all such expense and liability be furnished
as often as required.
Neither the Depositary nor any Depositary's Agent nor the Company
assumes any obligation or shall be subject to any liability under this Deposit
Agreement to holders of Receipts other than to use its best judgment and good
faith in the performance of such duties as are specifically set forth in this
Deposit Agreement. Neither the Depositary nor any Depositary's Agent nor any
Registrar nor the Company shall be liable to any party hereto for any action or
any failure to act by it with respect to this Deposit Agreement
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in reliance upon the written advice of legal counsel or accountants, or
information from any person presenting stock for deposit, any holder of a
Receipt or other persons believed to be authorized or competent and on documents
believed to be genuine. The Depositary, any Depositary's Agent, any Registrar
and the Company may each rely and shall each be protected in acting upon any
written notice, request, direction or other document believed by it to be
genuine and to have been signed or presented by the proper party or parties.
The Depositary undertakes, and shall cause any Registrar to
undertake, to perform such duties and only such duties as are specifically set
forth in this Deposit Agreement using its best efforts and in good faith. The
parties hereto acknowledge that no implied covenants or obligations shall be
read into this Deposit Agreement against the Depositary or any Registrar or
against the Company with respect to the Depositary and any Registrar. The
Depositary will indemnify the Company against any liability that may arise out
of acts performed or omitted by the Depositary or any Depositary's Agent due to
its or their negligence or bad faith.
The Depositary, its parent, affiliates or subsidiaries, any
Depositary's Agent and the Company (to the extent permitted by law) may own,
buy, sell or deal in any class of securities of the Company and its affiliates
and in Receipts or Depositary Shares. The Depositary, its parent, affiliates or
subsidiaries, and any Depositary's Agent may become pecuniarily interested in
any transaction in which the Company or its affiliates may be interested or
contract with or lend money to the Company or its affiliates or otherwise act as
fully or as freely as if it were not the Depositary or the Depositary's Agent
hereunder. The Depositary may also act as transfer agent or registrar of any of
the securities of the Company and its affiliates or act in any other capacity
for the Company or its affiliates. Neither the Depositary (or its officers,
directors, employees or agents) nor any Depositary's Agent makes any
representation or has any responsibility as to the validity of the Registration
Statement pursuant to which the Depositary Shares are registered under the
Securities Act, the Stock, the Depositary Shares, the Receipts (except its
counter signature thereon) or any instruments referred to therein or herein, or
as to the correctness of any statement made therein except the number of
Depositary Shares represented by such Receipts.
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The Depositary assumes no responsibility for the correctness of the
description that appears in the Receipts, which can be taken as a statement of
the Company summarizing certain provisions of this Deposit Agreement.
Notwithstanding any other provision herein or in the Receipts, the Depositary
makes no warranties or representations as to the validity, genuineness or
sufficiency of any Stock at any time deposited with the Depositary hereunder or
of the Depositary Shares or as to the value of the Depositary Shares. The
Depositary shall not be accountable for the use or application by the Company of
the Depositary Shares or the Receipts or the proceeds thereof.
SECTION 5.04. RESIGNATION AND REMOVAL OF THE DEPOSITARY;
APPOINTMENT OF SUCCESSOR DEPOSITARY. The Depositary may at any time resign as
Depositary hereunder by written notice of its election so to resign delivered to
the Company, such resignation to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment as hereinafter provided.
The Depositary may at any time be removed by the Company by notice
of such removal delivered to the Depositary, such removal to take effect upon
the appointment of a successor Depositary and its acceptance of such appointment
as hereinafter provided.
If the Depositary acting hereunder shall at any time resign or be
removed, the Company shall, within 60 days after the delivery of the notice of
resignation or removal, as the case may be, appoint a successor Depositary,
which shall be a bank or trust company having its principal office in the United
States of America and having a combined capital and surplus of at least
$50,000,000. Every successor Depositary shall execute and deliver to its
predecessor and to the Company an instrument in writing accepting its
appointment hereunder and agreeing to become a party to this Deposit Agreement,
and thereupon such successor Depositary, without any further act or deed, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor and for all purposes shall be the Depositary under this Deposit
Agreement, and such predecessor, upon payment of all sums due it and on the
written request of the Company, shall execute and deliver an instrument
transferring to such successor all rights and powers of such predecessor
hereunder, shall duly assign, transfer and deliver all right, title and interest
in the Stock and any monies or property held hereunder to such
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successor and shall deliver to such successor a list of the record holders of
all outstanding Receipts. Any successor Depositary shall promptly mail notice
of its appointment to the record holders of Receipts.
Any corporation or other entity into or with which the Depositary
may be merged, consolidated or converted, or to which the Depositary may sell
all or substantially all its assets, shall be the successor of such Depositary
without the execution or filing of any document or any further act. Such
successor Depositary may authenticate the Receipts in the name of the
predecessor Depositary or in the name of the successor Depositary.
SECTION 5.05. CORPORATE NOTICES AND REPORTS. The Company agrees
that it will deliver to the Depositary and the Depositary will, promptly after
receipt thereof, transmit to the record holders of Receipts, in each case at the
address furnished to it pursuant to Section 4.08, all notices and reports
(including, without limitation, financial statements) required by law, the rules
of any national securities exchange upon which the Stock, the Depositary Shares
or the Receipts are listed or by the Company's Amended and Restated Certificate
of Incorporation (including the Certificate of Amendment) or By-laws to be
furnished by the Company to holders of Stock. Such transmission will be at the
Company's expense and the Company will provide the Depositary with such number
of copies of such documents as the Depositary may reasonably request. In
addition, the Depositary will transmit to record holders of Receipts at the
Company's expense such other documents as may be requested by the Company.
SECTION 5.06. INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify the Depositary, any Depositary's Agent and any Registrar against, and
hold each of them harmless from, any loss, liability or expense (including the
reasonable costs and expenses of defending itself) that may arise out of (i)
acts performed or omitted in connection with this Deposit Agreement and the
Receipts (a) by the Depositary, any Registrar or any of their respective agents
(including any Depositary's Agent) except for any liability arising out of gross
negligence or willful misconduct on the respective parts of any such person or
persons, or (b) by the Company or any of its agents, or (ii) the offer, sale or
registration of the Depositary Shares, Receipts or the Stock pursuant to the
provisions hereof. This indemnification does not extend in favor of holders of
Receipts.
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SECTION 5.07. CHARGES AND EXPENSES. The Company shall pay all
transfer and other taxes and governmental charges arising solely from the
existence of the depositary arrangements. The Company shall pay all charges of
the Depositary in connection with the initial deposit of the Stock and the
initial issuance of the Depositary Shares, the redemption of the Stock at the
option of the Company and the issuance of shares of Common Stock upon the
surrender of Receipts for conversion. All other transfer and other taxes and
governmental charges shall be at the expense of holders of Depositary Shares.
If, at the request of a holder of Receipts, the Depositary incurs charges or
expenses for which it is not otherwise liable hereunder, such holder will be
liable for such charges and expenses. All other charges and expenses of the
Depositary and any Depositary's Agent hereunder and of any Registrar (including,
in each case, reasonable fees and expenses of counsel) incident to the
performance of their respective obligations hereunder will be payable by the
Company only after prior consultation and agreement between the Depositary and
the Company and consent by the Company to the incurrence of such expenses, which
consent shall not be unreasonably withheld. The Depositary shall present any
statement for charges and expenses to the Company promptly, unless the Company
shall agree otherwise.
ARTICLE VI
AMENDMENT AND TERMINATION
SECTION 6.01. AMENDMENT. The form of the Receipts and any
provisions of this Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary in any respect which
they may deem necessary or desirable; PROVIDED, HOWEVER, that no such
amendment that shall materially and adversely alter the rights of the holders of
Receipts shall be effective unless such amendment shall have been approved by
the holders of at least 66-2/3% of the Depositary Shares then outstanding. Every
holder of an outstanding Receipt at the time any amendment becomes effective
shall be deemed, by continuing to hold such Receipt, to consent and agree to
such amendment and to be bound by the Deposit Agreement as amended thereby. [In
no event shall any amendment impair the right, subject to the provisions of
Sections 2.05 and 2.06 hereof, of any owner of any Depositary Shares to
surrender any Receipt evidencing such Depositary Shares to the Depositary with
instructions to cause the conversion of
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such Receipt into Common Stock or to deliver to the holder the Stock and all
money, and other property, if any, represented thereby, except in order to
comply with mandatory provisions of applicable law or the rules and regulations
of any governmental body, agency or commission, the NASD or any applicable stock
exchange.]
SECTION 6.02. TERMINATION. This Agreement may be terminated by
the Company or the Depositary only after (i) all outstanding Depositary Shares
shall have been redeemed pursuant to Section 2.03, (ii) there shall have been
made a final distribution in respect of the Stock in connection with any
liquidation, dissolution or winding up of the Company and such distribution
shall have been distributed to the holders of Depositary Shares pursuant to
Section 4.01 or 4.02, as applicable, or (iii) each share of Stock shall been
converted into shares of Common Stock.
Upon the termination of this Deposit Agreement, the parties hereto
shall be discharged from all obligations under this Deposit Agreement except for
their respective obligations under Sections 5.03, 5.06 and 5.07.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. COUNTERPARTS. This Deposit Agreement may be
executed in any number of counterparts, and by each of the parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed an original, but all of which counterparts taken
together shall constitute one and the same instrument.
SECTION 7.02. EXCLUSIVE BENEFIT OF PARTIES. This Deposit
Agreement is for the exclusive benefit of the parties hereto, and their
respective successors hereunder, and shall not be deemed to give any legal or
equitable right, remedy or claim to any other person whatsoever.
SECTION 7.03. INVALIDITY OF PROVISIONS. If any one or more of
the provisions contained in this Deposit Agreement or in the Receipts should be
or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall in no way be affected, prejudiced or modified thereby.
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SECTION 7.04. NOTICES. All notices hereunder shall be deemed
given by a party hereto if in writing and delivered personally or by telegram or
facsimile transmission or by registered or certified mail (return receipt
requested) to the other party at the following address for such party (or at
such other address as shall be specified by like notice):
If to the Company to:
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Telecopy: (612) 947-2706
Attention:
If to the Depositary to:
Telecopy:
Attention:
Any and all notices to be given to any record holder of a Receipt
hereunder or under the Receipts shall be deemed given if in writing and
delivered personally or by telegram or facsimile transmission or by registered
or certified mail (return receipt requested) addressed to such record holder at
the address of such record holder as it appears on the books of the Depositary,
or if such holder shall have timely filed with the Depositary a written request
that notices intended for such holder be mailed to some other address, at the
address designated in such request.
Delivery of a notice sent by mail or by telegram, telecopy or telex
shall be deemed to be effected at the time when a duly addressed letter
containing the same (or a confirmation thereof in the case of a telegram or
telex message) is deposited, postage prepaid, in a post office letter box. The
Depositary or the Company may, however, act upon any telegram or telecopy
message received by it from the other or from any holder of a Receipt,
notwithstanding that such telegram or telecopy message shall not subsequently be
confirmed by letter or as aforesaid.
SECTION 7.05. DEPOSITARY'S AGENTS. The Depositary may from time
to time appoint any Depositary's Agent to act in any respect for the Depositary
for the purposes of this Deposit Agreement and may at any time appoint
additional Depositary's Agents and vary or terminate
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the appointment of such Depositary's Agents. The Depositary will promptly
notify the Company of any such action.
SECTION 7.06. HOLDERS OF RECEIPTS ARE PARTIES. By acceptance of
delivery of the Receipts, any holder of such Receipt from time to time shall be
deemed to have agreed to become a party to this Deposit Agreement and to be
bound by all of the terms and conditions hereof and of the Receipts to the same
extent as though such person executed this Agreement.
SECTION 7.07. GOVERNING LAW. THIS DEPOSIT AGREEMENT AND THE
RECEIPTS AND ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND
THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REFERENCE TO APPLICABLE CONFLICTS OF LAW PROVISIONS).
SECTION 7.08. INSPECTION OF DEPOSIT AGREEMENT. Copies of this
Deposit Agreement shall be filed with the Depositary and the Depositary's Agents
and shall be open to inspection during business hours at the Depositary's Office
and the respective offices of the Depositary's Agents, if any, by any holder of
a Receipt.
SECTION 7.09. HEADINGS. The headings of articles and sections in
this Deposit Agreement and in the form of the Receipt set forth in EXHIBIT A
hereto have been inserted for convenience only and are not to be regarded as a
part of this Deposit Agreement or the Receipts or to have any bearing upon the
meaning or interpretation of any provision contained herein or in the Receipts.
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IN WITNESS WHEREOF, the Company and the Depositary have caused their
duly authorized officers to execute and deliver this Deposit Agreement as of the
day and year first above set forth, and all holders of Receipts shall become
parties hereto by and upon acceptance by them of delivery of Receipts issued in
accordance with the terms hereof.
BEST BUY CO., INC.
By:
------------------------------
Authorized officer
[DEPOSITARY]
By:
--------------------------------------
Authorized Officer
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EXHIBIT A
DEPOSITARY RECEIPT
FOR
DEPOSITARY SHARES
EACH REPRESENTING AN INTEREST IN ONE-ONE HUNDRETH
(1/100th) OF
A SHARE OF Series A CONVERTIBLE PREFERRED
STOCK
(Par Value $1.00 Per Share)
OF
BEST BUY CO., INC.
(Incorporated under the Laws of the State of Minnesota)
--------------------------------
......................................... Depositary Shares (each Depositary
Share represents an interest in one-one hundreth (1/100th) of a share of Series
A Convertible Preferred Stock (par value $1.00 per share))
The Company will furnish to any holder of a Receipt without charge,
upon request addressed to its executive office or the office of its transfer
agent, a full statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each authorized class of
stock or series thereof and the qualifications, limitations, or restrictions of
such preferences and/or rights.
____________________________, a trust company duly organized and
existing under the laws of the State of ________, with an office at the time of
the execution of the Deposit Agreement (as defined below) at
___________________, as Depositary (the "Depositary"), hereby certifies that
is the registered owner of Depositary Shares ("Depositary Shares"), each
Depositary Share representing an interest in one-one hundreth (1/100th) of a
share of Series A Cumulative Convertible Preferred Stock, par value $1.00 per
share (the "Stock"), Best Buy Co., Inc., a corporation duly organized and
existing under the laws of the State of Minnesota (the "Company"). Subject to
the terms of the Deposit Agreement, each owner of a Depositary Share is
entitled, proportionately, through the Depositary to all the rights and
preferences of the Stock relating thereto, including dividend, voting,
conversion, redemption and liquidation rights and preferences contained in the
<PAGE>
Certificate of Designations, Preferences and Rights of Series ___ Convertible
Preferred Stock adopted by the Company's Board of Directors setting for the
number, terms, powers, designations, rights, preferences, qualifications,
restrictions and limitations of the Stock (the "Certificate"), copies of which
are on file at the Depositary's Office.
1. THE DEPOSIT AGREEMENT. Depositary Receipts (the "Receipts"),
of which this Receipt is one, are made available upon the terms and conditions
set forth in the Deposit Agreement, dated as of ____________, 1994 (the "Deposit
Agreement"), among the Company, the Depositary and all holders from time to time
of Receipts. The Deposit Agreement (copies of which are on file at the
Depositary's Office) sets forth the rights of holders of Receipts and the rights
and duties of the Depositary and the Company in respect of the Stock deposited,
and any and all other property and cash deposited from time to time, thereunder.
The statements made on the face and the reverse of this Receipt are summaries of
certain provisions of the Deposit Agreement and are subject to the detailed
provisions thereof, to which reference is hereby made. Unless otherwise
expressly herein provided, all capitalized and undefined terms used herein shall
have the meaning ascribed thereto in the Deposit Agreement.
2. REDEMPTION. Whenever the Company shall elect, under the
Certificate relating to the Stock, to redeem shares of Stock, it shall (unless
otherwise agreed in writing with the Depositary) mail notice to the Depositary
of such redemption, by first class mail, postage prepaid on the same date on
which the Company, first publicly announces such redemption which date shall not
be less than 30 days prior to the date of such redemption. The Depositary shall
provide notice of such redemption and the simultaneous redemption of the
corresponding Depositary Shares relating to the Stock to be redeemed to the
holders of record of Receipts representing the number of Depositary Shares to be
redeemed by first class mail, postage prepaid, at the addresses of such holders
as they appear on the records of the Depositary, or by publication in THE WALL
STREET JOURNAL or THE NEW YORK TIMES, or if neither newspaper is then being
published, any other daily newspaper of national circulation, not less than 30
and not more than 60 days prior to the date fixed for redemption and in no case
later than four business days after the Company first publicly announces such
redemption. If the Depositary elects to
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provide such notice by publication, it shall also promptly mail notice of such
redemption to the holders of the Depositary Shares to be redeemed. Each such
notice shall state, as appropriate: (a) the date of such proposed redemption;
(b) the number of Depositary Shares to be redeemed; (c) the redemption price per
Depositary Share (expressed as a number of shares of Common Stock) and any other
amounts per share payable with respect to the Depositary Shares; (d) the place
or places where Receipts evidencing Depositary Shares are to be surrendered for
certificates representing shares of Common Stock; (e) the then-current
conversion price, and (f) that dividends in respect of the Stock underlying the
Depositary Shares to be redeemed will cease to accumulate at the close of
business on such redemption date, except as otherwise provided in the
Certificate. If less than all the outstanding Depositary Shares are to be
redeemed, the Depositary Shares to be so redeemed shall be selected by lot or
pro rata or such other means as may be determined by the Depositary. From and
after the date set for redemption, all dividends in respect of the Depositary
Shares so called for redemption shall cease to accrue (except as otherwise
provided in the Certificate), such Depositary Shares shall no longer be deemed
outstanding and all rights of the holders of Receipts representing such
Depositary Shares (except the right to receive the number of shares of Common
Stock required to redeem such Depositary Shares and any other amounts payable
with respect to the Depositary Shares) shall cease and terminate. From and
after the redemption date, upon surrender in accordance with the redemption
notice of the Receipts representing any such Depositary Shares (properly
endorsed or assigned for transfer, if the Depositary shall so require), such
Depositary Shares shall be redeemed by the Depositary for the number of shares
of Common Stock per Depositary Share equal to ___________ of the number of
shares of Common Stock required by the certificate to be delivered in respect of
one share of Stock plus any money or other property relating thereto.
3. TRANSFER, SPLIT-UPS, COMBINATIONS. This Receipt is
transferable on the books of the Depositary upon surrender of this Receipt to
the Depositary, properly endorsed or accompanied by a properly executed
instrument of transfer or endorsement, and upon such transfer the Depositary
shall execute a new Receipt to or upon the order of the person entitled thereto,
as provided in the Deposit Agreement. This Receipt may be split into other
Receipts or combined with other Receipts into one Receipt, representing
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the same aggregate number of Depositary Shares as the Receipt or Receipts
surrendered. Any holder of at least one thousand (1,000) Depositary Shares
which have not been previously called for redemption may withdraw the number of
whole shares of Stock underlying such Depositary Shares and all money and other
property, if any, represented thereby by surrendering such Receipt or Receipts
at the Depositary's Office or at such other offices as the Depositary may
designate for such withdrawals. Thereafter, holders of such whole shares will
not be entitled to deposit such Stock and receive Depository Shares therefor.
4. CONVERSION RIGHTS. This Receipt may be surrendered with
written instructions to the Depositary to instruct the Company to cause the
conversion of any specified number of whole or fractional shares of Stock
represented by the Depositary Shares evidenced thereby into whole shares of
Common Stock at the conversion price then in effect for the Stock (and,
therefore, for the Depositary Shares) specified in the Certificate, as such
conversion price may be adjusted by the Company from time to time as provided in
the Certificate. Subject to the terms and conditions of the Deposit Agreement
and the Certificate, a holder of a Receipt or Receipts evidencing Depositary
Shares representing whole or fractional shares of Stock may surrender such
Receipt or Receipts at the Depositary's Office or to such office or to such
Depositary's Agents as the Depositary may designate for such purpose, together
with a notice of conversion duly completed and executed, thereby directing the
Depositary to instruct the Company to cause the conversion of the number of
shares or fractions thereof of underlying Stock specified in such notice of
conversion into shares of Common Stock, and an assignment of such Receipt or
Receipts to the Company or in blank, duly completed and executed. To the extent
that a holder delivers to the Depositary for conversion a Receipt or Receipts
which in the aggregate are convertible into less than one whole share of Common
Stock, the holder shall receive payment in lieu of such fractional shares of
Common Stock otherwise issuable.
Upon receipt by the Depositary of a Receipt or Receipts, together
with notice of conversion, duly completed and executed, directing the Depositary
to instruct the Company to cause the conversion of a specified number of shares
or fractions thereof of Stock into Common Stock and an assignment of such
Receipt or Receipts to the Company or in blank, duly completed and executed, the
Depositary shall
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instruct the Company (i) to cause the conversion of the Depositary Shares
evidenced by the Receipts so surrendered for conversion as specified in the
written notice to the Depositary and (ii) to cause the delivery to the holders
of such Receipts a certificate or certificates evidencing the number of whole
shares of Common Stock, and the amount of money, if any, to be delivered to the
holders of Receipts surrendered for conversion in payment of any accrued and
unpaid dividends or in lieu of fractional shares of Common Stock otherwise
issuable. The Company shall as promptly as practicable after receipt thereof
cause the delivery of (i) a certificate or certificates evidencing the number of
whole shares of Common Stock into which the Stock represented by the Depositary
Shares evidenced by such Receipt or Receipts has been converted, and (ii) any
money or other property to which the holder is entitled. Upon such conversion,
the Depositary (i) shall deliver to the holder a Receipt evidencing the number
of Depositary Shares, if any, which such holder has elected not to convert and
evidencing the number of Depositary Shares, if any, in excess of the number of
Depositary Shares representing Stock which has been so converted, (ii) shall
cancel the Depositary Shares evidenced by Receipts surrendered for conversion
and (iii) shall deliver to the Company or its transfer agent for the Stock for
cancellation the shares of Stock represented by the Depositary Shares evidenced
by the Receipts so surrendered and so converted.
If any Stock shall be called by the Company for redemption, the
Depositary Shares representing such Stock may be converted into Common Stock as
provided in the Deposit Agreement until and including, but not after, the close
of business on the Redemption Date unless the Company shall default in making
payment of the amount payable upon such redemption, in which case the Depositary
Shares representing such Stock may continue to be converted into Common Stock
until and including, but not after, the close of business on the date on which
the Company makes full payment of the amount payable on such redemption. Upon
receipt by the Depositary of a Receipt or Receipts, together with a properly
completed and executed notice of conversion, representing any Stock called for
redemption, the shares of Stock held by the Depositary represented by such
Depositary Shares for which conversion is requested shall be deemed to have been
received by the Company for conversion as of the close of business on the date
of such receipt.
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<PAGE>
The holder of Depositary Shares on any dividend payment record date
established by the Depositary shall be entitled to receive the dividend payable
with respect to such Depositary Shares on the corresponding dividend payment
date notwithstanding the subsequent conversion of the shares of Stock to which
such Depositary Shares relate. If a share of Stock is converted between the
record date with respect to any dividend payment on the Stock and the next
succeeding dividend payment date, any holder of Receipts surrendered with
instructions to the Depositary for conversion of the underlying Stock (other
than Receipts representing Depositary Shares converted after the issuance of a
notice of redemption with respect to a redemption date during such period which
shall be entitled to such dividend on the dividend payment date) shall pay to
the Depositary an amount equal to the dividend payable on such dividend payment
date on the Depositary Shares represented by the Receipts being surrendered for
conversion. Any holder of Receipts on a dividend payment record date who (or
whose transferee) surrenders the Receipts with instructions to the Depositary
for conversion of the underlying Stock on the corresponding dividend payment
date will receive the dividend payment date will receive the dividend payable
with respect to the Depositary Shares underlying such Receipts and will not be
required to include payment of the amount of such dividend upon surrender of the
Receipts for conversion.
Upon the conversion of any shares of Stock for which a request for
conversion has been made by the holder of Depositary Shares representing such
shares, all dividends in respect of such Depositary Shares shall cease to
accrue, such Depositary Shares shall be deemed no longer outstanding, all rights
of the holder of the Receipt with respect to such Depositary Shares (except the
right to receive the Common Stock, any cash payable with respect to any
fractional shares of Common Stock as provided herein and any cash payable on
account of accrued dividends and any Receipts evidencing Depositary Shares not
so converted) shall terminate, and the Receipt evidencing such Depositary Shares
shall be cancelled.
5. SUSPENSION OF DELIVERY, TRANSFER, ETC. The transfer,
split-up, combination or surrender of this Receipt may be suspended and except
as otherwise provided in the Deposit Agreement, the deposit of Stock may be
refused during any period when the register of stockholders of the Company is
closed, or if any such action is deemed necessary or advisable by the
Depositary, any agent of the Depositary
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<PAGE>
or the Company at any time or from time to time because of any requirement of
law or of any government or governmental body or commission, or under any
provision of the Deposit Agreement.
6. WARRANTY BY COMPANY. The Company has warranted that the Stock
when issued and any shares of Common Stock issuable upon redemption or
conversion of the Stock, will be validly issued, fully paid and nonassessable.
7. AMENDMENT. The form of the Receipts and any provisions of the
Deposit Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary in any respect which they may deem
necessary or desirable; PROVIDED, HOWEVER, that no such amendment that shall
materially and adversely alter the rights of the holders of Receipts shall be
effective unless such amendment shall have been approved by the holders of at
least 66 2/3% of the Depositary Shares then outstanding. A holder of a Receipt
at the time any amendment so becomes effective shall be deemed, by continuing to
hold such Receipt, to consent and agree to such amendment and to be bound by the
Deposit Agreement as amended thereby.
8. CHARGES OF DEPOSITARY. The Company will pay all transfer and
other taxes and governmental charges arising solely from the existence of the
depositary arrangements, all charges of the Depositary in connection with the
initial deposit of the Stock and the initial issuance of the Depositary Shares,
the redemption of the Stock at the option of the Company and the issuance of
shares of Common Stock upon the surrender of Receipts for conversion. All other
transfer and other taxes and other governmental charges shall be at the expense
of holders of Depositary Shares.
9. TITLE TO RECEIPTS. This Receipt (and the Depositary Shares
evidenced hereby), when properly endorsed or accompanied by a properly executed
instrument of transfer, is transferable by delivery with the same effect as in
the case of a negotiable instrument; PROVIDED, HOWEVER, that until transfer
of a Receipt shall be registered on the books of the Registrar, on behalf of the
Depositary, the Depositary may, notwithstanding any notice to the contrary,
treat the recordholder hereof at such time as the absolute owner hereof for the
purpose of determining the person entitled to distributions of dividends or
other
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distributions or to any notice provided for in the Deposit Agreement, and for
all other purposes.
10. DIVIDENDS AND DISTRIBUTIONS. Whenever the Depositary
receives any cash dividend or other cash distribution on the Stock, the
Depositary will, subject to the provisions of the Deposit Agreement, make such
distribution to the Receipt holders as nearly as practicable in proportion to
the number of Depositary Shares held by them; PROVIDED, HOWEVER, that the
amount distributed will be reduced by any amounts required to be withheld by the
Company or the Depositary on account of taxes or as otherwise required pursuant
to law, regulations or court order. Other distributions received on the Stock
may by distributed to holders of Receipts as provided in the Deposit Agreement.
11. FIXING OF RECORD DATE. Whenever any cash dividend or other
cash distribution shall become payable or any distribution other than cash shall
be made, or if rights, preferences or privileges shall at any time be offered
with respect to Stock, or whenever the Depositary shall receive notice of any
meeting at which holders of Stock are entitled to vote or of which holders of
Stock are entitled to notice, the Depositary shall in each instance fix a record
date (which shall be the record date fixed by the Company with respect to the
Stock), for the determination of the holders of Receipts who shall be entitled
to receive such dividend, distribution, rights, preferences, privileges or the
net proceeds of the sale thereof, or to give instructions for the exercise of
voting rights at any such meeting, or who shall be entitled to notice of such
meeting.
12. VOTING RIGHTS. Upon receipt of notice of any meeting at
which holders of Stock are entitled to vote, the Depositary shall, as soon as
practicable thereafter, mail to the record holders of Receipts a notice which
shall be provided by the Company which shall contain (i) such information as is
contained in such notice of meeting, (ii) a statement informing holders of
record at the close of business on a specified record date that they may
instruct the Depositary as to the exercise of the voting rights pertaining to
the amount of Stock (or portion thereof) relating to their respective Depositary
Shares and (iii) a brief statement as to the manner in which such instructions
may be given. Upon the written request of a holder of a Receipt on such record
date, the Depositary shall endeavor
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insofar as practicable to vote to cause to be voted the amount of Stock (or
portion thereof) relating to such Receipt in accordance with the instructions
set forth in such request. Absent specific instructions from the holder of a
Receipt, the Depositary will abstain from voting (but, at its discretion, not
from appearing at any meeting with respect to such Stock unless directed to the
contrary by the holders of all the Receipts) to the extent of the Stock (or
portion thereof) underlying the Depositary Shares evidenced by such Receipt.
13. CHANGES AFFECTING DEPOSITED SECURITIES. Upon any change in
par or stated value, split-up, combination or any, other reclassification of the
Stock or upon any recapitalization, reorganization, merger, amalgamation or
consolidation to which the Company is a party, or upon the sale of all or
substantially all the Company's assets, the Depositary may in its discretion
with the approval of, and shall upon the instructions of, the Company, and (in
either case) in such manner as to retain as nearly as possible the percentage
ownership interest in Stock of holders of Receipts immediately prior to such
event, (i) make such adjustments in (x) the fraction of an interest in one share
of Stock underlying one Depositary Share, (y) the ratio of the redemption price
per Depositary Share to the redemption price of a share of Stock and (z) the
ratio of the conversion price per Depositary Share to the conversion price of a
share of Stock, in each case as may be necessary fully to reflect the effects of
such change, and (ii) treat any securities received by the Depositary in
exchange for, or upon conversion or in respect of, the Stock as new deposited
securities so received in exchange for, or upon conversion or in respect of,
such Stock. In any such case the Depositary may in its discretion, with the
approval of the Company, execute and deliver additional Receipts, or may call
for the surrender of outstanding Receipts to be exchanged for new Receipts
specifically describing such new deposited securities.
Anything to the contrary herein or in the Depositary Agreement
notwithstanding, holders of Receipts shall have the right from and after the
effective date of any such transaction, to the extent that holders of Stock had
the right, prior to or on the applicable effective date, to convert, exchange or
surrender shares of Stock into or for other stock, securities, property or cash,
to surrender such Receipts to the Depositary with instructions to convert,
exchange or surrender the Stock represented thereby
-9-
<PAGE>
only into or for, as the case may be, the kind and amount of shares of stock and
other securities and property and cash into which the Stock represented by such
Receipts has been converted or for which such Stock might have been exchanged or
surrendered immediately prior to the effective date of such transaction.
14. LIABILITY AND OBLIGATIONS OF THE DEPOSITARY, THE DEPOSITARY'S
AGENTS OR THE COMPANY. Neither the Depositary nor any Depositary's Agent nor
any Registrar nor the Company shall incur any liability to any holder of any
Receipt if by reason of any provision of any present or future law, or
regulation thereunder, of the United States of America or of any other
governmental authority or by reason of any provision, present of future, of the
Company's Certificate of Incorporation (including the Certificate) or by reason
of any act of God, war or civil disorder, failure of power, fire or other
casualty damage or governmental requirements or restrictions, the Depositary,
the Depositary's Agent, the Registrar or the Company shall be prevented or
forbidden from doing or performing any act or thing that the terms of the
Deposit Agreement provide shall be done or performed; nor shall the Depositary,
any Depositary's Agent, any Registrar or the Company incur any liability or be
subject to any obligation (i) by reason of nonperformance or delay, caused as
aforesaid, in performance of any act or thing that the terms of the Deposit
Agreement provide shall or may be done or performed, or (ii) by reason of any
exercise of, or failure to exercise, any discretion provided for in the Deposit
Agreement, except in the event of the gross negligence or willful misconduct of
the party charged with such exercise or failure to exercise. Neither the
Depositary nor any Depositary's Agent nor the Company assumes any obligation or
shall be subject to any liability under the Deposit Agreement to holders of
Receipts other than to use its best judgment and good faith in the performance
of such duties as are specifically set forth in the Deposit Agreement. Neither
the Depositary nor any Depositary's Agent nor any Registrar nor the Company
shall be under any obligation to appear in, prosecute or defend any action, suit
or other proceeding in respect to the Stock, the Depositary Shares or the
Receipts that in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished.
The Deposit Agreement contains various other exculpatory, indemnification and
related provisions, to which reference is hereby made.
-10-
<PAGE>
15. RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary may
at any time (i) resign by written notice of its election so to resign delivered
to the Company, such resignation to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment, or (ii) be removed
by the Company, such removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment.
16. TERMINATION OF DEPOSIT AGREEMENT. The Deposit Agreement may
be terminated by the Company or the Depositary upon or after the occurrence of
any of the following events: (i) all outstanding Depositary Shares shall have
been redeemed; (ii) there shall have been made a final distribution in respect
of the Stock in connection with any liquidation, dissolution or winding up of
the Company and such distribution shall have been distributed to the holders of
Receipts; or (iii) each share of Stock shall have been converted into shares of
Common Stock.
17. GOVERNING LAW. THIS RECEIPT AND THE DEPOSIT AGREEMENT AND
ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND THEREOF SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO APPLICABLE CONFLICTS OF LAW PROVISIONS).
This receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose unless this Receipt shall
have been authenticated, manually or, if a Registrar for the Receipts (other
than the Depositary) shall have been appointed, by facsimile signature of a duly
authorized officer of the Depositary and, if authenticated by facsimile
signature of the Depositary, shall have been countersigned manually by such
Registrar by the signature of a duly authorized officer.
THE DEPOSITARY IS NOT RESPONSIBLE FOR THE VALIDITY OF ANY DEPOSITED STOCK. THE
DEPOSITARY ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF THE FOREGOING
DESCRIPTION, WHICH CAN BE TAKEN AS A STATEMENT OF THE COMPANY SUMMARIZING
CERTAIN PROVISIONS OF THE DEPOSIT AGREEMENT THAT APPEARS IN THE DEPOSITARY
RECEIPTS. THE DEPOSITARY MAKES NO WARRANTIES OR REPRESENTATIONS AS TO THE
VALIDITY, GENUINENESS OR SUFFICIENCY OF ANY STOCK AT ANY TIME DEPOSITED WITH THE
-11-
<PAGE>
DEPOSITARY HEREUNDER OR OF THE DEPOSITARY SHARES, OR AS TO THE VALUE OF THE
DEPOSITARY SHARES.
Dated:
[DEPOSITARY]
By:
--------------------------------
Authorized Officer
-12-
<PAGE>
NOTICE OF CONVERSION
The undersigned hereby irrevocably exercises the option to convert
this Receipt or a portion hereof below designated into shares of Common Stock of
Best Buy Co., Inc. in accordance with the terms of the Certificate referred to
in this Receipt, and directs the Depositary to instruct the Company that the
shares of Common Stock issuable and deliverable upon the conversion, together
with any check in payment of accrued and unpaid dividends or in lieu of
fractional shares, and any Receipts representing any unconverted Depositary
Shares be issued and delivered to the undersigned unless, in the case of such
shares of Common Stock or Receipts, a different name has been indicated below.
If shares of Common Stock or Receipts are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
Dated:_______________ ____________________________________________
Signature of Holder (must conform in all
respects to the name of the Holder appearing
on the face hereof)
Signature Guaranteed By:
____________________________________________
Number of Depositary Shares
to be Converted
__________________________
-13-
<PAGE>
Fill in for registration of shares of Common Stock and/or Receipts if to be
issued otherwise than to Holder.
____________________________ Social Security or Other
(Name) Taxpayer Identifying Number
____________________________ __________________________
(Address)
____________________________
Print name and address
(including zip code number)
-14-
<PAGE>
COMMON STOCK
NUMBER PAR VALUE $.10
NU SHARES
INCORPORATED UNDER
THE LAWS OF THE STATE
OF MINNESOTA
CUSIP 086516 10 1
SEE REVERSE FOR CERTAIN DEFINITIONS
BEST BUY CO., INC.
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK OR IN CHICAGO, ILLINOIS
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
BEST BUY CO., INC. TRANSFERABLE IN PERSON OR BY DULY AUTHORIZED ATTORNEY ON
THE BOOKS OF THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO
ALL THE TERMS, CONDITIONS AND LIMITATIONS OF THE ARTICLES OF INCORPORATION AND
ALL AMENDMENTS THERETO. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY
THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED:
COUNTERSIGNED AND REGISTERED.
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT AND REGISTRAR
/S/ Richard M. Schulze /s/Elliot S. Kaplan
AUTHORIZED SIGNATURE FOUNDER, CHAIRMAN AND CEO SECRETARY
BEST BUY
SUPERSTORES
BEST BUY CO., INC.
CORPORATE
SEAL
MINNESOTA
<PAGE>
THE BOARD OF DIRECTORS OF THIS CORPORATION HAS THE AUTHORITY TO CREATE AND
DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF
CAPITAL STOCK OTHER THAN COMMON STOCK. THIS CORPORATION WILL FURNISH TO ANY
SHAREHOLDER UPON WRITTEN REQUEST SENT TO ITS PRINCIPAL EXECUTIVE OFFICES, AND
WITHOUT CHARGE, A FULL STATEMENT OF THE BOARD'S AUTHORITY TO CREATE AND
DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF
CAPITAL STOCK AS WELL AS THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS OR SERIES THEN OUTSTANDING OR AUTHORIZED TO
BE ISSUED.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ........Custodian.......
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right
of survivorship and not as Act.........................
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/_____________________________________/ ________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________SHARES
OF CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT _____________________________________________
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED, _________________________
________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEE:
<PAGE>
EXHIBIT 5.2
[ROBINS, KAPLAN, MILLER & CIRESI LETTERHEAD]
September 30, 1994
Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Best Buy Capital, L.P.
c/o Best Buy Co., Inc.
7075 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Re: Registration Statement on Form S-3 pertaining to up to
4,600,000 ____% Convertible Monthly Income Preferred
Securities
Ladies and Gentlemen:
We are acting as special federal income tax counsel for Best Buy Co., Inc.
("Best Buy") and Best Buy Capital, L.P. ("Best Buy Capital") in connection with
the registration of up to 4,600,000 ____% Convertible Monthly Income Preferred
Securities (the "Preferred Securities") pursuant to a registration statement on
Form S-3 (the "Registration Statement") filed today by Best Buy and Best Buy
Capital with the Securities and Exchange Commission. In connection therewith,
we have participated in the preparation of, and have reviewed, the prospectus
(the "Prospectus") included in the Registration Statement.
We have examined and relied upon the Registration Statement and, in each
case as filed with the Registration Statement, the form of the Amended and
Restated Agreement of Limited Partnership of Best Buy Capital, L.P., the form
of the Indenture among Best Buy and Best Buy Capital and a trustee to be named
(the "Indenture"), the form of the convertible subordinated debentures to be
issued and sold by Best Buy to Best Buy Capital under the Indenture, and the
Guarantee Agreement of Best Buy (collectively, the "Operative Documents").
<PAGE>
Best Buy Co., Inc.
Best Buy Capital, L.P.
September 30, 1994
Based on the foregoing and assuming that the Operative Documents are
executed and delivered in substantially the form we have examined and that the
transactions contemplated to occur under the Operative Documents in fact occur
in accordance with the terms thereof, we hereby confirm that the discussion set
forth in the Prospectus under the caption "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" accurately describes, subject to the limitations stated therein,
the material federal income tax considerations relevant to the purchase,
ownership and disposition of the Preferred Securities by United States Holders
(as defined in the Prospectus).
We hereby consent to the use of this letter as an exhibit to the
Registration Statement and to the use of our name under the caption "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
Very truly yours,
Robins, Kaplan, Miller & Ciresi
<PAGE>
EXHIBIT 12
BEST BUY CO., INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL PERIODS ENDED ENDED
---------------------------------------------------- -------------------
MARCH 3, MARCH 2, FEB. 29, FEB. 27, FEB. 28, AUG. 28, AUG. 27,
1990 1991 1992 1993 1994 1993 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PRETAX EARNINGS....................................... 9,473 7,390 15,361 32,025 68,378 14,815 19,570
FIXED CHARGES
Interest Expense.................................... 4,043 4,494 4,910 5,181 10,897 2,665 10,142
Interest Capitalized................................ 129 67 503 279 40 1,438
Portion of rent expense considered representative of
an interest factor................................. 3,432 4,564 5,514 7,721 12,557 5,343 8,700
-------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES 7,475 9,187 10,491 13,405 23,733 8,048 20,280
-------- -------- -------- -------- -------- -------- --------
PREFERRED DIVIDENDS................................... - - - - - - -
EARNINGS FOR COMPUTATION(1)........................... 16,948 16,448 25,785 44,927 91,832 22,823 38,412
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
RATIO................................................. 2.27 1.79 2.46 3.35 3.87 2.84 1.89
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
<FN>
- ------------------------------
(1) Includes pretax earnings plus fixed charges exclusive of capitalized
interest
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Best Buy Co., Inc.
Minneapolis, Minnesota
We consent to the incorporation by reference in this Registration Statement
of Best Buy Co., Inc. on Form S-3 of the reports of Deloitte & Touche dated
April 13, 1994, appearing and incorporated by reference in the Annual Report on
Form 10-K of Best Buy Co., Inc. for the year ended February 26, 1994 and to the
use of our report dated April 13, 1994, appearing in the prospectus, which is
part of this Registration Statement. Such reports express an unqualified opinion
and include an explanatory paragraph regarding a change in accounting method for
income taxes during the year ended February 26, 1994.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 28, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains financial information extracted from the financial
statements for the periods indicated and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> FEB-25-1995 FEB-26-1994
<PERIOD-START> FEB-27-1994 FEB-28-1993
<PERIOD-END> AUG-27-1994 FEB-26-1994
<CASH> 47,427 59,872
<SECURITIES> 0 0
<RECEIVABLES> 75,823 52,944
<ALLOWANCES> 0 0
<INVENTORY> 863,500 637,950
<CURRENT-ASSETS> 1,018,846 764,610
<PP&E> 312,412 233,492
<DEPRECIATION> 77,286 60,768
<TOTAL-ASSETS> 1,270,905 952,494
<CURRENT-LIABILITIES> 700,359 402,028
<BONDS> 211,013 210,811
<COMMON> 4,207 2,087
0 0
0 0
<OTHER-SE> 323,439 309,357
<TOTAL-LIABILITY-AND-EQUITY> 1,270,905 952,493
<SALES> 1,782,575 3,006,534
<TOTAL-REVENUES> 1,782,575 3,006,534
<CGS> 1,531,439 2,549,609
<TOTAL-COSTS> 1,531,439 2,549,609
<OTHER-EXPENSES> 221,791 379,747
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,775 8,800
<INCOME-PRETAX> 19,570 68,378
<INCOME-TAX> 7,729 26,668
<INCOME-CONTINUING> 11,841 41,710
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (425)
<NET-INCOME> 11,841 41,285
<EPS-PRIMARY> 0.27 1.00
<EPS-DILUTED> 0.27 1.00
</TABLE>
