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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-14134
___________________________________
THE GOOD GUYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2366177
- ------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
7000 Marina Boulevard, Brisbane, California 94005-1840
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 615-5000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $94,490,135 as of December 15, 1996.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On December 15, 1996, there were 13,419,362 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Shareholders for fiscal year
ended September 30, 1996. (Part II of Form 10-K)
(2) Portions of definitive proxy statement filed with Securities
and Exchange Commission relating to the Company's 1997 Annual
Meeting of Shareholders. (Part III of Form 10-K)
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PART I
ITEM 1. BUSINESS
General
THE GOOD GUYS! is a leading specialty retailer of consumer
electronics products. The Company currently operates 76 stores: In
California, 19 stores are located in the San Francisco Bay area, 25 in the
greater Los Angeles/Orange County metropolitan area, 3 in Sacramento, 7 in San
Diego, and one each in Bakersfield, Fresno, Modesto and Stockton. In
Washington, Oregon and Nevada, THE GOOD GUYS! operates 9 stores, 5 stores and 4
stores, respectively.
The Good Guys, Inc. was incorporated in California in 1976. On
March 4, 1992, the Company changed its state of incorporation from California
to Delaware by merging into a wholly-owned Delaware subsidiary formed for that
purpose. In September 1995, The Good Guys, Inc. transferred substantially all
of its assets and liabilities to The Good Guys - California, Inc., its
wholly-owned operating subsidiary. Unless the context otherwise requires, the
terms "THE GOOD GUYS!" and "Company" refer to The Good Guys, Inc., together
with its operating subsidiary.
Information Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides
companies with a "safe harbor" when making forward-looking statements.
Statements of the Company that are not historical facts, including statements
about management's expectations for fiscal year 1997 and beyond, are
forward-looking statements and involve certain risks and uncertainties.
Factors that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but
are not limited to, the following:
(a) Demand for the Company's products, which in turn is
dependent upon factors such as economic trends, the availability
of consumer credit, the introduction and acceptance of new
products and new product features, and the continued popularity
of existing products.
(b) Changes in the amount of promotional activities of
current competitors and potential new competition from both
retail stores and alternative methods of distribution such as
electronic and telephone shopping services and mail order.
(c) Changes in the Company's product mix.
(d) The Company's ability to continue to locate suitable
store sites and to hire and train skilled personnel.
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(e) Changes in the cost of the Company's advertising or in
the support received from vendors for advertising and promotional
programs.
(f) The ability of the Company to achieve economies of scale
in its advertising.
(g) Changes in availability of capital expenditure, working
capital and credit card financing.
(h) Availability of sources of supply for the products the
Company desires to sell.
(i) Adoption of new laws or regulations placing restrictions
on the sale of products and/or services by the Company.
(j) Adverse results in significant litigation matters.
Business Strategy
THE GOOD GUYS! goal is to be a leading consumer electronics
retailer in each of its targeted markets. The cornerstones of its business
strategy include:
Customer Service. THE GOOD GUYS! believes that superior service
is the single most important factor in overall customer satisfaction, and that
the Company differentiates itself from other consumer electronics retailers by
providing superior customer service. The Company believes that friendly and
knowledgeable sales associates are critical to satisfying customers interested
in middle to high-end electronics products. The Company's objective is to
generate long-term repeat business from its customers.
Merchandising. The Company's merchandising strategy is to
provide customers with a broad and compelling selection of brand name consumer
electronics with an emphasis on middle to high-end merchandise. Merchandise is
offered at competitive prices, which are backed by a low price guarantee.
Marketing. The Company aggressively uses newspaper, direct mail
and television advertising to build name recognition, to position THE GOOD
GUYS! in its markets, and to increase store traffic. Stores are designed to be
exciting and easy to shop and are located in high visibility and high traffic
commercial areas.
Expansion. The Company plans to continue to expand its store
base. Successful expansion will depend, among other things, on the Company's
ability to continue to locate suitable store sites and to hire and train
skilled personnel. It will also depend on the Company's ability to open new
stores quickly in new markets, to achieve economies of scale in advertising and
distribution, and to continue to gain market share from established
competitors.
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Customer Service
The Company believes that knowledgeable and friendly sales
associates are critical to providing superior customer service. As of
September 30, 1996, the Company had over 2,600 highly trained part-time and
full-time sales associates. Sales associates are paid under an incentive
compensation program with a salary guarantee that is applied against incentives
earned. Incentives are based on the gross profit realized, the amount of
"repeat" business the sales associate generates, performance against sales
goals and peer ranking, which evaluates a number of performance standards
including product return percentage. The Company believes this incentive
structure creates long-term repeat customers for THE GOOD GUYS!.
All sales associates attend a full-time, in-house initial
training program. The Company's training program is continually updated and is
designed to develop good sales practices and techniques and to help sales
associates explain and demonstrate to customers the use and operation of store
merchandise. This training enables sales associates to better understand
customer needs and to help them select products with which they are satisfied.
The Company generally holds meetings daily at each store to keep
sales associates trained in Company procedures and policies and to update them
on competitive information, current product introductions, product availability
and pricing. Manufacturers also conduct in-store training sessions to
familiarize sales associates with existing and new products.
The Company hosts a product show annually. All sales associates
attend the product show and are required to participate in training sessions
focused on product knowledge and selling skills. Manufacturers are in
attendance with product displays and are available to answer questions.
Additionally, regional training workshops are conducted twice a year to enhance
the sales associates' product knowledge. These sessions are conducted by a
combination of manufacturers, corporate trainers and the corporate buyers.
Customer service and sales techniques are also incorporated into these training
workshops.
In recent years, THE GOOD GUYS! has eliminated cashiers and
customer pickup windows, enabling sales associates to assist customers
throughout the entire sales transaction. This allows sales associates to spend
more time assessing the customer's needs, and provides customers with a
smoother, more efficient and more enjoyable shopping experience.
The Company's satisfaction guaranteed policy provides that a
product generally may be returned within 30 days of purchase for a full refund
or in exchange for another product. When purchasing a product from the
Company, customers may elect to purchase a Premier Performance Guarantee under
which a third party provides extended service coverage beyond the period
covered by the manufacturer's warranty.
All merchandise purchased from THE GOOD GUYS! and in need of
repair may be returned to any of the Company's stores for service. Such
merchandise is sent to either a Company-operated or an independent factory
authorized repair facility
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and is returned to the store after repair. The Company has its own regional
service facilities, which service all of its stores. The Company also operates
car audio and car cellular phone installation facilities at almost all of its
locations.
The majority of the Company's sales are made through credit
cards. The Company currently honors MasterCard, VISA, American Express and
various other credit cards, as well as THE GOOD GUYS! "Preferred Customer Card"
issued by an independent third party. Because of the relatively high cost of
many of the consumer electronics products sold by the Company, its business
could be affected by consumer credit availability.
The Company places emphasis on developing the skills of its
employees in order to provide a source of quality management personnel for
current and future stores. The Company has been able to fill many sales
managerial positions by promoting sales associates and, similarly, to fill many
store management positions by promoting sales managers.
Merchandising
The Company offers its customers a broad range of high quality
consumer electronics products supplied primarily by manufacturers of nationally
known brands. This selection comprises approximately 4,400 products from over
240 vendors and is intended to cover all of the popular price points within
each product category. The Company does not carry private label products. In
addition, the Company continually introduces and evaluates new and
complementary product lines. For example, in 1994 the Company commenced
selling personal computers and peripheral equipment in all of its stores and in
1996 the Company began selling internet access devices.
The following table shows the approximate percentage of sales for
each major product category for the last three fiscal years. Historical
percentages may not be indicative of percentages in future years.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
Category 1996 1995* 1994*
- -------- ---- ---- ----
<S> <C> <C> <C>
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39% 38% 39%
Audio and cellular phones . . . . . . . . . . . . . . . . . . . 29% 32% 35%
Home office . . . . . . . . . . . . . . . . . . . . . . . . . . 20% 19% 15%
Other (accessories, repair service,
and premier performance guarantee) . . . . . . . . . . . . . 12% 11% 11%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
___________________
*Certain reclassifications have been made to the 1995 and 1994 financial
data in order to conform to the present year's presentation.
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For the year ended September 30, 1996, the Company's three
leading suppliers for video products were, in alphabetical order, Mitsubishi,
Panasonic and Sony and for audio and cellular products were, in alphabetical
order, Denon, Sony and Yamaha. The three leading suppliers of home office
products were, in alphabetical order, Apple, Hewlett Packard and Packard Bell.
Marketing
The Company believes that its advertising activities have
resulted in significant name recognition in its markets and have increased the
number of qualified potential customers visiting its stores. The Company's
advertising vehicles include newspaper, direct mail and television.
All of the Company's print and direct mail advertisements are
created, produced and placed by the Company's advertising staff. The Company
believes that the use of its own personnel maximizes its control over
advertising effectiveness, increases its flexibility, allows quick response to
changing market conditions, and enables it to purchase media on advantageous
terms.
The Company's advertisements promote the Company as an
"audio-video specialist" and emphasize competitive prices, extensive selection,
and superior customer service from knowledgeable sales associates.
Expansion
Since the end of fiscal 1985, the Company has grown from 7 to 76
stores. Over the past five years, the Company has expanded its store base at a
compound rate of approximately 18% per year. During fiscal 1996, THE GOOD
GUYS! opened 11 new stores, continuing to penetrate its current markets by
opening three stores in northern California, two stores each in Nevada, Oregon,
Washington and the Orange County area. The Company also closed two of its
northern California stores that were too small to adequately display its full
product selection. The Company will continue to expand within its current
four-state market during fiscal 1997, with plans to open one to three new
stores and remodel/relocate several stores during the fiscal year.
In October 1996, the Company also opened a WOW!, MULTIMEDIA
SUPERSTORE, in Long Beach, California, the second WOW! concept store jointly
operated with Tower Records. In October 1996, the Company also introduced its
new Expo format in its newly remodeled Redondo Beach, California store, as
discussed in the Store Operations section below.
Store Operations
The Company's stores range in size from approximately 9,000 to
32,000 square feet. Most of the newer stores reflect the ongoing evolution in
the Company's store design and are approximately 20,000 to 25,000 square feet
in size. All of the Company's stores are located in high visibility, high
traffic commercial areas and are open seven days a week, including most
holidays.
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THE GOOD GUYS! stores are designed to reinforce the Company's
merchandising philosophy and its desire to provide a pleasant shopping
experience. Merchandise is generally displayed by category to facilitate
comparison of brands, models and prices. During fiscal 1995, the Company
introduced a new store design, called "Generation 21". These stores are larger
and brighter stores that feature interactive displays, easily accessible
merchandise and vibrant graphics.
On November 1, 1996, the Company introduced its latest store
design called THE GOOD GUYS! Audio Video Exposition ("Expo") in its remodeled
Redondo Beach, California store. The new Expo store format was designed to
meet the changing merchandising needs that new convergence products, such as
home theater, internet access terminals, internet phones, internet televisions,
PCS communication devices, digital versatile discs and digital satellite
systems, require. The Expo format provides greater merchandising flexibility
and connectivity between existing categories of product, featuring hands-on
demonstrations of product interactivity throughout the store and a central area
for customers to meet with sales consultants to design system solutions for
their homes. The Company has identified and begun to initiate additional store
relocations/renovations using the Expo concept.
The Company opened its second WOW!, MULTIMEDIA SUPERSTORE in Long
Beach, California on October 31, 1996. These concept stores, which are jointly
operated with Tower Records, provide the full range of consumer electronics
offered at all THE GOOD GUYS! stores, as well as a full range of music, video,
computer software and books and magazines offered by Tower Records. THE GOOD
GUYS! occupies approximately 32,000 square feet in each of the WOW! stores.
Each store generally has one store manager, three sales managers
and an operations manager. The store manager oversees the store's operations
and the sales managers supervise the sales associates. Sales associates are
specialized by product category. Sales associates handle all aspects of the
customer interface: providing customers with the information necessary to
determine the best product for their specific need, tendering the invoice and
handling the payment, and bringing the goods from the stockroom to the
customer.
Store operations are overseen by a senior management team which
holds frequent meetings with the store managers. Merchandising and store
operation policies for all stores are established by senior management.
Distribution
The Company operates a 460,000 square foot operations center in
Hayward, California, which has the capacity to handle deliveries to more than
100 stores in the western United States. Deliveries are generally made to each
store six or seven days a week, as ordered by the Company's automatic
replenishment system. The Company believes that this frequency of delivery
maximizes availability of merchandise at the stores while minimizing store
level and overall inventories.
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Management Information Systems
The Company's management information system is a distributed,
on-line network of computers that links all stores, delivery locations, service
centers, credit providers, the distribution facility and the corporate offices
into a fully integrated system. Each store has its own system which allows
store management to track sales and inventory at the product, customer or sales
associate level. The Company's point of sale system allows the capture of
sales data and customer information and allows the tracking of merchandising
trends and inventory levels on a daily basis. Management believes that its
current systems are adequate to support THE GOOD GUYS! anticipated growth.
Competition
The business of the Company is highly competitive. The Company
competes primarily with other specialty stores, independent electronics and
appliance stores, department stores, mass merchandisers, discount stores and
catalog showrooms. To some extent, the Company also competes with drugstores,
supermarkets and others that make incidental sales of electronics products.
Competitors of the Company include Circuit City Stores, Best Buy, Sears,
Incredible Universe, Montgomery Ward, Target, several smaller electronics
chains and independent stores.
The Company's strategy is to compete by being a value-added
retailer, offering a broad selection of top national brand name merchandise
sold at competitive prices by a friendly, knowledgeable and motivated team of
associates.
Seasonality
As is the case with many other retailers, the Company's sales are
higher during the Christmas season than during other periods of the year.
Employees
At September 30, 1996, the Company employed approximately 4,500
persons, of whom 700 were salaried, 1,200 were hourly non-selling associates
and 2,600 were salespeople on commission against a minimum guarantee. At
September 30, 1996, over 300 of its employees were employed in the Company's
executive offices; the balance were employed in its stores, distribution
center, home delivery center, and service centers. There are no collective
bargaining agreements covering any of the Company's employees. The Company has
never experienced a strike or work stoppage and management believes that
relations with its employees are excellent.
Trademarks and Service Marks
The Company has registered the name "THE GOOD GUYS!" as a
trademark with the United States Patent and Trademark Office and the State of
California. Federal registration of the trademark extends through 2000 and is
renewable indefinitely. The Company has registered "THE GOOD GUYS!" as a
service mark through
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1999, which is renewable indefinitely. The Company's name is an integral part
of its advertising and is important to its business.
ITEM 2. PROPERTIES
Of the Company's stores in California, 19 are located in the San
Francisco Bay area, 25 in the greater Los Angeles/Orange County metropolitan
area, 3 in Sacramento, 7 in San Diego; and one each in Bakersfield, Fresno,
Modesto and Stockton, California. In addition, THE GOOD GUYS! operates 9
stores in the State of Washington, 5 stores in Oregon and 4 stores in Nevada.
All of the stores are leased under leases that have expiration dates (assuming
that lease options are exercised) in years ranging from 1999 to 2038.
The Company's operations center is located in a 460,000 square
foot facility in Hayward, California under a lease, the term of which expires
(assuming that lease options are exercised) in 2011.
The Company also maintains executive offices in Brisbane,
California at 7000 Marina Boulevard under a lease, the term of which expires
(assuming that lease options are exercised) in 2004.
ITEM 3. LEGAL PROCEEDINGS
On September 7, 1995, the Company was named as a defendant in two
purported class actions, entitled Long v. Packard Bell Electronics, et al.,
Case No. 7515706, filed in Orange County Superior Court on August 21, 1995, and
Sutter v. Acer America Corporation, et al., Case No. 95A505027, Sacramento
County Superior Court. In both cases, plaintiffs have named a large number of
computer manufacturers, wholesalers and retailers, alleging that since 1986 the
defendants have misrepresented to the public the screen size of certain
computer monitors. In addition to these two cases, there are numerous other
cases pending around the State of California (and in other parts of the
country) making essentially the same allegations against a variety of computer
manufacturers, wholesalers and retailers. All of the California cases have now
been coordinated in a single court in San Francisco. At the end of June 1996,
the Court granted the Company's demurrers on the grounds (a) that a prior
settlement of an action brought by the California Attorney General precludes
relitigation of the same issues in this case; and (b) that plaintiffs lack
standing to bring class claims against the Company because none of the named
plaintiffs claims to have purchased any computer monitors from the Company.
Plaintiffs have indicated that they plan to appeal these rulings. The cases
are at an early stage, discovery has not yet commenced, and it is too early to
be able to express any opinion as to the likely outcome of the matter. The
Company believes it has meritorious defenses to the claims alleged in the
lawsuit and intends to defend the action vigorously. The Company also believes
it has meritorious claims for indemnification from certain computer
manufacturers from which it has purchased computer equipment.
On July 19, 1996, McBride-Newell, Inc. dba Carphones, Inc. and
numerous other individuals and entities filed a complaint against the Company
and 21 other named defendants entitled McBride-Newell, Inc., et al. v.
Mobilworks, Inc., et
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al., San Diego Superior Court Case No. 695897. The defendants include the two
cellular telephone service providers in the San Diego area, Airtouch Cellular
and U.S. West; a manufacturer of cellular telephones, Motorola, Inc.; and
numerous large retail chain stores, including Circuit City, Tandy, Office
Depot, Sears Roebuck, Wal-Mart Stores, Price-Costco, and others. Plaintiffs,
who are small agents of the cellular service providers offering cellular
telephone products and service in the San Diego area, allege a wide variety of
antitrust and fraud-related claims against the cellular telephone service
providers, including alleged conspiracy to fix cellular telephone rates. As
against the retailer defendants, including the Company, the plaintiffs allege a
conspiracy to sell cellular telephone equipment below cost with the intent to
drive the plaintiffs out of business, in violation of the California Cartwright
Act and Unfair Practices Act; unfair trade practices; unlawful "leveraging";
and "bundling" of cellular telephone equipment and service. Plaintiffs seek
treble damages under the California antitrust laws. The case is at a very
early stage, and it is too soon to be able to express an opinion as to the
likely outcome of this matter. The Company believes it has meritorious
defenses to the claims alleged in the lawsuit and intends to defend the action
vigorously.
On or about July 22, 1996, Joe Quattrini dba Sand Canyon Cellular
and numerous other individuals and entities filed a complaint against the
Company and 20 other named defendants entitled Quattrini, et al. v.
Pana-Pacific Corp., et al., Orange County Superior Court Case No. 766649. The
defendants include the two cellular telephone service providers in the Orange
County area, Los Angeles Cellular Telephone Company and Airtouch Cellular; a
manufacturer of cellular telephones, Motorola, Inc.; and numerous large and
small retail chain stores, including Tandy, Wal-Mart Stores, Sears Roebuck, The
Wherehouse, Al & Ed's Audio, Affordable Portables, L.A. Tronics, Adrays,
Celluland, and others. Plaintiffs, who are small agents or sub-agents of the
cellular service providers offering cellular telephone products and service in
the Orange County area, allege a wide variety of antitrust and fraud-related
claims against the cellular telephone service providers, including alleged
conspiracy to fix cellular telephone prices. As against the retailer
defendants, plaintiffs allege a conspiracy to sell cellular telephone equipment
below cost with the intent to drive plaintiffs out of business in violation of
the California Cartwright Act and Unfair Practices Act; unfair trade practices;
and "bundling" of cellular telephone equipment and service. Plaintiffs seek
treble damages under the California antitrust laws. The case is at a very
early stage, and it is too soon to be able to express an opinion as to the
likely outcome of this matter. The Company believes it has meritorious
defenses to the claims alleged in the lawsuit and intends to defend the action
vigorously.
In November 1995, the Company was named as a defendant in an
action captioned as Littau et al. v. Circuit City, et al., No. 973978, San
Francisco Superior Court. The other defendants are Circuit City Stores West
Coast, Inc., Sears Roebuck & Co., Tandy Corp., Fry's Electronics, Inc., Best
Buy Co., Inc., CompUSA, Inc., and Whole Earth Access Co. (which we understand
is now in bankruptcy). Plaintiffs' complaint, which is styled as a class
action, alleges that the Company has engaged in false advertising and unfair
competition in violation of the California Business and Professions Code and
the California Consumer Legal Remedies Act in the manner in which it has
advertised personal computers sold with pre-installed, "bundled" software.
Plaintiffs' primary allegation is that the Company's advertisements overstated
the value of this software. Plaintiffs seek injunctive relief,
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restitution, special damages, and attorneys' fees. The case is still in the
discovery stage, and it is too early to express any opinion as to the likely
outcome of the matter. The Company believes it has meritorious defenses to the
claims alleged in the suit and intends to defend the action vigorously. The
Company also believes it has meritorious claims for indemnification from the
computer manufacturers from which it has purchased personal computers and upon
whose representations it relied in representing the values of bundled software
in its advertisements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their respective ages
and positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Gunst 48 President and Chief Executive Officer
Thomas A. Hannah 51 Senior Vice President, Operations
Brad S. Bramy 44 Vice President, Advertising
Dennis C. Carroll 37 Vice President, Chief Financial Officer and Secretary
William C. Curley 53 Vice President, Management Information Services and Operations
John G. Duken 36 Vice President, Store Operations
William B. Perlstein 46 Vice President, Stores
Gregory L. Steele 49 Vice President, Real Estate
Geradette M. Vaz 43 Vice President, Human Resources
</TABLE>
All executive officers are elected by and serve at the discretion
of the Board of Directors.
Robert A. Gunst became the President and Chief Operating Officer
of the Company in May 1990 and its Chief Executive Officer in January 1993.
Thomas A. Hannah joined the Company as Senior Vice President,
Stores in June 1993 and was named Senior Vice President, Operations, in May
1995. From November 1982 to March 1993 he was Assistant Vice President,
Circuit City Stores, Inc., and General Manager of three separate operating
divisions located in Richmond, San Francisco and Dallas.
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Brad S. Bramy was named Vice President, Advertising in May 1995.
Prior to holding this position, Mr. Bramy served in various positions in the
advertising department since joining the Company in 1983.
Dennis C. Carroll, who had served as controller of the Company
from 1990 to 1993, rejoined the Company as Vice President, Chief Financial
Officer and Secretary in May 1996. Mr. Carroll served as Vice President and
Chief Financial Officer of Beverages, & more!, a specialty retailer, from
February 1994 to April 1996 and as Vice President, Controller and Treasurer of
Supercuts, Inc., an owner and franchisor of hair salons, from May 1993 to
January 1994.
William C. Curley joined the Company as Vice President,
Management Information Services and Distribution in October 1990 and became
Vice President, Management Information Services and Operations in November
1991.
John G. Duken joined the Company in September 1993 as General
Manager of Store Operations and was named Vice President, Store Operations in
June 1994. From June 1988 to August 1993 he held several positions with
Circuit City Stores, Inc., including Divisional Operations Manager of the
Northern California Division and General Operations Manager of the Midwest
Division.
William B. Perlstein joined the Company as Regional Sales Manager
in March 1987, was named Vice President, Store Operations in January 1993, and
was named Vice President, Stores in June 1993.
Gregory L. Steele has served as Vice President, Real Estate since
April 1986.
Geradette M. Vaz joined the Company in July 1986 as Vice
President, Human Resources, and has served in that position to the present.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Incorporated by reference from page 26 of the Company's 1996
Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 15 of the Company's 1996
Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from pages 12 through 14 of the
Company's 1996 Annual Report to Shareholders.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from pages 16 through 24 of the
Company's 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company required to
be furnished pursuant to this item is incorporated by reference from portions
of the Company's definitive Proxy Statement for its annual meeting of
shareholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after September 30, 1996 (the "Proxy
Statement") under the caption "Election of Directors." Certain information
relating to executive officers of the Company is set forth in Item 4A of Part I
of this Form 10-K under the caption "Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from portions of the Proxy Statement
under the captions "Compensation of Directors and Executive Officers" and
"Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from portions of the Proxy Statement
under the captions "Certain Shareholders" and "Compensation of Directors and
Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from portions of the Proxy Statement
under the caption "Compensation of Directors and Executive Officers" and
"Certain Relationships and Related Transactions."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
Included in Part II of this report by incorporation by
reference from the 1996 Annual Report to Shareholders:
Independent Auditors' Report (page 25 of the
1996 Annual Report to Shareholders)
Consolidated statements of operations for each
of the three years in the period ended September
30, 1996 (page 17 of the 1996 Annual Report to
Shareholders)
Consolidated balance sheets as of September 30,
1996 and 1995 (page 16 of the 1996 Annual Report
to Shareholders)
Consolidated statements of shareholders' equity
for each of the three years in the period ended
September 30, 1996 (page 18 of the 1996 Annual
Report to Shareholders)
Consolidated statements of cash flows for each
of the three years in the period ended September
30, 1996 (page 19 of the 1996 Annual Report to
Shareholders)
Notes to consolidated financial statements (pages
20 through 24 of the 1996 Annual Report to
Shareholders)
(a)2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required (in some
cases because the information is not material), or are not
applicable, or the information is included in the financial
statements.
(a)3. EXHIBITS
3.1 Certificate of Incorporation. (Exhibit 3.1 to the Company's
Form 8-K Report for March 4, 1992; incorporated herein by reference.)
3.2 Bylaws. (Exhibit 3.2 to the Company's Form 8-K Report for
March 4, 1992; incorporated herein by reference.)
10.1 1985 Stock Option Plan, as amended.*
__________________________________
*Compensatory plan or arrangement.
-15-
<PAGE> 16
10.2 Form of Nonqualified Stock Option Agreements.* (Exhibit 4.3 to the
Company's Registration Statement on Form S-8 as filed on January 28,
1991, registration number 33-38749; incorporated herein by reference.)
10.3 THE GOOD GUYS! Profit-Sharing Plan, as amended and restated as of
December 20, 1990.* (Exhibit 10.4 to the Company's Form 10-K Annual
Report for its fiscal year ended September 30, 1991; incorporated
herein by reference.)
10.4 THE GOOD GUYS! Deferred Pay Plan.* (Exhibit 4.1 to the Company's
Registration Statement on Form S-8 as filed on March 12, 1991,
registration number 33-39421; incorporated herein by reference.)
10.5 THE GOOD GUYS! Deferred Pay Plan Amendment No. 1.* (Exhibit 4.6 to
the Company's Registration Statement on Form S-8 as filed on March 12,
1991, registration number 33-39421; incorporated herein by reference.)
10.6 Letter Agreement with Robert A. Gunst, dated March 30, 1990.*
(Exhibit 10.14 to the Company's Form 10-K Annual Report for its fiscal
year ended September 30, 1990; incorporated herein by reference.)
10.7 Employee Stock Purchase Plan, as amended.*
10.8 THE GOOD GUYS! Deferred Pay Plan Amendment No. 2.* (Exhibit 10.27 to
the Company's Form 10-K Annual Report for its fiscal year ended
September 30, 1992; incorporated herein by reference.)
10.9 Letter Agreement with Thomas A. Hannah, dated June 1, 1993.* (Exhibit
10.10 to the Company's Form 10-K Annual Report for its fiscal year
ended September 30, 1993, incorporated herein by reference.)
10.10 1994 Stock Incentive Plan, as amended.*
10.11 Assignment and Assumption Agreement, dated September 26, 1995, by and
between The Good Guys, Inc. and The Good Guys - California, Inc.
(Exhibit 10.18 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1995; incorporated herein by reference.)
10.12 Credit Agreement, dated as of September 26, 1995, by and among Bank of
America National Trust & Savings Association, The Bank of California,
N.A. and The Good Guys-California, Inc. (Exhibit 10.19 to the
Company's Form 10-K Annual Report for the fiscal year ended September
30, 1995; incorporated herein by reference.)
10.13 Amendment to September 26, 1995 Credit Agreement among Bank of America
National Trust & Savings Association, The Bank of California and The
Good Guys-California, Inc., dated as of February 29, 1996.
__________________________________
*Compensatory plan or arrangement.
-16-
<PAGE> 17
10.14 Operating Agreement, dated effective as of April 15, 1995, between
MTS, Inc., a California corporation, dba Tower Records/Book/Video, and
The Good Guys, Inc., a Delaware corporation. (Exhibit 10.20 to the
Company's Form 10-K Annual Report for the fiscal year ended September
30, 1995; incorporated herein by reference.)
10.15 Non-Committed Line of Credit Agreement, dated October 27, 1995, by and
between The Bank of California, N.A. and The Good Guys - California,
Inc. (Exhibit 10.21 to the Company's Form 10-K Annual Report for the
fiscal year ended September 30, 1995; incorporated herein by
reference.)
10.16 Non-Committed Line of Credit Agreement, dated July 24, 1995, by and
between The Dai-Ichi Kangyo Bank, Limited and The Good Guys, Inc.
(Exhibit 10.22 to the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1995; incorporated herein by reference.)
10.17 Amended and Restated Credit Agreement, dated December 27, 1996, among
The Good Guys - California, Inc., Bank of America National Trust &
Savings Association and The Union Bank of California N.A.
11.1 Statement re Computation of Per Share Earnings.
13.1 Annual Report to Shareholders for fiscal year ended September 30, 1996
(pages incorporated by reference).
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K for the quarter ended
September 30, 1996.
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: December 30, 1996 THE GOOD GUYS, INC.
By /s/ ROBERT A. GUNST
Robert A. Gunst
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ ROBERT A. GUNST Director, President and December 30, 1996
- -------------------
(Robert A. Gunst) Chief Executive Officer
(Principal Executive Officer)
/s/ DENNIS C. CARROLL Vice President and December 30, 1996
- ---------------------
(Dennis C. Carroll) Chief Financial Officer
(Principal Financial Officer)
/s/ LESLIE S. BENSON Controller (Principal December 30, 1996
- --------------------
(Leslie S. Benson) Accounting Officer)
/s/ STANLEY R. BAKER* Director December 30, 1996
- ---------------------
(Stanley R. Baker)
/s/ RUSSELL M. SOLOMON* Director December 30, 1996
- -----------------------
(Russell M. Solomon)
/s/ JOHN E. MARTIN* Director December 30, 1996
- -------------------
(John E. Martin)
/s/ W. HOWARD LESTER* Director December 30, 1996
- ---------------------
(W. Howard Lester)
*By /s/ ROBERT A. GUNST
--------------------
Attorney-in-Fact
</TABLE>
-18-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.1 1985 Stock Option Plan, as amended.
10.7 Employee Stock Purchase Plan, as amended.
10.10 1994 Stock Incentive Plan, as amended.
10.13 Amendment to September 26, 1995 Credit Agreement among Bank
of America National Trust & Savings Association, The Bank
of California and The Good Guys-California, Inc., dated as
of February 29, 1996.
10.17 Amended and Restated Credit Agreement, dated December 27,
1996, among The Good Guys - California, Inc., Bank of
America National Trust & Savings Association and The Union
Bank of California N.A.
11.1 Statement re Computation of Per Share Earnings.
13.1 Annual Report to Shareholders for fiscal year ended
September 30, 1996 (pages incorporated by reference).
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
THE GOOD GUYS
1985 Stock Option Plan
(As Amended Through August 20, 1996)
1. Purpose. The purpose of the 1985 Stock Option Plan (the
"Plan") is to enable The Good Guys, Inc. ("Company") and its subsidiaries, if
any, to attract and retain directors, officers and other key employees and to
provide such employees with additional incentive to advance the interests of
the Company. Options qualifying as incentive stock options under Section 422A
of the Internal Revenue Code of 1954, as amended, and nonqualified options may
be granted under the Plan.
2. Administration.
(a) The Plan shall be administered by the Board of
Directors, or by a committee (the "Committee") of three or more persons
selected by the Board.
(b) The Board of Directors or the Committee shall
have the power, subject to the express provisions of the Plan:
(1) To determine the recipients of options
under the Plan, the time of grant of the options, and the number of shares
covered by the grant.
(2) To prescribe the terms and provisions of
each option granted (which need not be identical).
(3) To construe and interpret the Plan and
options, to establish, amend, and revoke rules and regulations for the Plan's
administration, and to make all other determinations necessary or advisable for
the administration of the Plan.
3. Shares Subject to the Plan. Subject to the provisions of
Paragraph 7 (relating to the adjustment upon changes in stock), the shares
which may be sold pursuant to options granted under the Plan shall not exceed
in the aggregate 857,500 shares of common stock of the Company and may be
unissued shares or reacquired shares. If any options granted under the Plan
shall for any reason terminate or expire without having been exercised in full,
the shares not purchased under such options shall be available again for the
purposes of the Plan.
-1-
<PAGE> 2
4. Eligibility. Options under this Plan may be granted only to
directors, officers and other key employees of the Company and/or of its
subsidiaries. Persons to whom options to purchase shares are granted are
hereinafter referred to as "optionee(s)." Subject to the provisions of
Paragraphs 3, 4A and 5 of this Plan, there is no limitation on the number of
options that may be granted to an optionee.
4A. Formula Awards to Nonemployee Directors. On the date on
which the Board of Directors appoints, or the shareholders of the Company
elect, a person who is not an employee of the Company as a member of the Board
of Directors for the first time, such director shall be awarded a non-qualified
option to purchase 5,000 shares of common stock of the Company. Immediately
after the completion of each annual meeting of the shareholders of the Company,
each nonemployee member of the Board of Directors shall be awarded a
non-qualified option to purchase 1,000 shares of common stock of the Company.
Such options shall have an exercise price per share equal to the fair market
value of the shares of common the Company on the date of such award, determined
in accordance with the provisions of Paragraph 5(a)(2) of this Plan. The
amounts of such awards shall be adjusted as necessary in accordance with the
provisions of Paragraph 7 of this Plan. Except as otherwise specifically
provided in this Paragraph 4A, the terms of this Plan, including the vesting
provisions of Paragraph 5(a)(1), shall apply to all options granted pursuant to
this Paragraph 4A. This Paragraph 4A shall not be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code,
the Employee Retirement Income Security Act, or the rules thereunder.
5. Terms of Option Agreements.
(a) All Option Agreements. Options granted pursuant
to the Plan shall be evidenced by agreements specifying the number of shares
covered thereby, in such form as the Board or Committee shall from time to time
establish, which agreements may incorporate all or any of the terms hereof by
reference and shall comply with and be subject to the following terms and
conditions:
(1) The Board or Committee shall have the
power to set the time or times within which each option shall be exercisable,
and to accelerate the time or times of exercise. Unless the stock option
agreement executed by the optionee expressly otherwise provides, the option
shall become exercisable on a cumulative basis as to one-quarter of the total
number of shares covered thereby on each of the first, second, third, and
fourth anniversary dates of the date of grant of the option and shall not be
exercisable
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<PAGE> 3
after the expiration of ten years from the date it is granted (except in the
case of an incentive stock option granted to a 10% shareholder in which event
the option must be exercised within five years).
(2) Except as provided in paragraph 5(b)
below, the exercise price shall not be less than 100% of the fair market value
of the shares of common stock of the Company on the date of the granting of the
option. If the common stock of the Company is not publicly traded on the date
of grant of an option, fair market value may be computed by any method the
Board or Committee believes in good faith will reflect the fair market value of
the stock on such day. During such time as such stock is publicly traded but
not listed upon an established stock exchange, the fair market value per share
shall be the last sale price on the day the option is granted as reported on
the National Market System, or, if such stock is not then reported on the
National Market System but quotations are reported on the National Association
of Securities Dealers Automated Quotations System, the average of the bid and
asked prices on the day the option is granted, in either event as such price
quotes are listed in The Wall Street Journal, Western Edition (or if not so
reported in The Wall Street Journal any other listing service or publication
known to the Board). If the stock is listed upon an established stock exchange
or exchanges, such fair market value shall be deemed to be the closing price of
the common stock on the largest such stock exchange upon which such stock is
listed on the day the option is granted.
(3) To the extent that the right to purchase
shares has accrued hereunder, options may be exercised from time to time by
written notice to the Company, stating the number of shares being purchased and
accompanied by the payment in full of the option price for such shares. Such
payment shall be made in cash or in shares of the outstanding common stock of
the Company or in a combination of cash and such stock. If shares of common
stock are used in part or full payment for the shares to be acquired upon
exercise of the option, such shares shall be valued for the purpose of such
exchange as of the date of exercise of the option in accordance with the
provisions of subparagraph (2) above. Any certificates for shares of
outstanding common stock used to pay the option price shall be accompanied by
stock powers duly endorsed in blank by the registered holder of the certificate
(with the signature thereon guaranteed). In the event the certificates
tendered by the optionee in such payment cover more shares than are required
for such payment, the certificates shall also be accompanied by instructions
from the optionee to the Company's transfer agent with regard to disposition of
the balance of the shares covered thereby.
-3-
<PAGE> 4
(4) The Company at all times shall keep
available the number of shares of stock required to satisfy options granted
under the Plan.
(5) The Company may require any person to
whom an option is granted, his or her legal representative, heir, legatee, or
distributee, as a condition of exercising any other option granted hereunder to
give written assurance satisfactory to the Company to the effect that such
person is acquiring the shares subject to the option for his or her own account
for investment and not with any present intention of selling or otherwise
distributing the same. The Company reserves the right to place a legend on any
share certificate issued pursuant to this Plan to assure compliance with this
paragraph. No shares of common stock of the Company shall be required to be
distributed until the Company shall have taken such action, if any, as is then
required to comply with the provisions of the Securities Act of 1933 or any
other applicable securities law.
(6) Neither a person to whom an option is
granted, nor such person's legal representative, heir, legatee, or distributee,
shall be deemed to be the holder of, or to have any of the rights of a holder
with respect to, any shares subject to such option unless and until such person
has exercised his or her option pursuant to the terms thereof.
(7) No stock option shall be transferable by
the grantee otherwise than by will, or if the grantee dies intestate, by the
laws of descent and distribution of the state of domicile of the grantee at the
time of death, provided that a non-qualified stock option may be transferred by
a grantee to a trust or other entity established by the grantee for estate
planning purposes. Except for exercises of non-qualified stock options by
trusts or entities established by the grantee for estate tax purposes, all
stock options shall be exercisable during the lifetime of the grantee only by
the grantee.
(8) An option shall terminate and may not be
exercised if the person to whom it is granted ceases to be an employee or
director of the Company or of a subsidiary of the Company, with the following
exceptions:
(i) If the employment or
directorship is terminated for any reason other than the person's death or
disability, such person may at any time within not more than three months after
such termination exercise the option, but only to the extent that it was
exercisable on the date of such termination;
-4-
<PAGE> 5
(ii) If such person dies while he or
she is an employee or director of the Company or of a subsidiary of the
Company, his or her option may be exercised in full by his or her personal
representatives, heirs or legatees at any time within not more than twelve (12)
months following the date of death, regardless of any provision for vesting to
the contrary; and
(iii) If such person suffers an injury
or illness while he or she is an employee or director of the Company or of a
subsidiary of the Company that renders such person unable to serve as an
employee, or as a director, as the case may be, of the Company or of a
subsidiary of the Company, such person or such person's guardian may at any
time within not more than twelve (12) months following the date of such
disability exercise the option in full, regardless of any provision for vesting
to the contrary.
(9) In no event may an option be exercised
by anyone after the expiration of the term of the option established pursuant
to Subparagraph 5(a)(1) hereof.
(10) Each option granted pursuant to this
Plan shall specify whether it is a non-qualified or an incentive stock option.
(11) As to individuals otherwise eligible
under this Plan who own more than 10% of the total combined voting power of all
classes of stock of the Company and its parent and subsidiary corporations,
incentive stock options can be granted under this Plan to any such individual
only if at the time such option is granted the option price is at least 110% of
the fair market value of the stock subject to the option and such option by its
terms is not exercisable after the expiration of five years from the date such
option is granted.
(b) Incentive Stock Options. In addition to the
terms and conditions specified above, incentive stock options granted under
this Plan shall be subject to the term and condition that the aggregate fair
market value (determined as of the time the option is granted) of the stock
with respect to which incentive stock options are exercisable for the first
time by any optionee during any calendar year (under all option plans of the
Company or its parent and subsidiary corporations) shall not exceed $100,000.
-5-
<PAGE> 6
6. Use of Proceeds from Shares. Proceeds from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
7. Adjustment Upon Changes in Shares.
(a) If any change is made in the shares subject to
the Plan, or subject to any option granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise)
appropriate adjustments shall be made by the Board of Directors or Committee in
the maximum number of shares subject to the Plan and the number of shares and
price per share of stock subject to the outstanding options.
(b) In the event of (i) a dissolution or liquidation
of the Company or (ii) a transaction in which more than 50% of the shares of
the Company entitled to vote are exchanged, the Board shall have discretion and
power to accelerate the time when an option may be exercised, notwithstanding
the provisions of the option.
(c) In the event of a merger or consolidation or
other reorganization in which the Company is not the surviving corporation, or
in which the Company becomes a subsidiary of another corporation, the successor
corporation shall agree to assume the outstanding options or substitute
comparable options therefor, or, if the successor corporation is unwilling to
do so, the outstanding options shall become fully exercisable prior to such
merger or consolidation or other reorganization.
8. Rights as an Employee. Nothing in this Plan or in any
rights awarded hereunder shall confer upon any employee any right to continue
in the employ of the Company or of any of its subsidiaries or interfere in any
way with the right of the Company or any such subsidiary to terminate such
employee's employment at any time.
9. Withholding Tax. There shall be deducted from the
compensation of any employee holding options under this Plan the amount of any
tax required by any governmental authority to be withheld and paid over by the
Company to such governmental authority for the account of the person with
respect to such options.
-6-
<PAGE> 7
10. Termination and Amendment of Plan. The Board of
Directors may at any time terminate this Plan, or make such modifications the
Plan as it shall deem advisable. Any modification which materially increases
the benefits accruing to participants or the number of rights or shares which
may be issued under the Plan, or materially modifies the requirements as to
eligibility for participation in the Plan shall become effective only upon
approval of the holders of a majority of the securities of the Company present,
or represented, and entitled to vote at a meeting duly held in accordance with
the laws of the State of California.
11. Effective Date of the Plan. The 1985 Stock Option Plan
shall become effective on September 16, 1985. Any rights granted under this
Plan must be granted within ten (10) years of such effective date.
12. Indemnification. In addition to such other rights of
indemnification as they may have as directors, the members of the Board of
Directors administering the Plan shall be indemnified by the Company against
the reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding that such member is liable for
negligence or misconduct in the performance of his duties; provided that within
60 days after institution of any such action, suit or proceeding, the member
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
-7-
<PAGE> 1
EXHIBIT 10.7
THE GOOD GUYS, INC.
EMPLOYEE STOCK PURCHASE PLAN
(as amended through November 1996)
1. PURPOSE:
The Good Guys, Inc. EMPLOYEE STOCK PURCHASE PLAN (the "Plan")
is designed to foster continued cordial employee relations, to encourage and
assist its employees and the employees of any present or future subsidiaries in
acquiring a stock ownership interest in The Good Guys, Inc. (the "Corporation")
and to help them provide for their future security. The Plan is intended to be
an Employee Stock Purchase Plan under Internal Revenue Code Section 423.
2. STOCK SUBJECT TO THE PLAN:
Subject to adjustment pursuant to Section 12 of the Plan, the
aggregate number of shares of Common Stock (the "shares") which may be sold
under the Plan is 2,500,000.(1) The shares may be authorized, but unissued, or
reacquired shares of Common Stock of the Corporation. The Corporation, during
the term of the Plan, shall at all times reserve and keep available, such
number of shares as shall be sufficient to satisfy the requirements of the
Plan.
3. BI-ANNUAL PERIODS:
Bi-annual period shall mean the six-month periods ending on
the last day of June and December of each year, provided that the first period
under this Plan shall commence on the day on which the Corporation's Form S-1
Registration Statement covering the initial public offering of its Common Stock
becomes effective (the "effective date") and shall end on the later of June 30,
1986 or the day which is 120 days after the effective date. The second period
under this Plan shall commence on the day after the end of the final period and
shall end on December 31, 1986.
4. ELIGIBILITY:
Anyone who becomes an employee of the Corporation or any of
its subsidiaries (except those employees who own or hold options to purchase
five percent (5%) or more of the capital stock of the Corporation or any
subsidiary of the Corporation at the start of any bi-annual period), those
employees whose customary employment is less than 20 hours
__________________________________
1Includes additional 600,000 shares approved by Board of Directors in
November 1996; subject to shareholder approval.
-1-
<PAGE> 2
per week, and those employees whose customary employment is for not more than 5
months in any calendar year) is eligible to become a member of the Plan on the
first day of the bi-annual period following the commencement of service.
Notwithstanding the foregoing, no employee shall be entitled to purchase (i)
shares of stock under the Plan and all other purchase plans of the Corporation
and any parent or subsidiary of the Corporation with an aggregate fair market
value (determined at date of grant) exceeding $25,000 per year for each
calendar year in which such option is outstanding at any time, or (ii) more
than 2,000 shares of stock under the Plan in any bi-annual period.
For purposes of this Plan, "subsidiary" shall mean a
corporation of which not less than fifty percent (50%) of the voting shares are
held by the Corporation or a subsidiary of the Corporation.
5. JOINING THE PLAN:
Any eligible employee's participation in the Plan shall be
effective as of the first day of the bi-annual period following the day on
which the employee completes, signs, and returns to the Corporation, or one of
its present or future subsidiaries, a Stock Purchase Plan Application and
Payroll Deduction Authority form indicating his or her acceptance and agreement
to the Plan. Membership of any employee in the Plan is entirely voluntary.
Any employee receiving shares shall have no rights with
respect to continuation of employment, nor with respect to continuation of any
particular Corporation business, policy or product.
6. MEMBER'S CONTRIBUTIONS:
Each member shall elect to make contributions by payroll
deduction of two percent (2%), five percent (5%) or ten percent (10%) of his or
her gross compensation.
Subject to the maximum described above, a member may elect in
writing to increase or decrease his or her rate of contribution; such change
will become effective the first day of the bi-annual period following receipt
by the Corporation of such written election.
The amount of each member's contribution shall be held by the
Corporation in a special account and such contributions, free of any obligation
of the Corporation to pay interest thereon, shall be credited to such member's
individual account as of the last day of the month during
-2-
<PAGE> 3
which the compensation from which the contributions were deducted was earned.
No member will be permitted to make contributions for any
period during which he or she is not receiving pay from the Corporation or one
of its present or future subsidiaries.
7. ISSUANCE OF SHARES:
On the last trading day of each bi-annual period so long as
the Plan shall remain in effect, and provided the member has not before that
date advised the Corporation that he or she does not wish share purchased for
his or her account on that date, the Corporation shall apply the funds credited
to the member's account as of that date to the purchase of authorized but
unissued shares of its Common Stock in units of one share or multiples thereof.
The cost to each member for the shares so purchased shall be
eighty-five percent (85%) of the lower of:
1. With respect to the first bi-annual period, the price
at which the Common Stock of the Corporation is first offered to the public;
thereafter, the mean between the average bid and ask prices of the stock in the
over-the-counter market as quoted on the National Association of Security
Dealers Automatic Quotation System (NASDAQ), or if its stock is a National
Market Issue the last sales price of the stock, or if the stock is traded on
one or more securities exchanges the average of the closing prices on all such
exchanges, on the first trading day of the bi-annual period; or
2. The mean between the average bid and ask prices of
the stock in the over-the-counter market as quoted on the National Association
of Securities Dealers Automatic Quotation System (NASDAQ) or if the stock is a
National Market issue the last sales price of the stock, or if the stock is
traded on one or more securities exchanges the average of the closing prices on
all such exchanges on the last trading day of the bi-annual period.
Any moneys remaining in such member's account equaling less
than the sum required to purchase one share shall, unless otherwise requested
by the member, be held in the member's account for use during the next
bi-annual period. Any moneys remaining in such member's account by reason of
his or her prior election not to purchase shares in a given bi-annual period,
as aforesaid, or moneys remaining in such member's account by reason of
application of the provisions of the next paragraph hereof, shall be promptly
-3-
<PAGE> 4
returned to the member. The Corporation shall as expeditiously as possible
after the last day of each bi-annual period issue to the member entitled
thereto the certificate evidencing the shares issuable to him or her as
provided herein.
Notwithstanding anything above to the contrary, (a) if the
number of shares members desire to purchase at the end of any bi-annual period
exceeds the number of shares then available under the Plan, the shares
available shall be allocated among such members in proportion to their
contributions during the bi-annual period; and (b) no funds in an employee's
account shall be applied to the purchase of shares and no shares hereunder
shall be issued unless such shares are covered by an effective registration
statement under the Securities Act of 1933, as amended, or by an exemption
therefrom.
8. TERMINATION OF MEMBERSHIP:
A member's membership in the Plan will be terminated when the
member (a) voluntarily elects to withdraw his or her entire account, (b)
resigns or is discharged from the Corporation or one of its present or future
subsidiaries, (c) dies, or (d) does not receive pay from the Corporation or one
of its present or future subsidiaries for twelve (12) consecutive months,
unless this period is due to illness, injury or for other reasons approved by
the persons or person appointed by the Corporation to administer the Plan as
provided in Paragraph 10 below. Upon termination of membership, the terminated
member shall not be entitled to rejoin the Plan until the first day of the
bi-annual period immediately following the bi-annual period in which the
termination occurs. Upon termination of membership, the member shall be
entitled to the amount of his or her individual account within fifteen (15)
days after termination.
9. BENEFICIARY:
Each member shall designate a beneficiary or beneficiaries and
may, without their consent, change his or her designation. Any designation
shall be effective only after it is received by the Corporation and shall
become effective as of the date it is signed and shall be controlling over any
disposition by will or otherwise.
Upon the death of a member his or her account shall be paid or
distributed to the beneficiary or beneficiaries designated by such member, or
in the absence of such designation, to the executor or administrator of his or
her estate, and in either event the Corporation shall not be
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under any further liability to anyone. If more than one beneficiary is
designated, then each beneficiary shall receive an equal portion of the account
unless the member indicates to the contrary in his or her designation, provided
that the Corporation may in its sole discretion make distributions in such form
as will avoid the creation of fractional shares.
10. ADMINISTRATION OF THE PLAN:
The Plan shall be administered by such officers or other
employees of the Corporation as the Corporation may from time to time select,
and the persons so selected shall be responsible for the administration of the
Plan. All costs and expenses incurred in administering the Plan shall be paid
by the Corporation. Any taxes applicable to the member's account shall be
charged or credited to the member's account by the Corporation.
11. MODIFICATION AND TERMINATION:
The Corporation expects to continue the Plan until such time
as the shares reserved for issuance under the Plan have been sold. The
Corporation reserves, however, the right to amend, alter, or terminate the Plan
in its discretion. Upon termination, each member shall be entitled to the
amount of his or her individual account within thirty (30) days after
termination.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
Appropriate and proportionate adjustments shall be made in the
number and class of shares of stock subject to this plan, and to the rights
granted hereunder and the prices applicable to such rights, in the event of a
stock dividend, stock split, reverse stock split, recapitalization,
reorganization, merger, consolidation, acquisition, separation, or like change
in the capital structure of the Corporation.
13. ASSIGNABILITY OF RIGHTS:
No rights of any employee under this Plan shall be assignable
by him or her, by operation of law, or otherwise, except to the extent that a
member is permitted to designate a beneficiary or beneficiaries as hereinabove
provided, and except to the extent permitted by the law of descent and
distribution if no such beneficiary be designated. Prior to the issuance of
any shares under this Plan, each employee member shall be required to sign a
statement as set forth in Exhibit "A" attached hereto and incorporated herein.
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14. PARTICIPATION IN OTHER PLANS:
Nothing herein contained shall affect an employee's right to
participate in and receive benefits under and in accordance with the then
current provisions of any pension, insurance, or other employee welfare plan or
program of the Corporation.
15. APPLICABLE LAW:
The interpretation, performance, and enforcement of this Plan
shall be governed by the laws of the State of California.
16. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL:
The Plan shall become effective upon adoption by the Board and
approval by the shareholders of the Corporation.
17. LEGEND CONDITIONS:
The share of Common Stock to be issued pursuant to the
provisions of this Plan shall have endorsed upon their face the following:
1. Any legend condition imposed as a condition of
qualification by the California Commissioner of Corporations;
2. Unless the shares to be issued under this
Plan have been registered under the Securities Act of 1933, the
following additional legend shall be placed on the certificates:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be pledged or hypothecated, and
may not be sold or transferred in the absence of an effective
Registration Statement for the shares under the Securities Act of 1933
or an opinion of counsel to the Company that registration is not
required under said Act."
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EXHIBIT 10.10
THE GOOD GUYS, INC.
1994 STOCK INCENTIVE PLAN
(As amended through August 20, 1996)
1. PURPOSE.
The purposes of the 1994 Stock Incentive Plan (the "Plan") are
to enable The Good Guys, Inc. (the "Corporation") and its Subsidiaries, if any,
to attract and retain directors and key employees and to provide them with
additional incentive to advance the interests of the Corporation. For the
purposes of the Plan, the term "Subsidiary" means any corporation or other
entity in which the Corporation has, directly or indirectly, an equity interest
representing 50% or more of the capital stock thereof or equity interests
therein.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Corporation (the
"Board") and consisting of not less than two members of the Board, each of whom
at the time of appointment to the Committee and at all times during service as
a member of the Committee shall be a "disinterested person" as then defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or any successor rule.
(b) The Committee shall interpret the Plan and prescribe
such rules, regulations and procedures in connection with the Plan as it shall
deem to be necessary and advisable for the administration of the Plan.
3. ELIGIBILITY.
(a) Officers and other key employees of the Corporation
or any Subsidiary shall be eligible to be granted stock options and to receive
restricted share, restricted share unit, performance unit or bonus share awards
as described herein.
(b) Non-employee directors shall be eligible to receive
under the Plan only non-qualified options (i.e., options that do not qualify
under Section 422 or 423 of the Internal Revenue Code of 1986 (the "Code")) in
accordance with the provisions of Section 5(b) hereof.
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4. SHARES AVAILABLE.
The aggregate number of shares of the Corporation's Common
Stock, $.001 par value ("Common Stock"), which may be issued and as to which
grants or awards of stock options, restricted shares, restricted share units,
performance units or bonus shares may be made under the Plan is 1,000,000
shares (of which no more than 350,000 shares shall be available for the grant
of restricted shares or restricted share units), subject to adjustment and
substitution as set forth in Section 8. If any stock option granted under the
Plan is cancelled by mutual consent or terminates or expires for any reason
without having been exercised in full, the number of shares subject thereto
shall again be available for purposes of the Plan. If shares of Common Stock
or the right to receive shares of Common Stock are forfeited to the Corporation
pursuant to the restrictions applicable to restricted shares or restricted
share units awarded under the Plan, the shares so forfeited or covered by such
right shall not again be available for the purposes of the Plan. To the extent
any award of performance units is not earned or is paid in cash rather than
shares, the number of shares covered thereby shall again be available for
purposes of the Plan. The shares which may be issued under the Plan may be
either authorized but unissued shares or treasury shares or partly each, as
shall be determined from time to time by the Board.
5. GRANTS AND AWARDS.
(a) With respect to officers and other key employees, the
Committee shall have authority, in its discretion, to grant incentive stock
options pursuant to Section 422 of the Code and non-qualified stock options,
and to award restricted shares, restricted share units, performance units and
bonus shares.
Notwithstanding any other provision contained in the Plan or
in any stock option agreement, the aggregate fair market value, determined on
the date of grant, of the shares with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar year
under all plans of the corporation employing such employee, any parent or
subsidiary corporation of such corporation and any predecessor corporation of
any such corporation shall not exceed $100,000; provided, however, that all or
any portion of a stock option which cannot be exercised because of such
limitation shall be treated as a non-qualified option.
The maximum number of shares covered by all grants or awards
in any fiscal year of the Corporation to any participant shall not exceed
100,000 (subject to adjustment and substitution as set forth in Section 8).
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(b) On the date on which the Board appoints, or the
shareholders of the Corporation elect, a person who is not an employee of the
Corporation as a member of the Board for the first time, such director shall be
awarded a non-qualified option under this Plan to purchase 5,000 shares of
Common Stock. Immediately after the completion of each annual meeting of the
shareholders of the Corporation, each such director shall be awarded a
non-qualified option to purchase 1,000 shares of Common Stock (unless such
director receives a like grant under the Corporation's 1985 Stock Option Plan).
Such options shall have an exercise price per share equal to the fair market
value of the shares of the Corporation on the date of such award. Except as
otherwise specifically provided in this Section 5(b), the terms of this Plan,
including the vesting provisions of Section 6(d), shall apply to all options
granted pursuant to this Section 5(b). This Section 5(b) shall not be amended
more than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules thereunder.
(c) If a grantee of a stock option, restricted share or
performance unit engages in the operation or management of a business (whether
as owner, partner, officer, director, employee or otherwise and whether during
or after termination of employment) which is in competition with the
Corporation or any of its Subsidiaries, the Committee may immediately terminate
all outstanding stock options held by the grantee, declare forfeited all
restricted shares or restricted share units held by the grantee as to which the
restrictions have not yet lapsed and terminate all outstanding performance unit
awards held by the grantee for which the applicable Performance Period has not
been completed; provided, however, that this sentence shall not apply if the
exercise period of a stock option following termination of employment has been
extended as provided in Section 9(c), if the lapse of the restrictions
applicable to restricted shares or restricted share units has been accelerated
as provided in Section 9(d), or if a performance unit has been deemed to have
been earned as provided in Section 9(e). Whether a grantee has engaged in the
operation or management of a business which is in competition with the
Corporation or any of its Subsidiaries shall be determined by the Committee in
its discretion, and any such determination shall be final and binding.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
Stock options granted under the Plan shall be subject to the
following terms and conditions:
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(a) The purchase price at which each stock option may be
exercised (the "option price") shall not be less than one hundred
percent (100%) of the fair market value per share of the Common Stock
covered by the stock option on the date of grant; provided, however,
that in the case of an incentive stock option granted to an employee,
who, immediately prior to such grant, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation or a Subsidiary (a "Ten Percent Employee"),
the option price shall not be less than one hundred ten percent (110%)
of such fair market value on the date of grant. For purposes of this
Section 6(a), an individual (i) shall be considered as owning not only
shares of stock owned individually but also all shares of stock that
are at the time owned, directly or indirectly, by or for the spouse,
ancestors, lineal descendants and brothers and sisters (whether by the
whole or half blood) of such individual and (ii) shall be considered
as owning proportionately any shares owned, directly or indirectly, by
or for any corporation, partnership, estate or trust in which such
individual is a shareholder, partner or beneficiary.
(b) The option price for each stock option shall be paid
in full upon exercise and shall be payable in cash in United States
dollars (including check, bank draft or money order), which may
include cash forwarded through a broker or other agent-sponsored
exercise or financing program; provided, however, that in lieu of such
cash the person exercising the stock option may pay the option price
in whole or in part by delivering to the Corporation shares of Common
Stock having a fair market value on the date of exercise of the stock
option equal to the option price for the shares being purchased;
except that (i) any portion of the option price representing a
fraction of a share shall in any event be paid in cash and (ii) no
shares of Common Stock which have been held for less than six months
may be delivered in payment of the option price of a stock option.
Notwithstanding any procedure of a broker or other agent-sponsored
exercise or financing program, if the option price is paid in cash,
the exercise of the stock option shall not be deemed to occur and no
shares of the Common Stock will be issued until the Corporation has
received full payment in cash (including check, bank draft or money
order) for
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the option price from the broker or other agent. The date of exercise
of a stock option shall be determined under procedures established by
the Committee, and as of the date of exercise the person exercising
the stock option shall be considered for all purposes to be the owner
of the shares with respect to which the stock option has been
exercised. Payment of the option price with shares shall not increase
the number of shares of Common Stock available for issuance under the
Plan.
(c) No stock option shall be exercisable during the first
six months of its term, except that this limitation on exercise shall
not apply if Section 9(b) becomes applicable. No stock option shall
be exercisable after the expiration of ten years (five years in the
case of an incentive stock option granted to a Ten Percent Employee)
from the date of grant. To the extent it is exercisable, a stock
option may be exercised at any time in whole or in part.
(d) The Committee shall have the power to set the time or
times within which each option shall be exercisable, and to accelerate
the time or times of exercise. Unless the stock option agreement
otherwise provides, the option shall become exercisable on a
cumulative basis as to one-quarter of the total number of shares
covered thereby on each of the first, second, third and fourth
anniversary dates of the date of grant of the option.
(e) No stock option shall be transferrable by the grantee
otherwise than by will, or if the grantee dies intestate, by the laws
of descent and distribution of the state of domicile of the grantee at
the time of death, provided that a non-qualified stock option may be
transferred by a grantee to a trust or other entity established by the
grantee for estate planning purposes. Except for exercises of
non-qualified stock options by trusts or entities established by the
grantee for estate tax purposes, all stock options shall be
exercisable during the lifetime of the grantee only by the grantee.
(f) Unless the Committee, in its discretion, shall
otherwise determine:
(i) If the employment or directorship of a grantee
who is not
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disabled within the meaning of Section 422(c)(6) of the Code
(a "Disabled Grantee") is voluntarily terminated with the
consent of the Corporation or a Subsidiary or a grantee
retires under any retirement plan of the Corporation or a
Subsidiary, any then outstanding incentive stock option held
by such grantee shall be exercisable by the grantee (but only
to the extent exercisable by the grantee immediately prior to
such termination) at any time prior to the expiration date of
such incentive stock option or within three months after the
date of such termination, whichever is the shorter period;
(ii) If the employment or directorship of a
grantee who is not a Disabled Grantee is voluntarily
terminated with the consent of the Corporation or a Subsidiary
or a grantee retires under any retirement plan of the
Corporation or a Subsidiary, any then outstanding
non-qualified stock option held by such grantee shall be
exercisable by the grantee (but only to the extent exercisable
by the grantee immediately prior to such termination) at any
time prior to the expiration date of such nonstatutory stock
option or within one year after the date of termination of
employment, whichever is the shorter period;
(iii) If the employment or directorship of a grantee
who is a Disabled Grantee is voluntarily terminated with the
consent of the Corporation or a Subsidiary, any then
outstanding stock option held by such grantee shall be
exercisable by the grantee in full (whether or not so
exercisable by the grantee immediately prior to such
termination) by the grantee at any time prior to the
expiration date of such stock option or within one year after
the date of such termination, whichever is the shorter period;
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(iv) Following the death of a grantee during
employment or while serving as a director, any outstanding
stock option held by the grantee at the time of death shall be
exercisable in full (whether or not so exercisable by the
grantee immediately prior to the death of the grantee) by the
person entitled to do so under the will of the grantee, or, if
the grantee shall fail to make testamentary disposition of the
stock option or shall die intestate, by the legal
representative of the grantee at any time prior to the
expiration date of such stock option or within one year after
the date of death, whichever is the shorter period;
(v) Following the death of a grantee after
termination of employment or his or her directorship during a
period within which a stock option is exercisable, any
outstanding stock option held by the grantee at the time of
death shall be exercisable by such person entitled to do so
under the will of the grantee or by such legal representative
(but only to the extent the stock option was exercisable by
the grantee immediately prior to the death of the grantee) at
any time prior to the expiration date of such stock option or
within one year after the date of death, whichever is the
shorter period; and
(vi) Unless the exercise period of a stock option
following termination of employment or directorship has been
extended as provided in Section 9(c), if the employment or
directorship of a grantee terminates for any reason other than
voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the
Corporation or a Subsidiary or death, all outstanding stock
options held by the grantee at the time of such termination
shall automatically terminate.
Whether termination of employment or directorship is a
voluntary termination with the consent of the
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Corporation or a Subsidiary and whether a grantee is a Disabled Grantee shall
be determined in each case by the Committee in its discretion and any such
determination by the Committee shall be final and binding.
(g) All stock options shall be confirmed by an agreement,
which shall be executed on behalf of the Corporation by the Chief
Executive Officer (if other than the President), the President or any
Vice President of the Corporation and by the grantee.
(h) The term "fair market value" for all purposes of the
Plan shall mean the market price of the Common Stock, determined by
the Committee as follows:
(i) If the Common Stock is traded on a stock
exchange, then the Fair Market Value shall be equal to the
closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Common Stock is traded in the Nasdaq
Stock Market and is classified as a national market issue,
then the Fair Market Value shall be equal to the
last-transaction price quoted by the Nasdaq National Market
system for such date;
(iii) If the Common Stock is traded in the Nasdaq
Stock Market, but is not classified as a national market
issue, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices
quoted by the Nasdaq system for such date; and
(iv) If none of the foregoing provisions is
applicable, then the Fair Market Value shall be determined by
the Committee in good faith on such basis as it deems
appropriate.
(i) The obligation of the Corporation to issue shares of
Common Stock under the Plan shall be subject to (i) the effectiveness
of a registration statement under the Securities Act of 1933, as
amended, with respect to such shares, if deemed necessary or
appropriate by counsel for the
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Corporation, (ii) the condition that the shares shall have been listed
(or authorized for listing upon official notice of issuance) upon each
stock exchange, if any, on which the Common Stock may then be listed
and (iii) all other applicable laws, regulations, rules and orders
which may then be in effect.
Subject to the foregoing provisions of this Section and the
other provisions of the Plan, any stock option granted under the Plan may be
exercised at such times and in such amounts and be subject to such restrictions
and other terms and conditions, if any, as shall be determined, in its
discretion, by the Committee and set forth in the agreement referred to in
Section 6(i), or an amendment thereto.
7. TERMS AND CONDITIONS OF RESTRICTED SHARE, RESTRICTED SHARE
UNIT, PERFORMANCE UNIT AND BONUS SHARE AWARDS.
(a) Restricted Shares and Units. Restricted share or
restricted share unit awards shall be evidenced by a written agreement in the
form prescribed by the Committee in its discretion, which shall set forth the
number of restricted shares of Common Stock or restricted share units entitling
the holder to receive shares of Common Stock awarded, the restrictions imposed
thereon (including, without limitation, restrictions on the right of the
grantee to sell, assign, transfer or encumber such shares or units while such
shares or units are subject to other restrictions imposed under this Section
7), the duration of such restrictions, events (which may, in the discretion of
the Committee, include performance-based events) the occurrence of which would
cause a forfeiture of restricted shares or restricted share units and such
other terms and conditions as the Committee in its discretion deems
appropriate. Restricted share or restricted share unit awards shall be
effective only upon execution of the applicable restricted share or restricted
share unit agreement on behalf of the Corporation by the Chief Executive
Officer (if other than the President), the President or any Vice President, and
by the grantee.
Restricted shares or restricted share units may be issued for
no consideration other than for services to be rendered or for such
consideration as shall be determined at the time of award by the Committee.
Except as otherwise specified by the Committee at the time of
award of restricted shares or restricted share units, restricted shares or
restricted share units issued shall vest (i.e., become non-forfeitable,) as
follows: 25% on the date of the first anniversary of the date of issuance
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of the restricted shares or restricted share units and an additional 25% on
each anniversary date thereafter. If prior to full vesting of the restricted
shares or restricted share units the employment of the holder thereof is
voluntarily terminated with the consent of the Corporation or Subsidiary or the
holder retires under any retirement plan of the Corporation or a Subsidiary or
dies during employment, the Committee may in its absolute discretion determine
to vest all or any part of the restricted shares or restricted share units
except as otherwise provided in Section 9(e). If the employment of the holder
of restricted shares or restricted share units terminates for any reason other
than voluntary termination with the consent of the Corporation or a Subsidiary,
retirement under any retirement plan of the corporation or a Subsidiary or
death, all unvested restricted shares or restricted share units shall be
forfeited. Whether the termination of employment is a voluntary termination
with the consent of the Corporation or a Subsidiary shall be determined by the
Committee in its discretion, and a determination by the Committee on any matter
with respect to restricted shares or restricted share units shall be final and
binding on both the Corporation and the holder of restricted shares or
restricted share units.
Following a restricted share award and prior to the lapse or
termination of the applicable restrictions, the Committee shall deposit share
certificates for such restricted shares in escrow (which may be an escrow in
the custody of an officer of the Corporation). Upon the lapse or termination
of the applicable restrictions (and not before such time), the grantee shall be
issued or transferred share certificates for such restricted shares. From the
date a restricted share award is effective, the grantee shall be a shareholder
with respect to all the shares represented by such certificates and shall have
all the rights of a shareholder with respect to all such shares, including the
right to vote such shares and to receive all dividends and other distributions
paid with respect to such shares, subject only to the restrictions imposed by
the Committee. The grantee of restricted share units shall not have any rights
as a shareholder until the delivery to the grantee of shares on lapse of the
restrictions imposed.
(b) Performance Units. The Committee may award
performance units which shall be earned by an awardee based on the level of
performance over a specified period of time by the Corporation, a Subsidiary or
Subsidiaries, any branch, department or other portion thereof or the awardee
individually, as determined by the Committee. For the purposes of the grant of
performance units, the following definitions shall apply:
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(i) "Performance unit" shall mean an award,
expressed in dollars or shares of Common Stock, granted to an awardee
with respect to a Performance Period. Awards expressed in dollars may
be established as fixed dollar amounts, as a percentage of salary, as
a percentage of a pool based on earnings of the Corporation, a
Subsidiary or Subsidiaries or any branch, department or other portion
thereof or in any other manner determined by the Committee in its
discretion, provided that the amount thereof shall be capable of being
determined as a fixed dollar amount as of the close of the Performance
Period.
(ii) "Performance Period" shall mean an accounting
period of the Corporation or a Subsidiary of not less than one year,
as determined by the Committee in its discretion.
(iii) "Performance Target" shall mean that level of
performance established by the Committee which must be met in order
for the performance unit to be fully earned. The Performance Target
may be expressed in terms of earnings per share, return on assets,
asset growth, ratio of capital to assets or such other level or levels
of accomplishment by the Corporation, a Subsidiary or Subsidiaries,
any branch, department or other portion thereof or the awardee
individually as may be established or revised from time to time by the
Committee.
(iv) "Minimum Target" shall mean a minimal level
of performance established by the Committee which must be met before
any part of the performance unit is earned. The Minimum Target may be
the same as or less than the Performance Target in the discretion of
the Committee.
An awardee shall earn the performance unit in full by meeting
the Performance Target for the Performance Period. If the Minimum Target has
not been attained at the end of the Performance Period, no part of the
performance unit shall have been earned by the awardee. If the Minimum Target
is attained but the Performance Target is not attained, the portion of the
performance unit earned by the awardee shall be determined on the basis of a
formula established by the Committee.
Payment of earned performance units shall be made to awardees
following the close of the Performance Period as soon as practicable after the
time the amount payable is determined by the Committee. Payment in respect of
earned performance units, whether expressed in dollars or shares,
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may be made in cash, in shares of Common Stock, or partly in cash and partly in
shares of Common Stock, as determined by the Committee at the time of payment.
For this purpose, performance units expressed in dollars shall be converted to
shares, and performance units expressed in shares shall be converted to
dollars, based on the fair market value of the Common Stock, as of the date the
amount payable is determined by the Committee.
If prior to the close of the Performance Period the awardee of
performance units is voluntarily terminated with the consent of the Corporation
or a Subsidiary or the awardee retires under any retirement plan of the
Corporation or a Subsidiary or the awardee dies during employment, the
Committee may in its absolute discretion determine to pay all or any part of
the performance unit based upon the extent to which the Committee determines
the Performance Target or Minimum Target has been achieved as of the date of
termination of employment, retirement or death, the period of time remaining
until the close of the Performance Period and/or such other factors as the
Committee may deem relevant. If the Committee in its discretion determines
that all or any part of the performance unit shall be paid, payment shall be
made to the awardee or his or her estate as promptly as practicable following
such determination and may be made in cash, in shares or Common Stock, or
partly in cash and partly in shares of Common Stock, as determined by the
Committee at the time of payment. For this purpose, performance units
expressed in dollars shall be converted to shares, and performance units
expressed in shares shall be converted to Dollars, based on the fair market
value of the Common Stock as of the date the amount payable is determined by
the Committee.
Except as otherwise provided in Section9(e), if the employment
of an awardee of performance units terminates prior to the close of a
Performance Period for any reason other than voluntary termination with the
consent of the Corporation or a Subsidiary or retirement under any retirement
plan of the Corporation or a Subsidiary or death, the performance units of the
awardee shall be deemed not to have been earned, and no portion of such
performance units may be paid. Whether termination of employment is a
voluntary termination with the consent of the Corporation or a Subsidiary shall
be determined, in its discretion, by the Committee. Any determination by the
Committee on any matter with respect to performance units shall be final and
binding on both the Corporation and the awardee.
Performance unit awards shall be evidenced by a written
agreement in the form prescribed by the Committee which shall set forth the
amount or manner of determining the
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amount of the performance unit, the Performance Period, the Performance Target
and any Minimum Target and such other terms and conditions as the Committee in
its discretion deems appropriate. Performance unit awards shall be effective
only upon execution of the applicable performance unit agreement on behalf of
the Corporation by the Chief Executive Officer (if other than the President),
the President or any Vice President, and by the awardee.
(c) Bonus Shares. The Committee shall have the authority
in its discretion to award bonus shares of Common Stock to eligible employees
from time to time in recognition of the contribution of the awardee to the
performance of the Corporation, a Subsidiary or Subsidiaries, or any branch,
department or other portion thereof, in recognition of the awardee's individual
performance or on the basis of such other factors as the Committee may deem
relevant.
8. ADJUSTMENT AND SUBSTITUTION OF SHARES.
If a dividend or other distribution shall be declared upon the
Common Stock payable in shares of the Common Stock, the number of shares of the
Common Stock then subject to any outstanding stock options, restricted share
units or performance unit awards and the number of shares of the Common Stock
which may be issued under the Plan but are not then subject to outstanding
stock options or awards shall be adjusted by adding thereto the number of
shares of the Common Stock which would have been distributable thereon if such
shares had been outstanding on the date fixed for determining the shareholders
entitled to receive such stock dividend or distribution. Shares of Common
Stock so distributed with respect to any restricted shares held in escrow shall
be held by the Corporation in escrow and shall be subject to the same
restrictions as are applicable to the restricted shares on which they were
distributed.
If the outstanding shares of the Common Stock shall be changed
into or exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option,
restricted share unit or performance unit award, and for each share of the
Common Stock which may be issued under the Plan but which is not then subject
to any outstanding stock option or award, the number and kind of shares of
stock or other securities into which each outstanding share of the Common Stock
shall be so changed or for which each such share shall be exchangeable. Unless
otherwise determined by the
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Committee in its discretion, any such stock or securities, as well as any cash
or other property, into or for which any restricted shares held in escrow shall
be changed or exchangeable in any such transaction shall also be held by the
Corporation in escrow and shall be subject to the same restrictions as are
applicable to the restricted shares in respect of which such stock, securities,
cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in
this Section 8, the aggregate option price for all shares subject to each then
outstanding stock option prior to such adjustment or substitution shall be the
aggregate option price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new option price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 8
shall require the Corporation to issue or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution. Owners of restricted
shares held in escrow shall be treated in the same manner as owners of Common
Stock not held in escrow with respect to fractional shares created by an
adjustment or substitution of shares, except that, unless otherwise determined
by the Committee in its discretion, any cash or other property paid in lieu of
a fractional share shall be subject to restrictions similar to those applicable
to the restricted shares exchanged therefor.
If any such adjustment or substitution provided for in this
Section 8 requires the approval of shareholders in order to enable the
Corporation to grant incentive stock options, then no such adjustment or
substitution shall be made without the required shareholder approval.
Notwithstanding the foregoing, in the case of incentive stock options, if the
effect of any such adjustment or substitution would be to cause the stock
option to fail to continue to qualify as an incentive stock option or to cause
a modification, extension or renewal of such stock option within the meaning of
Section 424 of the Code, the Committee may elect that such adjustment or
substitution not be made but rather shall use reasonable efforts to effect
such other adjustment of each then outstanding stock option as the Committee,
in its discretion, shall deem equitable and which will not result in any
disqualification, modification,
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<PAGE> 15
extension or renewal (within the meaning of Section 424 of the Code) of such
incentive stock option.
9. ADDITIONAL RIGHTS IN CERTAIN EVENTS.
(a) Definitions. For purposes of this Section 9, the
following terms shall have the following meanings:
(i) The term "Person" shall be used as that term
is used in Sections 13(d) and 14(d) of the 1934 Act.
(ii) Beneficial ownership shall be determined as
provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of
the Plan.
(iii) "Voting Shares" shall mean all securities of
a company entitling the holders thereof to vote in an annual election of
Directors (without consideration of the rights of any class of stock other than
the Common Stock to elect Directors by a separate class vote); and a specified
percentage of "Voting Power" of a company shall mean such number of the Voting
Shares as shall enable the holders thereof to cast such percentage of all the
votes which could be cast in an annual election of directors (without
consideration of the rights of any class of stock other than the Common Stock to
elect Directors by a separate class vote).
(iv) "Tender Offer" shall mean a tender offer or
exchange offer to acquire securities of the Corporation (other than such an
offer made by the Corporation or any Subsidiary), whether or not such offer is
approved or opposed by the Board.
(v) "Section 9 Event" shall mean the date upon
which any of the following events occurs:
(A) The Corporation acquires actual knowledge that
any Person has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Corporation entitling such Person to
20% or more of the Voting Power of the Corporation, other than the
Corporation, a Subsidiary or any employee benefit plan(s) sponsored by
the Corporation, or a Person approved by the Board that has acquired
20% or more but less than 50% of the Voting Power of the Corporation;
(B) A Tender Offer is made to acquire securities
of the Corporation entitling the holders thereof to 20% or more of the
Voting Power of the Corporation; or
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<PAGE> 16
(C) A solicitation subject to Rule 14a-11 under
the 1934 Act (or any successor Rule) relating to the election or
removal of 50% or more of the members of any class of the Board shall
be made by any person other than the Corporation; or
(D) The shareholders of the Corporation shall
approve a merger, consolidation, share exchange, division or sale or
other disposition of assets of the Corporation as a result of which
the shareholders of the Corporation immediately prior to such
transaction shall not hold, directly or indirectly, immediately
following such transaction a majority of the Voting Power of (i) in
the case of a merger or consolidation, the surviving or resulting
corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring
corporation which, immediately following the transaction, holds more
than 20% of the consolidated assets of the Corporation immediately
prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
Section 9(a)(v)(A), (ii) a grantee is required to be named pursuant to Item 2
of the Schedule 14D-1 (or any similar successor filing requirement) required to
be filed by the bidder making a Tender Offer referred to in Section 9(a)(v)(B),
or (iii) if a grantee is a "participant" as defined in 14a-11 under the 1934
Act (or any successor Rule) in a solicitation (other than a solicitation by the
Corporation) referred to in Section 9(a)(v)(C), then no Section 9 Event with
respect to such grantee shall be deemed to have occurred by reason of such
event.
(b) Acceleration of the Exercise Date of Stock Options.
Unless the agreement referred to in Section 6(g), or an amendment thereto,
shall otherwise provide, notwithstanding any other provision contained in the
Plan, in case any "Section 9 Event" occurs all outstanding stock options (other
than those held by a person referred to in the proviso to Section 9(a)(v))
shall become immediately and fully exercisable whether or not otherwise
exercisable by their terms.
(c) Extension of the Expiration Date of Stock Options.
Unless the agreement referred to in Section 6(g), or an amendment thereto,
shall otherwise provide, notwithstanding any other provision contained in the
Plan, all stock options held by a grantee (other than a grantee
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<PAGE> 17
referred to in the proviso to Section 9(a)(v)) whose employment with the
Corporation or a Subsidiary terminates within one year of any Section 9 Event
for any reason other than voluntary termination with the consent of the
Corporation or a Subsidiary, retirement under any retirement plan of the
Corporation or a Subsidiary or death shall be exercisable for a period of three
months from the date of such termination of employment, but in no event after
the expiration date of the stock option.
(d) Lapse of Restrictions on Restricted Share or
Restricted Share Unit Awards. If any "Section 9 Event" occurs prior to the
scheduled lapse of all restrictions applicable to restricted share or
restricted share unit awards under the Plan (other than those held by a person
referred to in the proviso to Section 9(a)(v)), all such restrictions shall
lapse upon the occurrence of any such "Section 9 Event" regardless of the
scheduled lapse of such restrictions.
(e) Payment of Performance Units. If any "Section 9
Event" occurs prior to the end of any Performance Period, all performance units
awarded with respect to such Performance Period (other than those held by a
person referred to in the proviso to Section 9(a)(v)) shall be deemed to have
been fully earned as of the date of such Section 9 Event, regardless of the
attainment or nonattainment of the Performance Target or any Minimum Target,
and shall be paid to the awardees thereof as promptly as practicable
thereafter. If the performance unit is not expressed as a fixed amount in
dollars or shares, the Committee may provide in the performance unit agreement
for the amount to be paid in the case of a Section 9 Event.
10. EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER.
Neither the adoption of the Plan nor any action of the Board
or the Committee pursuant to the Plan shall be deemed to give any employee any
right to be granted a stock option or to be awarded restricted shares,
restricted share units, performance units or bonus shares under the Plan.
Nothing in the Plan, in any stock option, in any restricted share, restricted
share unit, performance unit or bonus share award under the Plan or in any
agreement providing for any of the foregoing shall confer any right to any
employee to continue in the employ of the Corporation or any Subsidiary or
interfere in any way with the rights of the Corporation or any Subsidiary to
terminate the employment of any employee at any time.
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<PAGE> 18
11. AMENDMENT.
The right to alter and amend the Plan at any time and from
time to time and the right to revoke or terminate the Plan are hereby
specifically reserved to the Board; provided that no such alteration or
amendment of the Plan shall, without shareholder approval (a) increase by more
than 10% the total number of shares which may be issued under the Plan to
persons subject to Section 16 under the 1934 Act ("Section 16 Persons"), (b)
materially increase the benefits accruing under the Plan to Section 16 Persons,
(c) materially modify the requirements as to eligibility for participation in
the Plan by Section 16 Persons, (d) make any changes in the class of employees
eligible to receive incentive stock options under the Plan, or (e) increase the
number of shares with respect to which incentive stock options may be granted
under the Plan; approval of the Plan by the shareholders of the Corporation
pursuant to Section 12 shall also be deemed to constitute approval of any
amendments to Section 6(e) that are designed to take advantage of changes in
income tax or securities laws or regulations adopted for the purpose of
reducing or eliminating restrictions on transferability of options. No
alteration, amendment, revocation or termination of the Plan shall, without the
written consent of the holder of a stock option, restricted shares, restricted
share units, performance units or bonus shares theretofore awarded under the
Plan, adversely affect the rights of such holder with respect thereto.
12. EFFECTIVE DATE AND DURATION OF PLAN.
The effective date and date of adoption of the Plan shall be
November 14, 1994, the date of adoption of the Plan by the Board. No stock
option may be granted, and no restricted shares, restricted share units, bonus
shares or performance units payable in performance shares may be awarded under
the Plan subsequent to November 13, 2004.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they
may have as directors, the members of the Committee administering the Plan
shall be indemnified by the Corporation against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
-18-
<PAGE> 19
by the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding that such member is liable for negligence or
misconduct in the performance of such member's duties; provided that within 60
days after institution of any such action, suit or proceeding, the member shall
in writing offer the Corporation the opportunity, at its own expense, to handle
and defend the same.
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<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment is entered into as of February 29, 1996, among
Bank of America National Trust and Savings Association ("BofA"); The Bank of
California N.A. ("BankCal"); The Good Guys - California, Inc. a California
corporation ("Borrower"). BofA and BankCal are sometimes referred to as
"Banks" and each is a "Bank."
RECITALS
A. The Banks and the Borrower entered into a certain Credit
Agreement dated as of September 26, 1995 (the "Credit Agreement").
B. The Banks and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in
this Agreement shall have the meaning given to them in the Credit Agreement.
2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 The definition of Tangible Net Worth in
paragraph 1.1 is hereby amended to read as follows:
"Tangible Net Worth" means the gross book
value of the assets of Guarantor on a consolidated basis
(exclusive of goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt
discount and expense, deferred charges and other like
intangibles) less (a) reserves applicable thereto, and (b) all
liabilities (including accrued and deferred income taxes).
2.2 Paragraph 6.4 is hereby amended to read as
follows:
6.4 Adjusted Tangible Net Worth. Maintain
on a consolidated basis Adjusted Tangible Net Worth of at
least the amount indicated as of the end of each quarter set
forth below. "Adjusted Tangible Net Worth" means Tangible Net
Worth (a) minus the proceeds of any public or private offering
of stock of the Guarantor on or after January 1, 1996, other
than stock sold under the Employee Stock Purchase Plan; (b)
minus the fair market value, on the date of sale, of the
Guarantor's stock sold to employees of the Guarantor or the
Borrower under the Employee Stock Purchase Plan on or after
January 1, 1996; provided, however, that the amount subtracted
from Tangible Net Worth under this subparagraph (b) shall not
exceed Two Million Five Hundred Thousand Dollars ($2,500,000)
per fiscal year; (c) plus the fair market value, on the date
of purchase, of any of the Guarantor's stock repurchased by
the Guarantor on or after January 1, 1996; provided, however,
that the amount added to Tangible Net Worth under this
subparagraph (c) shall not exceed Six Million Five Hundred
Thousand Dollars ($6,500,000).
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ------
<S> <C>
March 31, 1996 $140,500,000
June 30, 1996 $141,500,000
September 30, 1996 $143,000,000
</TABLE>
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<PAGE> 2
<TABLE>
<S> <C>
December 31, 1996 $150,000,000
March 31, 1997 $151,000,000
June 30, 1997 $152,000,000
September 30, 1997 $154,000,000
</TABLE>
2.3 Paragraph 6.8 is amended to read as follows:
6.8 Out-Of-Debt Requirement. For each one
hundred and twenty (120) day period ending on April 15 of each
year, Borrower and Guarantor must fulfill either the
requirements of (a) or of (b) below:
(a) Repay all outstanding advances,
and not draw any new advances, for a period of at
least thirty (30) consecutive calendar days during
such one hundred and twenty (120) day period. This
requirement must be fulfilled for the BofA Facility,
the BankCal Facility and any indebtedness permitted
under paragraphs 6.9(g) and (h) at the same time; or
(b) Reduce the amount of all advances
(including the BofA Facility, the BankCal Facility
and any indebtedness permitted under paragraphs
6.9(g) and (h)) to not more than Fifteen Million
Dollars ($15,000,000) for a period of at least sixty
(60) consecutive calendar days during such one
hundred and twenty (120) day period.
2.4 Subparagraph 6.9(h) is amended to read as
follows:
(h) additional indebtedness under
uncommitted facilities from either Bank; provided,
however, that the total outstanding indebtedness from
both Banks (whether under this Agreement or
otherwise) plus the total outstanding indebtedness
from other lenders under subparagraph (g) above must
not exceed the following at any one time: from
February 1 through October 31 of any year, Fifty
Million Dollars ($50,000,000); and at other times,
Seventy Five Million Dollars ($75,000,000).
2.5 Paragraph 6.12 is hereby amended to read as follows:
6.12 Dividends. Borrower and Guarantor shall
not (and shall not permit any of their subsidiaries to)
declare or pay any dividends on any of their respective shares
except dividends payable in capital stock, and not purchase,
redeem or otherwise acquire for value any of their respective
shares, or create any sinking fund in relation thereto;
provided, however, that Borrower and Guarantor may purchase
stock from their employees for a consideration not exceeding,
in the aggregate, One Million Five Hundred Thousand Dollars
($1,500,000) in any one fiscal year; such dollar limit to be
non-cumulative from year to year; and provided further that
Guarantor may, on or after January 1, 1996, purchase an
additional amount of its stock with a fair market value, on
the date of purchase, not to exceed Six Million Five Hundred
Thousand Dollars ($6,500,000) in the aggregate.
2.6 Paragraph 6.14 is amended to read as follows:
6.14 Capital Ownership. Borrower and
Guarantor each
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<PAGE> 3
shall not cause, permit, or suffer any one shareholder to
control, directly, indirectly or through affiliates, more than
fifty percent (50%) of Guarantor's capital ownership; and
Borrower's capital stock must continue to be entirely owned by
Guarantor;
2.7 Subparagraph 6.29 is hereby deleted.
3. Representations and Warranties. When the Borrower signs
this Amendment, the Borrower represents and warrants to the Banks that:
(a) There is no event which is, or with notice or
lapse of time or both would be, an Event of Default under the
Agreement;
(b) The representations and warranties in the
Agreement are true and correct as of the date of this Amendment as if
made on the date of this Amendment;
(c) This Amendment is within the Borrower's powers,
has been duly authorized, and does not conflict with any of the
Borrower's organizational papers; and
(d) This Amendment does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
4. Effect of Amendment. Except as provided in this
Amendment, all of the terms and conditions of the Agreement shall remain in
full force and effect.
5. Counterparts. This Amendment may be executed in
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument.
This Amendment is executed as of the date first stated above.
<TABLE>
<S> <C>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS THE GOOD GUYS - CALIFORNIA, INC.
ASSOCIATION
By \s\ Hagop Bouldoukian By \s\ Robert A. Gunst
Title Vice President Title President and CEO
By _______________________ By __________________________
Title ____________________ Title _______________________
THE BANK OF CALIFORNIA N.A.
By \s\ Wanda Headrick
Title Vice President
By ________________________
Title _____________________
</TABLE>
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<PAGE> 4
Guarantor's Acknowledgment and Agreement
The Guarantor acknowledges the covenants applicable to it as set forth in the
foregoing Amendment and agrees to comply with them until full and final payment
of all of the Borrower's obligations under the Credit Agreement and any
instrument or agreement required under the Credit Agreement.
Date: February 29, 1996
THE GOOD GUYS, INC.
By __________________________
Title __________________________
By __________________________
Title _______________________
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<PAGE> 1
Exhibit 10.17
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 27, 1996
AMONG
THE GOOD GUYS - CALIFORNIA, INC.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
AND
THE UNION BANK OF CALIFORNIA N.A.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Definitions and Financial Requirements................................ 1
1.1 Definitions............................................... 1
1.2 Financial Requirements.................................... 4
2. The Credit Facilities................................................. 4
2.1 The BofA Facility......................................... 4
2.2 The UBOC Facility......................................... 5
2.3 Pro Rata Borrowings....................................... 5
2.4 Advances Under this Agreement............................. 5
2.5 Optional Interest Rates................................... 5
2.6 Standby Letters of Credit................................. 7
2.7 Fee....................................................... 8
2.8 Commitment Fee............................................ 8
2.9 Default Rate.............................................. 8
2.10 Termination of This Agreement............................. 8
3. Extensions of Credit, Payments and Interest Calculations.............. 9
3.1 Requests for Credit....................................... 9
3.2 Oral Requests............................................. 9
3.3 Disbursements and Payments................................ 9
3.4 Branch Accounts........................................... 9
3.5 Evidence of Indebtedness.................................. 9
3.6 Debits to Borrower's Accounts............................. 10
3.7 Interest Calculation...................................... 10
3.8 Late Payments; Compounding................................ 10
3.9 Banking Day............................................... 10
3.10 Taxes and Other Charges................................... 10
3.11 Increased Costs........................................... 11
4. Conditions to Availability of Credit.............................. 11
4.1 Conditions to First Extension of Credit................... 11
4.2 Conditions to Each Extension of Credit.................... 12
5. Representations and Warranties........................................ 12
5.1 Organization.............................................. 12
5.2 No Conflicts.............................................. 12
5.3 Enforceability............................................ 12
5.4 Good Standing............................................. 13
5.5 Compliance with Laws...................................... 13
5.6 Litigation................................................ 13
5.7 No Event of Default....................................... 13
5.8 Information Submitted..................................... 13
5.9 No Material Adverse Change................................ 13
5.10 ERISA Plan Compliance..................................... 13
5.11 Transfer of Assets........................................ 14
6. Covenants............................................................. 14
6.1 Notices of Certain Events................................. 14
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C>
6.2 Financial and Other Information........................... 15
6.3 Books, Records, Audits and Inspections.................... 16
6.4 Adjusted Tangible Net Worth............................... 16
6.5 Total Liabilities to Adjusted Tangible Net Worth.......... 16
6.6 Capital Expenditures...................................... 16
6.7 Out-Of-Debt Requirement................................... 16
6.8 Other Indebtedness........................................ 16
6.9 Liens..................................................... 17
6.10 Acquisitions and Investments.............................. 18
6.11 Dividends................................................. 18
6.12 Loans to Officers......................................... 19
6.13 Capital Ownership......................................... 19
6.14 Sales and Leasebacks...................................... 19
6.15 Existence and Properties.................................. 19
6.16 Liquidations and Mergers.................................. 20
6.17 Sale of Assets............................................ 20
6.18 Insurance................................................. 20
6.19 Compliance with Laws...................................... 20
6.20 Accuracy of Financial Information......................... 20
6.21 Additional Acts........................................... 20
6.22 Business Activities....................................... 20
6.23 Change in Name, Structure or Location..................... 20
6.24 Subsidiaries.............................................. 21
6.25 Environmental Quality..................................... 20
6.26 Use of Proceeds........................................... 21
6.27 Taxes..................................................... 21
7. Events of Default..................................................... 21
7.1 Failure to Pay............................................ 21
7.2 Breach of Representation or Warranty...................... 21
7.3 Falsity of Information.................................... 21
7.4 Suits..................................................... 21
7.5 Judgments................................................. 22
7.6 Failure to Pay Debts; Voluntary Bankruptcy................ 22
7.7 Involuntary Bankruptcy.................................... 22
7.8 Governmental Action....................................... 22
7.9 Default of Other Financial Obligations.................... 22
7.10 Default of Other Bank Obligations......................... 22
7.11 Material Adverse Change................................... 22
7.12 ERISA Plan Termination.................................... 23
7.13 Other Breach Under Agreement.............................. 23
8. Miscellaneous......................................................... 23
8.1 Successors and Assigns.................................... 23
8.2 Consents and Waivers...................................... 23
8.3 Governing Law............................................. 23
8.4 Costs and Attorneys' Fees................................. 23
8.5 Integration............................................... 23
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C>
8.6 Participations............................................ 24
8.7 Arbitration; Reference Proceeding......................... 25
8.8 Notices................................................... 26
8.9 Headings.................................................. 26
8.10 Severability.............................................. 26
8.11 Counterparts.............................................. 26
8.12 Indemnification........................................... 26
8.13 Setoff.................................................... 26
9. Relation of Banks..................................................... 27
9.1 Independent Facilities.................................... 27
9.2 No Agency................................................. 27
9.3 No Requirement to Share................................... 27
9.4 Notices................................................... 27
9.5 Independent Credit Investigations......................... 27
9.6 Other Relationships....................................... 27
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
This Agreement is effective as of December 27, 1996 among Bank
of America National Trust and Savings Association ("BofA"), The Union Bank of
California N.A., as successor by merger to The Bank of California N.A. ("UBOC")
and The Good Guys - California, Inc., a California corporation ("Borrower").
BofA and UBOC are sometimes referred to as "Banks," and each is a "Bank."
RECITALS
A. The Banks and the Borrower entered into a certain Credit
Agreement dated as of September 26, 1995 (the "Previous Credit Agreement").
B. On the effective date of this Agreement, all indebtedness
outstanding under the Previous Credit Agreement shall be deemed outstanding
under this Agreement, and the Previous Credit Agreement shall be deemed
cancelled.
AGREEMENT
1. Definitions and Financial Requirements.
1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms have the meanings indicated for the purposes
hereof:
"Availability Period" means the period commencing on the
Closing Date and ending on December 31, 1997.
"Banking Day" means, unless otherwise defined in this
Agreement, a day other than a Saturday or a Sunday on which Banks are
open for business in California. With respect to LIBOR Rate Portions, a
Banking Day is a day other than a Saturday or a Sunday on which Banks
are open for business in California, New York and London and are
dealing in offshore dollars.
"UBOC Facility" means the facility provided by UBOC under
Paragraph 2.2 below.
"UBOC Money Market Rate" means a rate per annum which UBOC
quotes as the rate at which funds in the amount of the Portion and for
a period of time comparable to the Interest Period are available for
purchase from other banks in the ordinary course of UBOC's business on
the first day of the applicable Interest Period, adjusted for the then
maximum reserve, capital adequacy, deposit insurance, and similar
requirements that under any circumstances could be applicable to UBOC
pursuant to applicable law or regulation, and other amounts associated
with UBOC's costs and desired return. The
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<PAGE> 6
UBOC Money Market Rate may be accepted only at the time quoted by UBOC.
Due to changes in legal, regulatory, economic, or market conditions,
UBOC may at any time determine that the UBOC Money Market Rate is not
available.
"UBOC's Prime Rate" means a fluctuating rate that changes
with the rate UBOC announces to be in effect from time to time as its
prime rate. The Prime Rate is set by UBOC based on various factors,
including general economic and market conditions, and is used as a
reference point in pricing certain loans. UBOC may price its loans at,
above or below the Prime Rate.
"BofA Facility" means the facility provided by BofA under
Paragraph 2.1 below.
"BofA's Reference Rate" means the rate of interest publicly
announced from time to time by BofA in San Francisco, California, as
its reference rate. Any change in BofA's Reference Rate shall take
effect on the day specified in the public announcement of such change.
BofA's Reference Rate is set by BofA based on various factors,
including BofA's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some
loans. BofA may price loans at, above or below BofA's Reference Rate.
"Capital Expenditure" means an expenditure for the
acquisition of fixed or capital assets or the leasing of fixed or
capital assets, net of (a) the leasing of premises for retail store
locations and distribution facilities; (b) equipment rentals for less
than one year; (c) landlord allowances for leasehold improvements; (d)
expenditures under operating leases; and (e) amounts funded during the
fiscal year ending September 30, 1996.
"Cayman Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by BofA as of the
first day of the Interest Period.)
Cayman Rate = Cayman Base Rate
----------------------------------------------
(1.00 - Reserve Percentage)
Where "Cayman Base Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which BofA's Grand Cayman Branch,
Grand Cayman, British West Indies, would offer U.S. dollar deposits for
the applicable Interest Period to other major banks in the offshore
dollar inter-bank market.
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<PAGE> 7
"Closing Date" means the date that the conditions precedent
stated in Paragraph 4.1 below are all satisfied or waived as provided
by the Banks in writing.
"ERISA" means the Employee Retirement Income Act of 1974,
as amended from time to time.
"ERISA Plan" means any employee pension benefit plan
maintained or contributed to by Borrower and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
"Event of Default" means any event listed in Article 7 of
this Agreement.
"Interest Period" means for each Portion the period during
which such Portion shall bear interest at a specified Optional Rate, as
agreed by the Banks and the Borrower at the time Borrower requests the
Portion.
"LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the respective
Bank as of the first day of the Interest Period.)
LIBOR Rate = London Rate
------------------------------
(1.00 - Reserve Percentage)
Where "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) determined as follows:
(a) for amounts outstanding from BofA, the rate at
which BofA's London Branch, London, Great Britain, would offer
U.S. dollar deposits for the applicable Interest Period to
other major banks in the London inter-bank market at
approximately 11:00 a.m. London time two (2) Banking Days
before the commencement of the Interest Period.
(b) for amounts outstanding from UBOC, the rate at
which U.S. dollar deposits for the applicable Interest Period
would be offered to UBOC in the Eurodollar market two (2)
Banking Days before the commencement of the Interest Period.
"Optional Rate" means one of the optional interest rates
provided under this Agreement, other than BofA's Reference Rate and
UBOC's Prime Rate.
"Portion" means all or such part of the principal balance
of credit provided under this Agreement for which interest is accruing
at one of the Optional Rates.
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"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
"Spread" means one and two-tenths (1.20) percentage points;
provided, however, that the Spread shall be reduced to ninety-five
one-hundredths (.95) of one percentage point on the Banking Day
following the day on which the Banks receive written evidence that the
Borrower and Guarantor have, on a consolidated basis, achieved net
income (exclusive of non-recurring gains) of not less than Three
Million Five Hundred Thousand Dollars ($3,500,000) for the fiscal
quarter ending December 31, 1996, and Two Hundred Fifty Thousand
Dollars ($250,000) for the fiscal quarter ending March 31, 1997.
"Tangible Net Worth" means the gross book value of the
assets of Guarantor on a consolidated basis (exclusive of goodwill,
patents, trademarks, trade names, organization expense, treasury stock,
unamortized debt discount and expense, deferred charges and other like
intangibles) less (a) reserves applicable thereto, and (b) all
liabilities (including accrued and deferred income taxes).
1.2 Financial Requirements. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
financial computations required under this Agreement shall be made, and all
financial information required under this Agreement shall be prepared in
accordance with generally accepted accounting principles consistently applied.
2. The Credit Facilities
2.1 The BofA Facility. Subject to the provisions of this
Agreement, from time to time during the Availability Period, BofA, on a
revolving basis, will make advances to Borrower and issue standby letters of
credit for Borrower's account. The undrawn and the drawn and unreimbursed amount
of all letters of credit outstanding under the BofA Facility may not exceed at
any one time Five Million Dollars ($5,000,000). The total of all advances, plus
the undrawn and the drawn and unreimbursed amount of all letters of credit,
outstanding under the BofA Facility may not exceed at any one time Thirty Three
Million Dollars ($33,000,000) (the "BofA Credit Limit").
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2.2 The UBOC Facility. Subject to the provisions of this
Agreement, from time to time during the Availability Period, UBOC, on a
revolving basis, will make advances to Borrower and issue standby letters of
credit for Borrower's account. The undrawn and the drawn and unreimbursed amount
of all letters of credit outstanding under the UBOC Facility may not exceed at
any one time Two Million Five Hundred Thousand Dollars ($2,500,000). The total
of all advances plus the undrawn and the drawn and unreimbursed amount of all
letters of credit outstanding under the UBOC Facility may not exceed at any one
time Seventeen Million Dollars ($17,000,000) (the "UBOC Credit Limit").
2.3 Pro Rata Borrowings. Borrower agrees that, at all times,
the total of all advances, plus the undrawn and the drawn and unreimbursed
amount of all letters of credit, outstanding under the BofA Facility and the
UBOC Facility, respectively, shall bear the same ratio as the ratio of the BofA
Credit Limit to the UBOC Credit Limit. Whenever the ratio of the BofA Credit
Limit to the UBOC Credit Limit changes in accordance with the provisions of
paragraphs 2.1 and 2.2 above, the Borrower shall adjust the credit outstandings
from the two Banks to maintain the ratio required by the preceding sentence as
soon as it is possible to do so without incurring any penalties for prepaying
any Portion bearing interest at an Optional Rate. Whenever the Borrower requests
a letter of credit, both Banks shall issue letters of credit to the same
beneficiary and for the same term, in pro rata amounts in proportion to the
ratio of the BofA Credit Limit to the UBOC Credit Limit at the time the letters
of credit are designated.
2.4 Advances Under this Agreement.
(a) Borrower shall repay the entire principal balance of
all advances under this Agreement on the last day of the Availability
Period, subject to the provisions of Paragraph 2.5(e) below.
(b) Except as provided below, advances made by BofA under
this Agreement shall bear interest at a rate per annum equal to BofA's
Reference Rate, and advances made by UBOC under this Agreement shall
bear interest at a rate per annum equal to UBOC's Prime Rate. Borrower
shall pay interest monthly in arrears on the first day of each month
until the last day of the Availability Period, on which date all
accrued and unpaid interest shall be due and payable.
2.5 Optional Interest Rates. In lieu of the rates related to
BofA's Reference Rate and UBOC's Prime Rate, Borrower may elect to have all or
portions of advances under this Agreement bear interest at any of the following
rates plus the Spread during an appropriate Interest Period: the LIBOR Rate; for
amounts advanced by BofA, the Cayman Rate; and for amounts
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advanced by UBOC, the UBOC Money Market Rate. Each Optional Rate is subject to
the following requirements:
(a) Each Portion shall be for an amount not less than the
following:
(i) For the LIBOR Rate or the UBOC Money Market Rate,
One Million Dollars ($1,000,000).
(ii) For the Cayman Rate, an amount not less than Five
Hundred Thousand Dollars ($500,000) for interest periods of 30
days or longer. For shorter maturities, each Portion will be
for an amount which, when multiplied by the number of days in
the applicable interest period, is not less than fifteen
million (15,000,000) dollar-days.
(b) Each Interest Period shall not end later than the last
day of the Availability Period. For the LIBOR Rate, the Interest Period
shall be one (1), two (2), three (3), six (6), or twelve (12) months.
For the UBOC Money Market Rate, the Interest Period shall be from one
to no longer than sixty days. For the Cayman Rate, the Interest Period
shall be from one day to no longer than one year. For the LIBOR Rate
and the Cayman Rate, the last day of the Interest Period will be
determined by each Bank using the practices of the offshore dollar
inter-bank market.
(c) Borrower shall pay interest on each Portion on the
first day of each month following the first day of the Interest Period
for such portion and on the last day of the Interest Period for such
portion.
(d) A Portion shall not be converted to a different
interest rate during its Interest Period. Upon the expiration of an
Interest Period, the Portion shall thereafter bear interest at the rate
based on BofA's Reference Rate or UBOC's Prime Rate, as applicable,
unless Borrower elects a new interest rate as provided hereunder.
(e) Any payment of a Portion prior to the last day of the
Interest Period for such Portion, whether voluntary, by reason of
acceleration or otherwise, including any mandatory payments required
under this Agreement and applied by either Bank to a Portion, shall be
accompanied by the amount of accrued interest on the amount repaid and
by the amount (if any) by which (i) the additional interest which would
have been payable on the amount repaid had it not been paid until the
last day of its Interest Period exceeds (ii) the interest which would
have been recoverable by such Bank by placing the amount repaid on
deposit in the Reinvestment Market specified below for a period
starting on the date it
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was repaid and ending on the last day of the Interest Period for such
portion. The Reinvestment Market for LIBOR Rate Portions, Cayman Rate
Portions and UBOC Money Market Rate Portions shall be the offshore
dollar inter-bank markets.
(f) Banks shall have no obligation to accept an election
for a Portion if any of the following described events has occurred and
is continuing:
(1) Dollar deposits in the principal amount, and for
periods equal to the Interest Period, of a Portion are not
available in the relevant market; or
(2) The Optional Rate does not accurately reflect the
cost of the Portion.
2.6 Standby Letters of Credit.
(a) Each standby letter of credit shall be issued pursuant
to the terms and conditions hereof and of each Bank's standard form
agreement for standby letter of credit executed by Borrower.
(b) Each standby letter of credit shall:
(1) expire on or before one (1) year after the date such
letter of credit is issued, but in no event later than the
last day of the Availability Period;
(2) be otherwise in form and substance and in favor of
beneficiaries satisfactory to Banks.
(c) Borrower shall pay the Banks an issuance fee equal to
one and two-tenths percent (1.20%) per annum of the outstanding undrawn
amount of each standby letter of credit, payable in advance at the time
the letter of credit is issued and annually thereafter, calculated on
the basis of the face amount outstanding on the day the fee is
calculated. If there is a default under this Agreement, at each Bank's
option, the amount of the fee shall be increased to 2.0% per annum,
effective starting on the day the Banks provide notice of the increase
to the Borrower. In addition, the Borrower shall pay such other fees at
the times and in the amounts that each Bank advises Borrower from time
to time as being applicable to Borrower's standby letters of credit.
(d) Any sum owed to either Bank with respect to a standby
letter of credit issued for Borrower's account which is not paid when
due shall, at the option of that Bank in each instance, be added to
advances outstanding under the that Bank's Facility and shall
thereafter bear interest at the rate applicable to advances.
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(e) In addition to any other rights or remedies which Banks
may have under this Agreement or otherwise, upon the occurrence of an
Event of Default each Bank may require Borrower to prepay the amount of
any standby letters of credit outstanding from that Bank under this
Agreement.
2.7 Fee. Borrower has previously paid the following fees on or
before the date of execution of this Agreement: for BofA, a fee of Twenty
Thousand Dollars ($20,000); and for UBOC, a fee of Ten Thousand Dollars
($10,000).
2.8 Commitment Fee.
(a) Borrower shall pay each Bank a commitment fee at the
rate of three tenths of one percent (0.30%) per annum on the average
daily unused portion of the following: (i) for BofA, the BofA Credit
Limit; and (ii) for UBOC, the UBOC Credit Limit. The commitment fee
shall be computed on a calendar quarter basis in arrears. The
commitment fee shall be payable on the first day of each calendar
quarter, and on the last day of the Availability Period. The amounts of
the Credit Limits which are used shall include both advances and the
face amount of outstanding letters of credit.
(b) Upon at least thirty (30) days' advance written notice
to Banks, Borrower may cancel the availability of credit under this
Agreement and repay all of its obligations hereunder in full (subject
to the provisions of Paragraphs 2.5(e) above), and Borrower shall not
be obligated to pay a commitment fee for any quarterly fee after the
quarterly period in which such cancellation and repayment occurred.
2.9 Default Rate. Upon the occurrence and during the
continuation of any Event of Default under Paragraph 6.4, 6.5, 6.7, or 7.1 below
and without constituting a waiver of any such Event of Default, advances under
this Agreement from either Bank shall at the option of such Bank bear interest
at a rate per annum which is two percentage points (2.00%) higher than the rate
of interest otherwise provided under this Agreement. Upon the expiration of any
Interest Period, the relevant Portion shall thereafter bear interest at BofA's
Reference Rate plus two percentage points (2.00%) or UBOC's Prime Rate plus two
percentage points (2.00%).
2.10 Termination of This Agreement. Borrower may, at any time,
terminate this Agreement by written notice to Banks, provided that all amounts
outstanding hereunder have been paid and all other obligations of Borrower have
been fulfilled.
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3. Extensions of Credit, Payments and Interest Calculations
3.1 Requests for Credit. Each request for an extension of
credit shall be made in writing on a form acceptable to the Bank extending the
credit or in any other manner acceptable to that Bank. Requests for advances
must be received no later than 2:00 p.m. on the date the advance will be made;
provided that requests for advances or the designation of portions which will
bear interest at the LIBOR Rate must be received no later than 9:00 a.m. three
(3) Banking Days before the date the advance will be made or the designation
will take effect; provided further that requests for advances or the designation
of Portions which will bear interest at an Optional Rate other than the LIBOR
Rate must be received no later than 11:00 a.m. on the date the advance will be
made or the designation will take effect.
3.2 Oral Requests. At each Bank's sole discretion in each
instance, such Bank may accept telephone requests to make or to repay extensions
of credit. Extensions of credit requested by telephone shall be deposited or
wired into Borrower's commercial account number 14995-05205 with BofA, or such
other account(s) as may be specified in writing by Borrower. Telephone requests
may be made by any individual identified in writing to such Bank on a form
acceptable to such Bank as being authorized to make such requests. Each Bank
shall be entitled to rely upon any written or telephone request from persons it
reasonably believes to be authorized by Borrower to make such requests without
making independent inquiry. Borrower hereby indemnifies each Bank for, and holds
each Bank harmless from, any and all losses, damages, claims and expenses
(including reasonable attorneys' fees and allocated costs of Banks' in-house
counsel), however arising, which such Bank suffers or incurs based on or arising
out of extensions of credit or payments made on any telephone request, except
that Banks shall not be indemnified against their own gross negligence or wilful
misconduct. The provisions of this Paragraph shall survive termination of this
Agreement.
3.3 Disbursements and Payments. Each disbursement by Banks and
each payment by Borrower under this Agreement shall be made in U.S. Dollars and
in immediately available funds and at such branch of each Bank as that Bank may
from time to time select.
3.4 Branch Accounts. Each extension of credit under this
Agreement shall be made for the account of such branch of the Bank extending the
credit as such Bank may from time to time select.
3.5 Evidence of Indebtedness. Principal, interest and all
other sums due each Bank under this Agreement shall be evidenced by entries in
records maintained by such Bank, and, if required by such Bank, by a promissory
note or notes. Each
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payment on and any other credits with respect to principal, interest and all
other sums due under this Agreement shall be evidenced by entries to records
maintained by each Bank.
3.6 Debits to Borrower's Accounts. Borrower hereby authorizes
BofA to debit Borrower's account number 14995-05205 in the amount of interest
and fees due to BofA under this Agreement. BofA shall debit the account on the
date such amounts become due, or, if such due date is not a Banking Day, on the
next Banking Day after such due date. For amounts due to UBOC, upon the
instructions of Borrower, BofA shall wire such amounts as designated by Borrower
to The Union Bank of California N.A., ABA #1220-00496, for credit to CBND
Bancontrol Account No. 001-2060232 to the attention of Corporate Note
Department. If there are insufficient funds in the account to cover the amount
debited to the account in accordance with this Paragraph, such debit will be
reversed and such amount will remain unpaid. Borrower shall pay BofA's standard
fees for each wire transfer.
3.7 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, payable under this Agreement shall be
computed on the basis of a three hundred sixty (360) day year and actual days
elapsed, which results in more interest or a larger fee than if a three hundred
sixty-five (365) day year were used.
3.8 Late Payments; Compounding. At the option of each Bank, in
each instance, any sum payable hereunder which is not paid when due (including
unpaid interest) may be added to principal of this Agreement and shall
thereafter bear interest at the rate applicable to principal.
3.9 Banking Day. Any sum payable by Borrower hereunder which
becomes due on a day which is not a Banking Day shall be due on the next Banking
Day after such due date (subject to the practices of the Eurodollar market, if
applicable). Any payments received by either Bank on a day which is not a
Banking Day or after 2:00 p.m. on a Banking Day shall be deemed to be received
on the next Banking Day after such date of receipt.
3.10 Taxes and Other Charges.
(a) Borrower agrees to make all payments or reimbursements
under this Agreement free and clear of and without deduction for any
present or future taxes, levies, imposts, fees or other charges of any
kind which may be imposed by any governmental authority with respect to
such payments or reimbursements ("Taxes"). If any Taxes are imposed by
any governmental authority, Borrower agrees to pay such Taxes and to
confirm payment by delivery of official tax receipts or notarized
copies thereof to Banks within thirty (30) days after the due date for
each tax payment. This
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Paragraph shall not apply with respect to any taxes which are imposed
on or measured by either Bank's net income by any jurisdiction.
(b) In the event the Borrower is prohibited by operation of
law from making payments or reimbursements to the Banks without making
such deductions or paying, or causing to be paid, any and all Taxes,
the Borrower shall pay to the Banks upon demand such additional amounts
as may be necessary in order to reimburse the Banks for Taxes paid by
the Banks on the Borrower's behalf such that the aggregate net amounts
received by the Banks shall equal the amounts which would have been
received if such deduction or withholding had not been required.
3.11 Increased Costs. Borrower shall reimburse or compensate
each Bank, upon demand by that Bank, for all costs incurred, losses suffered or
payments made by that Bank which are applied or allocated by such Bank to this
Agreement (all as reasonably determined by such Bank in its sole discretion) by
reason of any change in any statute, regulation, or any request or requirement
of any regulatory agency, whether or not having the force of law, which is
applicable to all or a class of all national banks, including:
(a) any and all present or future reserve, deposit or
similar requirements applied against (or against any class of or change
in or in the amount of) assets or liabilities of, or commitments or
extensions of credit by, such Bank; and
(b) any and all present or future capital or similar
requirements against (or against any class of or change in or in the
amount of) assets or liabilities of, or commitments or extensions of
credit by, such Bank.
4. Conditions to Availability of Credit.
Each Bank's obligation to extend credit under this Agreement
is subject to the following conditions. In the case of documents or evidence to
be received by Banks, each such item must be in form and substance satisfactory
to both Banks:
4.1 Conditions to First Extension of Credit. Before the first
extension of credit:
(a) Receipt by Banks of evidence that the execution,
delivery, and performance by Borrower and Guarantor of this Agreement
and any instrument or agreement required under this Agreement, as
appropriate, have been duly authorized.
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(b) Receipt by Banks of an executed copy of this Agreement;
a promissory note as required by UBOC; and each Bank's standard wire
transfer agreement.
(c) Payment of any fees and costs due on the Closing Date.
(d) Continuing guaranties, on each Bank's standard form,
executed by Guarantor, guarantying the obligations of Borrower to each
Bank, in a principal amount acceptable to each Bank.
(e) Payment by the Borrower of all costs, expenses and
attorneys' fees (including allocated costs for in-house legal services)
incurred by the Banks in connection with this Agreement.
4.2 Conditions to Each Extension of Credit. As a condition to
each extension of credit,
(a) Borrower must be in compliance with Paragraph 2.3
above.
(b) Each representation and warranty made by Borrower and
Guarantor under this Agreement must be true and correct as of the date
of the extension of credit.
5. Representations and Warranties
Borrower represents and warrants (and each request for an
extension of credit under this Agreement shall be deemed a representation and
warranty made on the date of such request) that:
5.1 Organization. Borrower and Guarantor each is a corporation
duly organized and existing under the laws of the state of its organization and
the execution, delivery, and performance of this Agreement and of any instrument
or agreement required by this Agreement are within Borrower's and Guarantor's
powers, have been duly authorized, and are not in conflict with the terms of any
charter, bylaw, or other organization papers of Borrower or Guarantor;
5.2 No Conflicts. The execution, delivery, and performance of
this Agreement and of any instrument or agreement required by this Agreement are
not in conflict with any law or any indenture, agreement, or undertaking to
which Borrower or Guarantor is a party or by which Borrower or Guarantor is
bound or affected;
5.3 Enforceability. This Agreement is a legal, valid and
binding agreement of Borrower, enforceable against Borrower
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in accordance with its terms, and any instrument or agreement required under
this Agreement, when executed and delivered, will be similarly legal, valid,
binding and enforceable;
5.4 Good Standing. Borrower and Guarantor each is properly
licensed and in good standing in each state in which it is doing business and
Borrower and Guarantor each has qualified under, and complied with, where
required, the fictitious name statute of each state in which it is doing
business;
5.5 Compliance with Laws. Borrower and Guarantor each has
complied with all federal, state, and local laws, rules, and regulations
affecting the business of Borrower and Guarantor including, but not limited to,
laws regulating Borrower's and Guarantor's sales or the furnishing of services
to their customers and disclosures in connection therewith;
5.6 Litigation. There is no litigation, tax claim, proceeding
or dispute pending, or, to the knowledge of Borrower, threatened, against or
affecting Borrower or Guarantor or their property, the adverse determination of
which would have a material adverse effect on Borrower's or Guarantor's
financial condition or operations or impair Borrower's or Guarantor's ability to
perform its obligations hereunder or under any instrument or agreement required
hereunder;
5.7 No Event of Default. No event has occurred and is
continuing or would result from the extension of credit under this Agreement
which constitutes or would constitute an Event of Default or which, upon a lapse
of time or notice or both, would become an Event of Default;
5.8 Information Submitted. All financial information submitted
by Borrower or Guarantor to either Bank has been prepared in accordance with
generally accepted accounting principles consistently applied, is fairly
presented in all material respects and is complete insofar as may be necessary
to give Banks a true and accurate knowledge of the subject matter thereof;
5.9 No Material Adverse Change. There has been no material
adverse change in the consolidated financial condition of Borrower and Guarantor
since the date of the most recent financial statements submitted to Banks;
5.10 ERISA Plan Compliance.
(a) Borrower and Guarantor each has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and
the Internal Revenue Code of 1986, as amended from time to time, (the
"Code") with respect to each ERISA Plan and is in compliance in all
material respects with the
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presently applicable provisions of ERISA and the Code, and has not
incurred any liability with respect to any ERISA Plan under Title IV of
ERISA;
(b) No reportable event has occurred under Section 4043(b)
of ERISA for which the Pension Benefit Guaranty Corporation requires 30
day notice;
(c) No action by Borrower or Guarantor to terminate or
withdraw from any ERISA Plan has been taken and no notice of intent to
terminate an ERISA Plan has been filed under Section 4041 of ERISA;
(d) No proceeding has been commenced with respect to an
ERISA Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of
such a proceeding.
5.11 Transfer of Assets. All of the assets of the Guarantor
have been transferred to the Borrower, and all of the liabilities and
obligations of the Guarantor have been assumed by the Borrower, except for such
assets, liabilities and obligations which have been disclosed to the Banks and
are acceptable to the Banks.
6. Covenants
So long as credit is available under this Agreement and until
full and final payment of all of Borrower's obligations under this Agreement and
any instrument or agreement required under this Agreement, Borrower and
Guarantor shall, unless Banks waive compliance in writing:
6.1 Notices of Certain Events. Promptly give written notice to
both Banks of:
(a) all litigation affecting Borrower or Guarantor where
the amount claimed is Two Million Dollars ($2,000,000) or more;
(b) any substantial dispute which may exist between
Borrower or Guarantor and any governmental regulatory body or law
enforcement authority;
(c) any Event of Default or any event which, upon a lapse
of time or notice or both, would become an Event of Default;
(d) the occurrence of any reportable event under Section
4043(b) of ERISA for which the Pension Benefit Guaranty Corporation
requires thirty (30) day notice; any action by Borrower or Guarantor to
terminate or withdraw from
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an ERISA Plan or the filing of any notice of intent to terminate under
Section 4041 of ERISA; any notice of noncompliance made with respect to
an ERISA Plan under Section 4041(b) of ERISA; or the commencement of
any proceeding with respect to an ERISA Plan under Section 4042 of
ERISA;
(e) any other matter which has resulted or could reasonably
be expected to result in an adverse change in Borrower's or Guarantor's
financial condition or operations;
6.2 Financial and Other Information. Deliver to both Banks in
form and detail satisfactory to Banks, and in such number of copies as Banks may
request:
(a) Within one hundred twenty (120) days after the end of
each fiscal year Guarantor's consolidated financial statements for such
year audited by a certified public accountant together with an
unqualified opinion of such certified public accountant and including,
at a minimum, Guarantor's consolidated balance sheet and statements of
income, retained earnings and cash flow, and including a copy of the
accountant's management letter;
(b) Within one hundred twenty (120) days after the end of
each fiscal year, a copy of Guarantor's Form 10-K Annual Report; within
sixty (60) days after each quarterly accounting period, a copy of
Guarantor's Form 10-Q Quarterly Report; and within ten (10) days after
the date of filing with the Securities and Exchange Commission, a copy
of each Form 8-K Current Report filed by Guarantor;
(c) Within forty-five (45) days after each quarterly
accounting period, a certificate, signed by a responsible officer of
Borrower, certifying compliance with all terms and conditions of this
Agreement;
(d) Within thirty (30) days after each monthly accounting
period, the Guarantor's consolidated financial statements prepared by
the Guarantor;
(e) By September 30, 1997, Guarantor's projected
consolidated balance sheet and statements of income, retained earnings
and cash flow for the fiscal year ending September 30, 1998;
(f) Promptly upon request of either Bank, such other
statements, lists of property and accounts, budgets, forecasts or
reports as to Borrower or Guarantor as Banks may reasonably request;
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6.3 Books, Records, Audits and Inspections. Borrower and
Guarantor must maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally accepted
accounting principles consistently applied, and in compliance with the
regulations of any governmental regulatory body having jurisdiction over
Borrower or Guarantor or their business and permit employees or agents of either
Bank at any reasonable time to inspect Borrower's and Guarantor's properties and
to examine or audit Borrower's and Guarantor's books, accounts, and records and
make copies and memoranda thereof.
6.4 Adjusted Tangible Net Worth. Maintain on a consolidated
basis Adjusted Tangible Net Worth of at least One Hundred Thirty Million Dollars
($130,000,000). "Adjusted Tangible Net Worth" means Tangible Net Worth minus the
proceeds of any public or private offering of stock of the Guarantor on or after
September 30, 1996, including stock sold under the Employee Stock Purchase Plan.
6.5 Total Liabilities to Adjusted Tangible Net Worth. Not
permit the ratio of consolidated total liabilities (as shown on consolidated
balance sheet, prepared in accordance with generally accepted accounting
principles) to Adjusted Tangible Net Worth to exceed the figures indicated as of
each date set forth below:
(a) As of December 31, 1996: 1.40:1.00.
(b) As of March 31, 1997: 1.00:1.00.
(c) As of June 30, 1997: 1.20:1.00.
(d) As of September 30, 1997: 1.00:1.00.
6.6 Capital Expenditures. Not, during the fiscal year ending
September 30, 1997, on a consolidated basis, expend or incur, or consent to
expend or incur, Capital Expenditures of more than Eleven Million Dollars
($11,000,000).
6.7 Out-Of-Debt Requirement. During the one hundred and sixty
(160) day period ending on May 30, 1997, Borrower and Guarantor must repay all
outstanding advances, and not draw any new advances, for a period of at least
thirty (30) consecutive calendar days. This requirement must be fulfilled at the
same time for the BofA Facility, the UBOC Facility, and any uncommitted
facilities from either Bank or any other lender.
6.8 Other Indebtedness. Borrower and Guarantor each shall not
create or incur any indebtedness for borrowed money or for the deferred purchase
price of property under capital leases, or become liable as a surety, guarantor,
accommodation endorser,
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or otherwise for or upon the obligation of any other person, firm or
corporation; provided, however, that this Paragraph shall not be deemed to
prohibit:
(a) the acquisition of goods, supplies or merchandise on
normal trade credit; including, but not limited to, indebtedness for
the purchase of inventory under the existing agreements with Deutsche
Financial Services Corporation and Transamerica Commercial Finance
Corporation, in an amount not exceeding Forty Million Dollars
($40,000,000) at any one time; provided, however, that in each case the
agreement between the Borrower and the lender (and any amendments
thereto) must be in form and substance acceptable to the Banks;
(b) the execution of bonds or undertakings in the ordinary
course of its business as presently conducted;
(c) the endorsement of negotiable instruments received in
the ordinary course of its business as presently conducted;
(d) indebtedness and lease obligations existing as of the
date of this Agreement and which have been disclosed to Banks in
writing;
(e) leasing of premises for retail store locations,
distribution facilities and corporate facilities;
(f) equipment rentals for less than one year;
(g) additional indebtedness under uncommitted facilities
from either Bank or any other lender; provided, however, that the total
outstanding indebtedness from both Banks (whether under this Agreement
or otherwise) plus the total outstanding indebtedness under uncommitted
facilities from other lenders must not exceed at any time Fifty Million
Dollars ($50,000,000).
6.9 Liens. Borrower and Guarantor each shall not create,
assume or suffer to exist any security interest, lien (including the lien of an
attachment, judgment or execution) or encumbrance, securing a charge or
obligation, on or of any of its property, real or personal, whether now owned or
hereafter acquired, except:
(a) liens, security interests and encumbrances in existence
as of the date of this Agreement which have been disclosed to Banks in
writing;
-17-
<PAGE> 22
(b) liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without
any penalty;
(c) purchase money security interests in property acquired
after the date of this Agreement; provided, however, that no such liens
shall cover Borrower's inventory;
(d) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen and other liens, other than any
lien imposed under ERISA, imposed by law and created in the ordinary
course of business for amounts not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained
in accordance with the provisions of GAAP; provided that all such items
shall not, in the aggregate, exceed Two Million Dollars ($2,000,000) at
any time (excluding any mechanics and materialmen liens which have not
been recorded in the real property records and for which no other
enforcement action has been taken); provided, however, that no such
liens shall cover Borrower's inventory;
6.10 Acquisitions and Investments. Borrower and Guarantor each
shall not acquire or purchase the assets or business of any other person, firm,
or corporation; and not purchase any stock or make any other investment in any
other company, except for:
(a) joint ventures for real estate development with respect
to the Borrower's retail store locations and distribution facilities,
for an aggregate investment in any one fiscal year not exceeding Two
Million Five Hundred Thousand Dollars ($2,500,000); such dollar limit
to be non-cumulative from year to year;
(b) cash and certificates of deposit;
(c) U.S. treasury bills and other obligations of the
federal government;
(d) readily marketable commercial paper with a maturity not
exceeding sixty (60) days;
(e) bankers' acceptances;
(f) repurchase agreements covering U.S. government
securities;
6.11 Dividends. Borrower and Guarantor shall not (and shall
not permit any of their subsidiaries to) declare or pay any dividends on any of
their respective shares except dividends
-18-
<PAGE> 23
payable in capital stock, and not purchase, redeem or otherwise acquire for
value any of their respective shares, or create any sinking fund in relation
thereto; provided, however, that Borrower and Guarantor may purchase stock from
their employees for a consideration not exceeding, in the aggregate, One Million
Five Hundred Thousand Dollars ($1,500,000) in any one fiscal year;
6.12 Loans to Officers. Borrower and Guarantor each shall not
make any loans, advances or other extensions of credit to any of Borrower's or
Guarantor's executives, officers, employees, directors or shareholders (or any
relatives of any of the foregoing); provided, however, that Borrower and
Guarantor may make such loans, advances and extensions of credit to executives,
officers and employees in an amount not exceeding, in the aggregate, One Million
Dollars ($1,000,000) in any one fiscal year; such dollar limit to be
non-cumulative from year to year;
6.13 Capital Ownership. Borrower and Guarantor each shall not
cause, permit, or suffer any one shareholder to control, directly, indirectly or
through affiliates, more than fifty percent (50%) of Guarantor's capital
ownership; and Borrower's capital stock must continue to be entirely owned by
Guarantor;
6.14 Sales and Leasebacks. Borrower and Guarantor each shall:
(a) Not dispose of any of its assets except for full, fair
and reasonable consideration;
(b) Not enter into any sale and leaseback agreement
covering any of its fixed or capital assets; provided, however, that
Borrower may enter into sale/leaseback agreements covering rolling
stock, equipment and fixtures as follows: (i) agreements covering
assets first used by Borrower or Guarantor within the 90 days prior to
the agreement; and (ii) additional agreements in an aggregate amount
not exceeding Five Million Dollars ($5,000,000) in each fiscal year;
such dollar limit to be non-cumulative from year to year;
6.15 Existence and Properties. Borrower and Guarantor each
shall maintain and preserve Borrower's and Guarantor's existence and all rights,
privileges and franchises now enjoyed, conduct Borrower's and Guarantor's
business in an orderly, efficient and customary manner, keep all Borrower's and
Guarantor's properties in good working order and condition, and from time to
time make all needed repairs, renewals or replacements thereto and thereof so
that the efficiency of such property shall be fully maintained and preserved;
-19-
<PAGE> 24
6.16 Liquidations and Mergers. Borrower and Guarantor each
shall not liquidate or dissolve or enter into any consolidation, merger,
partnership, joint venture or other combination, except for joint ventures
permitted in Paragraph 6.10 above; and (b) any merger whose primary purpose is
to reincorporate in another state; provided that Borrower provides to Banks such
documentation as reasonably required by either Bank;
6.17 Sale of Assets. Borrower and Guarantor each shall not
sell, lease, or otherwise dispose of its business or assets as a whole or such
as in the opinion of either Bank constitute a substantial portion of its
business or assets except in the ordinary course of its business as heretofore
conducted;
6.18 Insurance. Borrower and Guarantor each shall maintain and
keep in force insurance of the type usual for the business it is in, and deliver
to Banks upon either Bank's request a copy of each insurance policy or, if
permitted by Banks, a certificate of insurance listing all insurance in force;
6.19 Compliance with Laws. Borrower and Guarantor each shall
at all times comply with, or cause to be complied with, all laws, statutes
(including but not limited to any fictitious name statute), rules, regulations,
orders and directions of any governmental authority having jurisdiction over
Borrower or Guarantor or Borrower's or Guarantor's business;
6.20 Accuracy of Financial Information. Borrower and Guarantor
each shall cause all financial information upon submission by Borrower or
Guarantor to Banks to be fairly presented in all material respects and complete
to the extent necessary to give Banks a true and accurate knowledge of the
subject matter thereof;
6.21 Additional Acts. Borrower and Guarantor each shall
perform, on request of either Bank, such acts as may be reasonably necessary or
advisable to carry out the intent of this Agreement;
6.22 Business Activities. Borrower and Guarantor each shall
not engage in any business activities or operations substantially different from
or unrelated to present business activities and operations;
6.23 Change in Name, Structure or Location. Notify Banks in
writing prior to any change in (a) Borrower's or Guarantor's name, (b)
Borrower's or Guarantor's business or legal structure, or (c) Borrower's or
Guarantor's place of business or chief executive office if Borrower or Guarantor
has more than one place of business;
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<PAGE> 25
6.24 Subsidiaries. Borrower and Guarantor each shall not
create or acquire any subsidiaries without the prior written consent of both
Banks, which consent shall not unreasonably be withheld;
6.25 Environmental Quality. Borrower and Guarantor each shall
comply with all applicable laws, rules, regulations, orders and directives
relating to environmental quality, where a failure to so comply may result in a
material adverse effect on the Borrower's or Guarantor's financial condition or
ability to repay the credit outstanding under this Agreement;
6.26 Use of Proceeds. Borrower shall use the proceeds of the
credit provided by this Agreement for general working capital purposes, and such
other purposes as may be acceptable to Banks;
6.27 Taxes. Borrower and Guarantor each shall pay all taxes
when due.
7. Events of Default
The occurrence of any of the following Events of Default shall
terminate any obligation on the part of either Bank to extend credit under this
Agreement and, at the option of each Bank, shall make all obligations of
Borrower to such Bank under or in respect of this Agreement and any instrument
or agreement required under this Agreement immediately due and payable, without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or other notices or demands of any kind or character:
7.1 Failure to Pay. Borrower fails to pay when due, any
instalment of interest or principal or any other sum due under this Agreement in
accordance with the terms hereof;
7.2 Breach of Representation or Warranty. Any representation
or warranty herein or in any agreement, instrument or certificate executed
pursuant hereto or in connection with any transaction contemplated hereby proves
to have been false or misleading in any material respect when made;
7.3 Falsity of Information. Any financial or other information
delivered by Borrower or Guarantor to Banks proves to be false or misleading in
any material respect;
7.4 Suits. One or more suits are filed against Borrower or
Guarantor by a trade creditor or trade creditors of Borrower or Guarantor in an
aggregate amount of at least Two Million Dollars ($2,000,000) provided that such
suit may have a material adverse impact on Borrower or Guarantor;
-21-
<PAGE> 26
7.5 Judgments. One or more judgments or arbitration awards are
entered against Borrower or Guarantor, or Borrower or Guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in the
aggregate amount of Two Million Dollars ($2,000,000) or more on a claim or
claims not covered by insurance;
7.6 Failure to Pay Debts; Voluntary Bankruptcy. Borrower or
Guarantor fails to pay its debts generally as they come due, or files any
petition, proceeding, case, or action for relief under any bankruptcy,
reorganization, insolvency, or moratorium law, or any other law or laws for the
relief of, or relating to, debtors;
7.7 Involuntary Bankruptcy. An involuntary petition is filed
under any bankruptcy or similar statute against Borrower or Guarantor, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of Borrower
or Guarantor; provided, however, that such Event of Default shall be deemed
cured if such petition or appointment is set aside or withdrawn or ceases to be
in effect within sixty (60) days from the date of said filing or appointment;
7.8 Governmental Action. Any governmental regulatory authority
takes or institutes action which, in the opinion of either Bank, will materially
adversely affect Borrower's or Guarantor's condition, operations or ability to
pay Borrower's obligations under this Agreement or any instrument or agreement
required under this Agreement;
7.9 Default of Other Financial Obligations. Any default occurs
under any other agreement involving the borrowing of money or the extension of
credit to which Borrower or Guarantor may be a party as borrower, guarantor or
instalment purchaser if such default consists of the failure to pay any
obligation when due or if such default gives to the holder of the obligation
concerned the right to accelerate the obligation;
7.10 Default of Other Bank Obligations. Any default occurs
under any other obligation of Borrower or Guarantor to either Bank or to any
subsidiary or affiliate of either Bank, which default has not been waived in
writing by such Bank or cured by Borrower or Guarantor within any applicable
grace period;
7.11 Material Adverse Change. Any material adverse change
occurs in the financial condition or results of operations of Borrower or
Guarantor or in Borrower's or Guarantor's ability to perform its obligations
under this Agreement or under any instrument or agreement required by this
Agreement;
-22-
<PAGE> 27
7.12 ERISA Plan Termination. Any ERISA Plan termination or any
full or partial withdrawal from an ERISA Plan occurs which could result in
liability of Borrower or Guarantor to the Pension Benefit Guaranty Corporation
or to the ERISA Plan in an aggregate amount which, in the reasonable opinion of
either Bank, will have a material adverse effect on the financial condition of
Borrower or Guarantor;
7.13 Other Breach Under Agreement. Borrower or Guarantor
breaches, or defaults under, any term, condition, provision, representation or
warranty contained in this Agreement not specifically referred to in this
Article.
8. Miscellaneous
8.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Borrower shall not assign this Agreement or any
of the rights, duties or obligations of Borrower hereunder without the prior
written consent of both Banks.
8.2 Consents and Waivers. No consent or waiver under this
Agreement shall be effective unless in writing. No waiver of any breach or
default shall be deemed a waiver of any breach or default thereafter occurring.
8.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California.
8.4 Costs and Attorneys' Fees. Borrower agrees to pay to
Banks, on demand, all costs, expenses and attorneys' fees (including allocated
costs for in-house legal services) incurred by either Bank in connection with
the preparation, administration and enforcement of this Agreement and any
instrument or agreement required under this Agreement, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to the Banks' rights, remedies, and obligations
under this Agreement. In the event a legal action or arbitration proceeding is
commenced in connection with the enforcement of this Agreement or any instrument
or agreement required under this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees (including allocated costs for in-house
legal services), costs and necessary disbursements incurred in connection with
such action or proceeding (including any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal), as determined by the court or
arbitrator.
8.5 Integration. This Agreement and any instrument, agreement
or document attached hereto or referred to herein (a) integrate all the terms
and conditions mentioned herein or
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<PAGE> 28
incidental hereto, (b) supersede all oral negotiations and prior writings in
respect to the subject matter hereof, and (c) are intended by the parties as the
final expression of the agreement with respect to the terms and conditions set
forth in this Agreement and any such instrument, agreement or document and as
the complete and exclusive statement of the terms agreed to by the parties. In
the event of any conflict between the terms, conditions and provisions of this
Agreement and any such instrument, agreement, or document, the terms, conditions
and provisions of this Agreement shall prevail.
8.6 Participations.
(a) Any Bank (a "Transferor") may from time to time sell,
assign, grant participations in, or otherwise transfer to any other
person, firm or corporation (a "Participant") all or part of the
obligations of Borrower and Guarantor to Transferor under this
Agreement.
(b) Borrower agrees that each transfer of its obligations
under this Agreement will give rise to a direct obligation of Borrower
to the Participant and that Participant shall have the same rights and
benefits under this Agreement as it would have if it were a Bank party
to this Agreement, including rights and benefits under Paragraphs 3.10
and 3.11 above.
(c) Each transferor shall remain liable for the performance
of all of its obligations under this Agreement notwithstanding any
transfer by such Transferor of Borrower's obligations under this
Agreement.
(d) Each transfer of Borrower's obligations under this
Agreement shall be on terms which provide that: (i) Participant shall
not be entitled to take or refrain from taking, or to require
Transferor to take or refrain from taking, any action under this
Agreement or any instrument or agreement required hereunder other than
through Transferor; and (ii) Except in case of insolvency, bankruptcy,
receivership or equivalent proceedings: (A) Participant shall deal only
with Transferor; and (B) Borrower shall not be required to deal with
Participant.
(e) Borrower authorizes each Bank and each Participant,
upon the occurrence of an Event of Default, to proceed directly by
right of setoff, banker's lien, or otherwise, against any assets of
Borrower which may be in the hands of Bank or such Participant,
respectively. Borrower authorizes each Bank to disclose to any
prospective Participant and any Participant any and all information in
such Bank's possession concerning Borrower, Guarantor and this
Agreement.
-24-
<PAGE> 29
8.7 Arbitration; Reference Proceeding.
(a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered
in connection herewith and any claim based on or arising from an
alleged tort, shall at the request of any party be determined by
arbitration. The arbitration shall be conducted in accordance with the
United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial
Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in
determining any claim. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit
of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation to either
Bank which is secured by real property collateral located in
California. If all parties do not consent to submission of such a
controversy or claim to arbitration, the controversy or claim shall be
determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall,
at the request of any party, be determined by a reference in accordance
with California Code of Civil Procedure Sections 638 et seq. If such an
election is made, the parties shall designate to the court a referee or
referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding
referee of the panel, or the referee if there is a single referee,
shall be an active attorney or retired judge. Judgment upon the award
rendered by such referee or referees shall be entered in the court in
which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.
(d) No provision of this Paragraph shall limit the right of
any party to this Agreement to exercise self-help remedies such as
setoff, to foreclose against or sell any real or personal property
collateral or security, or to
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<PAGE> 30
obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration
or other proceeding. The exercise of a remedy does not waive the right
of either party to resort to arbitration or reference. At each Bank's
option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of
trust or mortgage or by judicial foreclosure.
8.8 Notices. All notices required hereunder shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses set forth on the signature page of this Agreement, or to such other
addresses as the parties hereto may specify from time to time in writing.
8.9 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
8.10 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
8.11 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same agreement.
8.12 Indemnification. The Borrower shall indemnify the Banks
against, and hold the Banks harmless from, all claims, actions, losses, and
expenses, including attorneys' fees and costs incurred by the Banks, arising
from any contention that the Borrower has failed to comply with any law, rule,
regulation, order or directive applicable to the Borrower's sales or leases to
or performance of services for the Borrower's customers, including without
limitation those sales, leases, and services requiring consumer or other
disclosures. This indemnification shall survive the repayment of all principal,
interest and fees payable under this Agreement.
8.13 Setoff. Each Bank agrees that it will not set off amounts
due to such Bank against deposits made by Borrower or Guarantor at such Bank,
unless there has been an Event of Default under Paragraph 7.6 or 7.7 above.
Nothing in this Paragraph shall constitute a waiver of any rights the Banks may
have to place an administrative hold on any deposits upon the occurrence of an
Event of Default under Paragraph 7.6 or 7.7 above.
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<PAGE> 31
9. Relation of Banks.
9.1 Independent Facilities. The obligations of each Bank under
this Agreement are several and not joint, and the credit facilities provided by
each Bank under this Agreement are independent.
9.2 No Agency. Neither Bank is the agent of the other under
this Agreement, and each Bank shall manage its own credit facilities and enforce
its own rights and remedies under this Agreement; provided, however, that (a)
any amendment of this Agreement requires the consent of both Banks, and (b) any
waiver of any provision of this Agreement shall be binding only on such Bank or
Banks as consent to the waiver.
9.3 No Requirement to Share. Neither Bank shall be obligated
to share with the other Bank any payments or other amounts received from, or for
the account of, the Borrower or the Guarantor; provided, however, that to the
extent that either Bank exercises the right of setoff as permitted in Paragraph
8.13 above, then that Bank shall share the amount recovered by such setoff, with
each Bank receiving from such setoff an amount proportional to the ratio of the
total credit outstanding under this Agreement from each Bank at the time of the
setoff. The amount shared with the other Bank shall constitute a purchase of a
participation in the other Bank's credit outstanding to the Borrower.
9.4 Notices. Each Bank (the "Notifying Bank") shall promptly
give notice to the other Bank (the "Receiving Bank") of any (a) declaration of
Borrower's default made by the Notifying Bank; (b) termination of the
availability of additional credit from the Notifying Bank; or (c) acceleration
of the due date of any payment to be made to the Notifying Bank. Upon receipt of
such notice, the Receiving Bank shall have the right to terminate the
availability of any additional credit from the Receiving Bank.
9.5 Independent Credit Investigations. Each Bank represents
that it has made and agrees that it shall continue to make its own independent
investigation of the financial condition and affairs of Borrower and Guarantor
and its own appraisal of the creditworthiness of Borrower and Guarantor. Neither
Bank has any duty to provide the other Bank with any credit or other information
with respect to Borrower, Guarantor or this Agreement; provided, however, that
Borrower agrees that the Banks may share any such information as the Banks may
choose.
9.6 Other Relationships. Each Bank may accept deposits from,
lend money to, act as agent or trustee for other lenders to, and generally
engage in any kind of banking, trust or other
-27-
<PAGE> 32
business with Borrower or Guarantor as if it were not a party to this Agreement.
In Witness Whereof, the parties hereto have executed this
Agreement as of the day and year first above written.
Bank of America National Trust The Good Guys - California,
and Savings Association Inc.
By /s/ By /s/
---------------------------- ----------------------------
Title VICE PRESIDENT Title CEO
------------------------- -------------------------
By By
---------------------------- ----------------------------
Title Title
------------------------- -------------------------
Address for notices: Address for notices:
San Francisco Commercial 7000 Marina Boulevard
Banking, Concourse Level Brisbane, CA 94005-1830
345 Montgomery Street
San Francisco, CA 94104
The Union Bank of California N.A.
By /s/
----------------------------
Title VICE PRESIDENT
-------------------------
By
----------------------------
Title
-------------------------
Address for notices:
San Francisco Corporate Banking
17th Floor
400 California Street
San Francisco, CA 94104
Guarantor's Acknowledgment and Agreement
The Guarantor acknowledges the representations and warranties applicable to it
as set forth in Article 5 of the foregoing Credit Agreement and agrees that they
are true and correct. The
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<PAGE> 33
Guarantor further acknowledges the covenants applicable to it as set forth in
Article 6 of the foregoing Credit Agreement and agrees to comply with them until
full and final payment of all of the Borrower's obligations under said Credit
Agreement and any instrument or agreement required under said Credit Agreement.
The Good Guys, Inc.
By /s/
-------------------------
Title CEO
----------------------
By
-------------------------
Title
----------------------
-29-
<PAGE> 1
Exhibit 11.1
THE GOOD GUYS, INC.
STATEMENT SETTING FORTH COMPUTATION
OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, September 30, September 30,
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Net Income
1 As presented in the annual report ($6,219) $ 14,166 $ 13,893
Shares used in per share computation 13,576 13,427 13,164
Net income per common share and
common share equivalents ($0.46) $1.06 $1.06
========================================
2 Computation of primary and fully dilutive earnings per share including common stock
equivalents
a) Primary earnings per common share
Weighted average number of shares:
Common stock (A) 13,576 13,427 13,164
Stock options (B) 79 176 270
----------------------------------------
Total 13,655 13,603 13,434
----------------------------------------
Primary earnings per share ($0.46) $1.04 $1.03
========================================
b) Fully diluted earnings per share
Weighted average number of shares:
Common stock (A) 13,576 13,427 13,164
Stock options (B) 79 177 271
----------------------------------------
Total 13,655 13,604 13,435
========================================
Fully diluted earnings per share ($0.46) $1.04 $1.03
========================================
</TABLE>
A) The weighted average number of common shares outstanding during the year has
been computed by taking the number of days each share is outstanding and
dividing by the number of days in the year.
B) Stock options used in the primary earnings per share are calculated using
the average market price. Stock options in fully diluted earnings per share
are calculated using the higher of the ending market price or the average
market price.
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements made below and elsewhere in the Annual Report that are not historical
facts, including any statements about expectations for fiscal year 1997 and
beyond, involve certain risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's projections,
estimates and expectations include, but are not limited to, increases in
promotional activities of the Company's competitors, changes in consumer buying
attitudes, the presence or absence of new products or product features in the
Company's merchandise categories, changes in vendor support for advertising and
promotional programs, changes in the Company's merchandise sales mix, general
economic conditions, and other factors referred to in the Company's fiscal 1996
Annual Report on Form 10-K under "Information Regarding Forward Looking
Statements" and in the Company's Consolidated Financial Statements, and Notes
thereto. The Consolidated Financial Statements and Notes to the Consolidated
Financial Statements should be read in conjunction with this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
GENERAL
The following table sets forth, for the years indicated, the relative
percentages that certain income and expense items bear to net sales, and the
number of stores open at the end of each period:
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 23.1 % 24.2% 26.1%
Selling, general &
administrative expenses 23.8 % 21.5% 22.9%
Early retirement of assets 0.4 % -- --
Income (loss) before income taxes (1.1)% 2.6% 3.2%
Net income (loss) (0.7)% 1.6% 1.9%
Number of stores open
at end of period 75 66 52
- ----------------------------------------------------------------
</TABLE>
SALES GROWTH
Sales increased to $925.7 million in fiscal 1996 from $889.2 million in fiscal
1995 and $724.7 million in fiscal 1994. The 4% sales increase in fiscal 1996 was
a result of opening a net of nine new stores and a full year of operation for
the 14 stores opened in fiscal 1995. This was partially offset by an 8% decline
in same store sales due to the general slowdown in demand for consumer
electronics.
The 23% sales increase in fiscal 1995 was attributable to a same store
sales gain of 7%, the opening of 14 new stores, and a full year of operation of
the seven stores opened in fiscal 1994.
Comparable store sales in the future may be affected by competition, the
opening of additional stores in existing markets, the absence or introduction of
significant new products in the consumer electronics industry, and general
economic conditions.
The following table sets forth sales by product category:
SALES BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995* 1994*
- -------------------------------------------------------
<S> <C> <C> <C>
Video 39% 38% 39%
Audio and Cellular Phones 29% 32% 35%
Home Office 20% 19% 15%
Other
Accessories, Repair Service
and Premier Performance
Guarantee 12% 11% 11%
--- --- ---
Total Company 100% 100% 100%
=== === ===
- -------------------------------------------------------
</TABLE>
* Certain reclassifications have been made to the 1995 and 1994 financial
data in order to conform to the current year's presentation.
SALES/GROSS PROFIT
Net sales for fiscal 1996 increased 4% over fiscal 1995. This reflects an
increase in the total number of stores in operation from 66 at fiscal year end
1995 to 75 at fiscal year end 1996, a full year of operation for the 14 stores
opened in fiscal 1995, partially offset by an 8% decrease in same store sales.
Audio and Cellular Phone categories were impacted the most on a relative basis.
12
<PAGE> 2
Home Office continued to increase as a percentage of sales, with strong first
quarter same store sales in computers producing positive comparable sales growth
in the Home Office category for the year. Cellular Phones decreased as a
percentage of sales during the year.
Gross profit margin declined to 23.1% of sales in fiscal 1996 compared with
24.2% in fiscal 1995 and 26.1% in fiscal 1994. The gross profit margin trend
reflects the highly promotional and competitive climate in the consumer
electronics market and the growth in Home Office sales, primarily computers,
which typically carry lower gross margins than the Company's average.
During fiscal 1995, sales of Home Office products increased as a percentage
of sales due to increased demand for computers. Video and Audio remained the
Company's largest sales categories; however, Audio declined as a percentage of
sales due to the increase in Home Office sales.
Gross profit as a percentage of sales was 24.2% in fiscal 1995. The
decrease was primarily due to the increased proportion of Home Office sales,
which typically carry lower gross margins, the cost impact from enhancements
made to the Company's Premier Performance Guarantee program in November 1994 and
promotional activity in the consumer electronics market.
Sales of Premier Performance Guarantee contracts were 5%, 5% and 6% for the
fiscal years ending 1996, 1995 and 1994, respectively. Profit margins on
products sold with Premier Performance Guarantee contracts are generally higher
than margins on other products the Company sells.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of payroll,
advertising and occupancy costs. Although some of these expenses vary
proportionately with sales, there is a fixed component to them that allows the
Company to leverage its costs with additional sales. This leverage may not be
fully realized during periods when a large number of stores are opened because
new stores typically generate lower sales than the average mature location. This
provides an opportunity to improve the percentage as new stores mature and we
open additional stores in both our established and new market areas.
Selling, general and administrative expenses as a percentage of sales were
23.8% in fiscal 1996 compared to 21.5% in fiscal 1995 and 22.9% in fiscal 1994.
The increase as a percentage of sales in fiscal 1996 was a result of the decline
in same store sales, an increase in net advertising expense and the fixed costs
associated with new stores, which averaged 0.6% of sales more than a mature
store. The decrease as a percentage of sales between fiscal 1995 and fiscal 1994
reflects the cost reductions related to restructuring store operations and the
leverage from same store sales growth.
During the fourth quarter of fiscal 1996, the Company closed and remodeled
its Redondo Beach store to a new format. The Company has identified and begun to
initiate additional store relocations/renovations to this new format. The
amounts expensed as early retirement of assets reflect the write off of the
Redondo Beach store assets as well as amounts reserved for lease payment
obligations and assets to be written off in relation to the additional stores
noted above.
NET INCOME (LOSS)
Income (loss) before income taxes as a percentage of sales for fiscal years
1996, 1995 and 1994 was (1.1%), 2.6% and 3.2%, respectively.
The effective income tax rates for fiscal years 1996, 1995 and 1994 were
(37.7%), 39.9% and 41.0%, respectively. The 1996 income tax benefit was reduced
by the California net operating loss carryforward limitations. The 1995
effective tax rate was positively impacted by the utilization of job tax credits
during the first half of that fiscal year.
Net income (loss) as a percentage of sales for fiscal years 1996, 1995 and
1994 was (0.7%), 1.6% and 1.9%, respectively. The decrease in fiscal 1996 was
attributable to reductions in comparable store sales without proportional
decreases in selling, general and administrative expenses, a decrease in gross
margin previously commented on, and the reserve for retirement of assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sales are primarily cash and credit card transactions, providing a
source of liquidity for the Company. The Company also uses private label credit
card programs administered and financed by financial services companies, which
allow the Company to expand store sales without the burden of additional
receivables. Working capital requirements are reduced by vendor credit terms
that allow the Company to finance a portion of its inventory. The Company also
uses lease financing to fund a portion of its capital requirements.
13
<PAGE> 3
As of the end of fiscal 1996, the Company had working capital of $65.6
million, compared to $74.0 million in fiscal 1995 and $66.9 million in fiscal
1994. In fiscal 1996, net cash provided by operating activities was $16.6
million, compared to $11.7 million in 1995 and $26.1 million in fiscal 1994,
respectively. This increase in net cash provided by operating activities was
primarily attributable to an increase in accounts payable partially offset by an
increase in merchandise inventories, income taxes receivable and a net loss for
the year. The fiscal 1995 decrease in net cash provided by operating activities
was primarily attributable to an increase in merchandise inventories and
accounts receivable that were partially offset by an increase in accounts
payable and accrued expenses.
During fiscal 1996, the Company added 11 stores and closed two stores. The
Company added 14 stores in fiscal 1995 and seven stores in fiscal 1994. This
expansion has been financed primarily through the use of cash provided from
operations and lease financing. Cash utilized for capital expenditures was
$12.5, $17.8 and $19.6 million for fiscal years 1996, 1995 and 1994,
respectively. The Company plans to open one to three new stores and
remodel/relocate several stores during fiscal 1997. Management estimates that
each new store or remodel requires approximately $1.5 to $2.0 million for
leasehold improvements, fixtures and equipment and inventory.
The Company expects to be able to fund its working capital requirements and
expansion plans, including remodels and relocations, with a combination of
anticipated cash flow from operations, normal trade credit, financing agreements
and continued use of lease financing.
It is the Company's intention to replace its existing $75 million committed
unsecured revolving bank line of credit with a new $50 million committed
unsecured revolving bank line of credit by December 31, 1996. The Company
expects that, as is true under its existing credit agreement, funds borrowed
under the new credit facility will bear interest at varying alternative rates
based on the prime rate and various domestic and international money market
rates. The new credit facility is expected to expire on December 31, 1997 and to
be used for working capital and store construction purposes. At both September
30, 1996 and 1995, there were no borrowings outstanding under the line.
The Company also has demand line of credit facilities with various banks
totaling $30 million. These uncommitted facilities require bank approval for
each advance and allow the Company to borrow at money market rates related to
the banks' financing costs. The Company may use these facilities to fund its
working capital and construction costs and for general corporate purposes. The
amount the Company can borrow under these uncommitted demand line of credit
facilities is subject to all limitations on such borrowings contained in its
committed credit agreement.
Maximum borrowings outstanding under credit facilities during fiscal 1996
were $38 million, compared to $20 million in fiscal 1995 and $10 million in
fiscal 1994. The weighted average borrowings outstanding under credit facilities
during fiscal years 1996, 1995 and 1994 were $9,475,000, $5,500,000 and
$400,000, respectively. The weighted average interest rates for such borrowings
were 5.8% during fiscal 1996, 8.3% during fiscal 1995 and 6.0% during fiscal
1994.
IMPACT OF INFLATION
The Company believes that, because of competition among manufacturers and the
technological changes in the consumer electronics industry, inflation has not
had a significant effect on results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statements of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and SFAS No. 123, "Accounting for Stock-Based
Compensation" in fiscal 1997. Although the Company has not completed its review
of these standards, management does not believe they will have a significant
impact on its financial statements when implemented. For further discussion, see
Note 1 to the Consolidated Financial Statements included in this Annual Report.
14
<PAGE> 4
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share and other data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Net sales $925,714 $889,206 $724,713 $562,827 $509,629
Cost of sales 711,463 674,179 535,690 402,755 374,200
-------- -------- -------- -------- --------
Gross profit 214,251 215,027 189,023 160,072 135,429
Selling, general and administrative expenses 220,032 191,066 166,046 147,579 129,330
Early retirement of assets 3,741 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) from operations (9,522) 23,961 22,977 12,493 6,099
Interest income 211 220 758 477 471
Interest expense 679 619 191 131 238
-------- -------- -------- -------- --------
Income (loss) before income taxes (9,990) 23,562 23,544 12,839 6,332
Income tax expense (benefit) (3,771) 9,396 9,651 5,188 2,539
-------- -------- -------- -------- --------
Net income (loss) $ (6,219) $ 14,166 $ 13,893 $ 7,651 $ 3,793
======== ======== ======== ======== ========
Net income (loss) per share $ (0.46) $ 1.06 $ 1.06 $ 0.60 $ 0.29
Weighted average shares 13,576 13,427 13,164 12,787 12,908
FINANCIAL POSITION
Working capital $ 65,606 $ 74,042 $ 66,900 $ 59,320 $ 47,440
Total assets $246,015 $227,729 $188,712 $149,782 $128,121
Shareholders' equity $129,268 $136,022 $118,948 $102,518 $ 91,274
OTHER DATA
Number of stores at year end 75 66 52 45 41
Average sales per store (in thousands) $ 13,024 $ 14,962 $ 14,912 $ 12,998 $ 13,700
Sales per selling square foot $ 1,213 $ 1,481 $ 1,519 $ 1,324 $ 1,426
Sales per gross square foot $ 756 $ 921 $ 925 $ 813 $ 897
Comparable stores sales (8)% 7% 19% 0% 2%
Inventory turns* 5.9 6.4 6.4 6.0 6.5
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on average of beginning and ending inventories for each fiscal year.
15
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,965 $ 18,434
Accounts receivable, less allowance for doubtful accounts of $921 and $569 21,601 21,209
Income taxes receivable 8,372 -
Merchandise inventories 123,802 115,806
Prepaid expenses 6,613 10,300
-------- ---------
Total current assets 182,353 165,749
PROPERTY AND EQUIPMENT:
Leasehold improvements 58,490 51,127
Furniture, fixtures, and equipment 43,278 37,791
Construction in progress 9,516 12,907
-------- ---------
Total property and equipment 111,284 101,825
Less accumulated depreciation and amortization 49,614 42,584
-------- ---------
Property and equipment - net 61,670 59,241
-------- ---------
Other assets 1,992 2,739
-------- ---------
Total Assets $246,015 $227,729
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 73,531 $ 53,504
Accrued expenses and other liabilities:
Payroll 12,630 12,435
Sales taxes 5,447 6,025
Other 25,139 19,743
-------- ---------
Total current liabilities 116,747 91,707
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -
Authorized, 2,000,000 shares - None issued
Common stock, $.001 par value:
Authorized, 40,000,000 shares; Issued and outstanding,
13,554,862 and 13,581,416 shares, respectively 14 14
Additional paid-in capital 61,298 61,833
Retained earnings 67,956 74,175
-------- ---------
Total shareholders' equity 129,268 136,022
-------- ---------
Total Liabilities and Shareholders' Equity $246,015 $227,729
======== ========
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
16
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
- -------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share data)
<S> <C> <C> <C>
Net sales $925,714 $889,206 $724,713
Cost of sales 711,463 674,179 535,690
-------- -------- --------
Gross profit 214,251 215,027 189,023
Selling, general and administrative expenses 220,032 191,066 166,046
Early retirement of assets 3,741 -- --
-------- -------- --------
Income (loss) from operations (9,522) 23,961 22,977
Interest income 211 220 758
Interest expense (679) (619) (191)
-------- -------- --------
Income (loss) before income taxes (9,990) 23,562 23,544
Income tax expense (benefit) (3,771) 9,396 9,651
-------- -------- --------
Net income (loss) $ (6,219) $ 14,166 $ 13,893
======== ======== ========
Net income (loss) per share $ (0.46) $ 1.06 $ 1.06
======== ======== ========
Weighted average shares 13,576 13,427 13,164
======== ======== ========
- -------------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
17
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 13,021,028 $13 $56,389 $46,116 $102,518
Issuance of common stock under
Employees Stock Purchase Plan 228,054 2,180 2,180
Exercise of stock options including
related tax benefits 33,099 357 357
Net income 13,893 13,893
---------- --- ------- ------- --------
Balance at September 30, 1994 13,282,181 13 58,926 60,009 118,948
Issuance of common stock under
Employees Stock Purchase Plan 264,335 1 2,576 2,576
Exercise of stock options including
related tax benefits 34,900 332 332
Net income 14,166 14,166
---------- --- ------- ------- --------
Balance at September 30, 1995 13,581,416 14 61,833 74,175 136,022
Issuance of common stock under
Employees Stock Purchase Plan 317,316 2,397 2,397
Exercise of stock options including
related tax benefits 14,630 84 84
Repurchase and retirement of common stock (358,500) (3,016) (3,016)
Net loss (6,219) (6,219)
---------- --- ------- ------- --------
Balance at September 30, 1996 13,554,862 $14 $61,298 $67,956 $129,268
========== === ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
18
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(6,219) $14,166 $13,893
Adjustments to reconcile net income (loss) to net cash provided
(used) in operating activities:
Depreciation and amortization 9,456 9,387 8,485
Early retirement of assets 3,741 - -
Allowance for doubtful accounts 352 88 (219)
Shareholders' equity tax benefits from stock options 29 56 132
Change in:
Accounts receivable (744) (10,217) 2,134
Income taxes receivable (8,372) - -
Merchandise inventories (7,996) (20,878) (23,404)
Prepaid expenses and other assets 4,407 (2,827) 2,571
Accounts payable 20,027 12,266 15,510
Accrued expenses and other liabilities 1,901 9,677 6,990
------- ------- -------
Net cash provided by operating activities 16,582 11,718 26,092
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (12,487) (17,797) (19,577)
------- ------- -------
Net cash used in investing activities (12,487) (17,797) (19,577)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,452 2,852 2,405
Repurchase and retirement of common stock (3,016) - -
------- ------- -------
Net cash provided (used) in financing activities (564) 2,852 2,405
Net increase (decrease) in cash 3,531 (3,227) 8,920
Cash at beginning of period 18,434 21,661 12,741
------- ------- -------
Cash at end of period $21,965 $18,434 $21,661
======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
19
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The Good Guys, Inc., through its wholly owned subsidiary (together,
the Company), is a retailer of consumer electronic products in California,
Nevada, Oregon and Washington.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the The Good Guys, Inc. and its wholly owned subsidiary. All
significant intercompany transactions have been eliminated in consolidation.
CASH EQUIVALENTS: Cash equivalents represent short-term, highly liquid
investments with original maturities of three months or less. Interest earned
from these investments is included in interest income.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
and amortization are computed using the straight line method based on an
estimated useful life of five years for furniture, fixtures and equipment, and
the lesser of the estimated useful lives of assets or the remaining lease terms
for leasehold improvements.
ADVERTISING: Advertising costs are charged to expense when incurred. Advertising
costs for fiscal years ended 1996, 1995, and 1994 were $60,665,000, $58,786,000,
and $47,758,000, respectively.
STORE PRE-OPENING COSTS: Store pre-opening costs are expensed as incurred.
INSURANCE RISK RETENTION: The Company retains certain risks for workers'
compensation, general liability and employee medical programs and accrues
estimated liabilities on an undiscounted basis for known claims and claims
incurred but not reported.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: The Company recognizes revenue at the point of sale.
Merchandise returns are recorded at the time of return, as the effect of returns
is not significant to the Company's operating results.
PREMIER PERFORMANCE GUARANTEE CONTRACTS: The Company sells extended service
contracts ("Premier Performance Guarantee contracts") on behalf of an unrelated
company (the "Warrantor") that markets this product for merchandise sold by the
Company. Commission revenue is recognized at the time of sale. The Company acts
solely as an agent for the Warrantor and has no liability to the customer under
the extended service contract nor any other material obligation to the customer
or the Warrantor. Merchandise presented to the Company for servicing under
extended service contracts is repaired by the Company on behalf of the
Warrantor. The repairs are billed to the Warrantor at amounts customarily
charged by the Company for these services.
INCOME TAXES: The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Under this standard, deferred income taxes reflect the tax effects,
based on current tax law, of temporary differences resulting from differences
between the amounts of assets and liabilities recognized for financial reporting
and income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash
equivalents, accounts receivable and accounts payable approximate their
estimated fair values.
NET INCOME PER COMMON SHARE: Net income per share was computed based on the
weighted average number of shares of common stock outstanding during the year.
20
<PAGE> 10
NEW ACCOUNTING PRONOUNCEMENTS: The Company will adopt the following Statements
of Financial Accounting Standards ("SFAS") in the year ending September 30,
1997:
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires that long-lived assets, including
identifiable intangible assets, used by an entity be reviewed for impairment
whenever events or changes indicate that the carrying amount of the asset may
not be recoverable. Management has not completed its review of this statement,
but does not believe it will have a material impact on the Company's financial
position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including stock options and stock purchase plans. Under SFAS
123, compensation cost is measured at the grant date based on the fair value of
the award and is recognized over the service period which is generally the
vesting period. The new standard does not impact cash flows. Companies are
encouraged, but not required, to adopt the fair value method of accounting for
stock-based transactions. Companies are permitted to continue to account for
such transactions under Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees. SFAS No. 123 is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company has determined that it will continue to use the method of accounting
prescribed in APB 25 for measurement of employee stock based compensation, and
will begin providing the required pro forma disclosures in its financial
statements for the year ending September 30, 1997.
NOTE 2: BORROWING ARRANGEMENTS
The Company currently maintains a committed unsecured revolving line of credit
which expires on February 28, 1998. The line of credit allows borrowings of up
to $75,000,000, which fluctuate with seasonal working capital requirements. The
credit line also includes a standby letter of credit facility. There were no
borrowings under the line of credit at September 30, 1996 and 1995.
The committed agreement provides the Company with several different
borrowing alternatives with interest rates based on the prime rate and various
domestic and international money market rates. The agreement requires
maintenance of certain financial loan covenants, including minimum tangible net
worth, debt to equity and fixed charge coverage ratios, restrictions on capital
expenditures and prohibits payment of cash dividends. The Company was in
compliance with, or had received waivers for, each of the covenants for the year
ended September 30, 1996.
The Company also has demand line of credit facilities with various banks
totaling $30,000,000. These uncommitted facilities require bank approval for
each advance and allows the Company to borrow at money market rates related to
the banks' financing costs. The Company may use these facilities for working
capital, construction costs and general corporate purposes. The maximum amount
the Company can borrow under these uncommitted demand line of credit facilities
is limited by its committed credit agreement.
Interest paid for the committed and demand credit facilities was $652,000,
$606,000, and $169,000 for the fiscal years ended September 30, 1996, 1995 and
1994, respectively. At September 30, 1996 and 1995, no portion of the commitment
was reserved under the letter of credit facility.
The Company also purchases products from some vendors through finance
companies under agreements which generally require payment in 30 days and
provide for purchase discounts.
NOTE 3: INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
CURRENTLY PAYABLE (RECEIVABLE):
Federal $(6,701) $ 8,870 $7,650
State -- 2,174 1,902
------- ------- ------
Total currently payable (6,701) $11,044 9,552
Deferred tax 2,930 (1,648) 99
------- ------- ------
Total $(3,771) $ 9,396 $9,651
======= ======= ======
- ------------------------------------------------------------------------
</TABLE>
For the years ended September 30, 1996, 1995 and 1994, the Company paid income
taxes totaling $2,615,000, $9,485,000 and $10,652,000, respectively.
The fiscal year 1996 tax provision reflects the benefit of a federal net
operating loss carryback of $15,312,000 which will be fully recouped through
carryback to prior fiscal years. This amount is included in income taxes
receivable with the amounts refundable from current year estimated payments.
21
<PAGE> 11
The provisions for income taxes as reported are different from the tax
provisions computed by applying the statutory federal income tax rate. The
differences are reconciled as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax
at the statutory rate (35.0)% 35.0% 35.0%
State franchise tax,
less federal tax effect (3.7) 5.6 6.0
Other - net 1.0 (0.7) --
----- ---- ----
Total (37.7)% 39.9% 41.0%
===== ==== ====
- --------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the Company's
net deferred tax assets as of September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
CURRENT
Vacation accruals $ 937 $1,088
Prepaid expenses (1,271) (891)
Reserves 2,276 1,186
State taxes -- 733
Inventory capitalization (1,617) 1,001
Net operating loss 229 --
------- ------
Current assets - net 554 3,117
NONCURRENT
Depreciation 1,351 2,127
Other - net 171 (238)
------- ------
Noncurrent assets - net 1,522 1,889
------- ------
Total $ 2,076 $5,006
======= ======
- -------------------------------------------------------------
</TABLE>
The deferred taxes include the benefit of state net operating loss carryforwards
of $2,520,000, which expire in the year 2001.
NOTE 4: LEASES
The Company's stores, distribution and administration facilities and certain
equipment are leased under operating leases. The leases have remaining initial
terms inclusive of renewal options, of one to forty-two years and generally
provide for rent increases based on the consumer price index. Certain store
leases require additional lease payments based on store sales.
The Company subleases a portion of one of its stores to a company whose
president is also a member of the Company's Board of Directors. The lease
expires on July 31, 2003 and provides for additional rent increases based on the
consumer price index. Under the terms of the sublease agreement, the income
received for each of the years ended September 30, 1996, 1995 and 1994 was
$318,938.
The future minimum annual payments for leases having noncancelable terms in
excess of one year, net of sublease income, at September 30, 1996, are as
follows:
<TABLE>
<CAPTION>
Real
Property Equipment
- ---------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
1997 $ 30,598 $11,441
1998 30,587 9,063
1999 29,853 7,679
2000 27,284 4,693
2001 27,160 1,914
Later years through 2016 163,973 57
-------- -------
Total $309,455 $34,847
======== =======
- ---------------------------------------------------
</TABLE>
Lease expense for the years ended September 30, 1996, 1995 and 1994 was
$40,932,000, $35,958,000 and $28,149,000, respectively.
NOTE 5: EARLY RETIREMENT OF ASSETS
During the fourth quarter of 1996, the Company closed and remodeled its Redondo
Beach store. On November 1, 1996, this store reopened under the Company's new
Expo format. The Company also identified and began to initiate plans to renovate
or relocate certain stores to reflect this new concept. The amounts expensed as
early retirement of assets reflect the write off of the Redondo Beach store
assets as well as amounts reserved for lease payment obligations and/or assets
to be written off in relation to the stores noted above. Over the next several
years, the Company expects to continue to identify and convert stores to the
expo format.
22
<PAGE> 12
NOTE 6: PROFIT SHARING PLAN
The Profit Sharing Plan (the Plan) is a defined contribution plan covering
substantially all of the Company's employees. Contributions are made to the Plan
at the discretion of the Company's Board of Directors in cash or shares of the
Company's common stock. The profit sharing contributions for the years ended
September 30, 1996, 1995 and 1994 were $1,781,000, $1,467,000 and $602,000,
respectively.
NOTE 7: STOCK OPTIONS
The Company's 1985 Stock Option Plan and 1994 Stock Incentive Plan authorize the
issuance of incentive stock options and non-qualified stock options covering up
to 2,715,000 shares of common stock. Although the 1985 Plan expired in 1995 and
no further options may be granted under it, options granted prior to its
expiration remain outstanding. Options granted under both Plans are exercisable
at prices equal to the fair market value of the stock on the date of grant.
Options vest ratably over four years and no option may be granted for a term
exceeding ten years.
The following is a summary of stock option activity under the Plan for the
years ended September 30, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Number
of Shares Price Range
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at September 30, 1993 823,755 $ 2.37 - $26.25
Granted 303,150 11.25 - 17.25
Exercised (33,099) 2.94 - 13.12
Canceled (43,851) 6.50 - 26.25
--------- -----------------
Balance at September 30, 1994 1,049,955 2.37 - 26.25
Granted 338,200 9.75 - 12.63
Exercised (34,900) 2.94 - 11.25
Canceled (143,275) 9.50 - 26.25
--------- -----------------
Balance at September 30, 1995 1,209,980 2.37 - 26.25
Granted 383,000 8.13 - 10.38
Exercised (14,630) 2.94 - 6.50
Canceled (225,900) 6.50 - 26.25
--------- -----------------
Balance at September 30, 1996 1,352,450 $ 2.37 - $26.25
========= =================
- -----------------------------------------------------------------------
</TABLE>
At September 30, 1996, options for 645,963 shares were exercisable at prices
ranging from $2.37 to $26.25 per share and 557,150 shares were available for
additional option grants.
The following is a summary of non-qualified stock options not covered under
the 1985 Stock Option Plan or the 1994 Stock Incentive Plan for the years ended
September 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Number
of Shares Price Range
- -----------------------------------------------------------------
<S> <C> <C>
Balance at September 30, 1993 40,000 $6.50 - $8.12
Exercised 0 6.50 - 8.12
-------- --------------
Balance at September 30, 1994 40,000 6.50 - 8.12
Exercised 0 6.50 - 8.12
-------- --------------
Balance at September 30, 1995 40,000 6.50 - 8.12
Exercised 0 6.50 - 8.12
-------- --------------
Balance at September 30, 1996 40,000 $6.50 - $8.12
======== ==============
</TABLE>
At September 30, 1996, the options for 40,000 shares in the above table were
exercisable at prices ranging from $6.50 to $8.12.
NOTE 8: EMPLOYEE STOCK PURCHASE PLAN
The Company established an employee stock purchase plan (Plan) in February 1986,
which permits eligible employees to purchase the Company's common stock under
terms specified by this Plan. Since inception a total of 1,900,000 shares of the
Company's common stock has been reserved for issuance under this Plan, and
1,762,370 shares have been issued as of September 30, 1996.
NOTE 9: REPURCHASE AND RETIREMENT OF STOCK
In January 1996, the Company's Board of Directors authorized the purchase of up
to 500,000 shares of the Company's common stock on the open-market or in private
transactions. As of September 30, 1996, the Company had repurchased 358,500
shares on the open market for a total of $3,016,000, all of which were retired
as of that date.
23
<PAGE> 13
NOTE 10: LEGAL PROCEEDINGS
The Company is involved in a number of lawsuits, including lawsuits alleging
unfair trade practices in connection with the sale of cellular telephones and
computers. Management believes that the ultimate outcome of the lawsuits,
individually and in the aggregate, will not have a material impact on the
financial position or results of operations of the Company.
NOTE 11: QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended September 30, 1996 and 1995 are
summarized in the following table:
<TABLE>
<CAPTION>
December 31, March 31, June 30, September 30,
1995 1996 1996 1996
- ------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $306,715 $210,415 $196,553 $212,031
Gross profit 69,760 47,749 47,655 49,087
Net income (loss) 6,728 289 (3,434) (9,802)
Net income (loss) per share $ 0.50 $ 0.02 $ (0.25) $ (0.72)
- ------------------------------------------------------------------------------------------
<CAPTION>
December 31, March 31, June 30, September 30,
1994 1995 1995 1995
- ------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $281,658 $195,745 $198,315 $213,488
Gross profit 67,956 47,327 49,259 50,485
Net income 8,601 2,300 2,222 1,043
Net income per share $ 0.65 $ 0.17 $ 0.17 $ 0.08
- ------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Good Guys, Inc.
Brisbane, California
We have audited the accompanying consolidated balance sheets of The Good Guys,
Inc. as of September 30, 1996 and 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended September 30, 1996. 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 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of The Good Guys,
Inc. at September 30, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended September 30,
1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Francisco, California
November 20, 1996
25
<PAGE> 15
CORPORATE INFORMATION
OFFICERS
Robert A. Gunst
President and Chief Executive Officer
Dennis C. Carroll
Vice President and Chief Financial Officer
Thomas A. Hannah
Senior Vice President, Operations
Brad S. Bramy
Vice President, Advertising
William C. Curley
Vice President, MIS and Operations
John G. Duken
Vice President, Store Operations
William B. Perlstein
Vice President, Stores
Gregory L. Steele
Vice President, Real Estate
Gera M. Vaz
Vice President, Human Resources
DIRECTORS
Stanley R. Baker
Director
Robert A. Gunst
Director, President and
Chief Executive Officer of the Company
W. Howard Lester
Director and Chairman and Chief Executive Officer of Williams-Sonoma, Inc.
John E. Martin
Director and Chairman and
Chief Executive Officer of PepsiCo.
Casual Restaurants International
Russell M. Solomon
Director and Founder and
President of MTS, Inc. (Tower Records)
ANNUAL MEETING
February 11, 1997, 10:30 AM
Bank of America Building
A.P. Giannini Auditorium
555 California Street
San Francisco, CA 94104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
50 Fremont Street San Francisco, CA 94105
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations
P.O. Box 469
Washington Bridge Station
New York, NY 10033
(800) 356-2017
FORM 10-K
A copy of the Company's From 10-K Annual Report filed with the Securities and
Exchange Commission may be obtained without charge by writing to Investor
Relations at the address noted below.
QUARTERLY REPORTS
Shareholders can obtain a faxed copy of recent quarterly financial press
releases by calling Company News On Call, a division of PR Newswire, at
1-800-758-5804. THE GOOD GUYS! news # is 108403.
Or visit THE GOOD GUYS! home page on the Internet @http://www.thegoodguys.com.
Or write to:
THE GOOD GUYS!
Attn: Investor Relations
7000 Marina Blvd.
Brisbane, CA 94005-1840
COMMON STOCK
The Good Guys, Inc. common stock is traded on the Nasdaq National Market under
the symbol GGUY. The following table sets forth the quarterly high and low
sales prices for the Company's common stock as quoted in the Nasdaq National
Market for fiscal 1995 and 1996.
<TABLE>
<CAPTION>
Fiscal Quarter Ended HIGH LOW
- ---------------------------------------------------------------
<S> <C> <C>
December 31, 1994 13 11
March 31, 1995 13 11
June 30, 1995 11 9
September 30, 1995 13 7/8 10 7/8
December 31, 1995 11 5/8 8 5/8
March 31, 1996 9 1/8 7
June 30, 1996 10 7/8 8
September 30, 1996 9 1/8 7 5/8
</TABLE>
As of November 26, 1996 there were 2,174 shareholders of record, excluding
shareholders whose stock is held in nominee or street name by brokers.
The Company's present policy is to retain its earnings to finance future growth
and, accordingly, it does not anticipate paying cash dividends in the
foreseeable future.
26
<PAGE> 1
Exhibit 23.1
DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-5935, 33-19342, 33-32986, 33-38749, 33-39421, 33-49960, 33-56524 and
33-60957 of The Good Guys, Inc. on Form S-8 of our report dated November 20,
1996, appearing in and incorporated by reference in the Annual Report on Form
10-K of The Good Guys, Inc. for the year ended September 30, 1996.
/s/ DELOITTE & TOUCHE LLP
December 30, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons
whose signature appears below, being a member of the Board of Directors of The
Good Guys, Inc. (the "Company"), hereby constitutes and appoints Robert A.
Gunst and Dennis C. Carroll, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for and in his name, place and stead, in any and all capacities, to sign on his
behalf the Company's ANNUAL REPORT ON FORM 10-K for its fiscal year ended
September 30, 1996, and to execute any amendments thereto, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, with the full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
This power of attorney may be executed in any number of
counterparts.
DATED: November 19, 1996
/s/ ROBERT A. GUNST
-----------------------------
Robert A. Gunst
/s/ STANLEY R. BAKER
--------------------------------
Stanley R. Baker
/s/ RUSSELL M. SOLOMON
---------------------------------
Russell M. Solomon
/s/ W. HOWARD LESTER
--------------------------------
W. Howard Lester
/s/ JOHN E. MARTIN
-----------------------------
John E. Martin
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,965
<SECURITIES> 0
<RECEIVABLES> 22,522
<ALLOWANCES> 921
<INVENTORY> 123,802
<CURRENT-ASSETS> 182,353
<PP&E> 111,284
<DEPRECIATION> 49,614
<TOTAL-ASSETS> 246,015
<CURRENT-LIABILITIES> 116,747
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 129,254
<TOTAL-LIABILITY-AND-EQUITY> 246,015
<SALES> 925,714
<TOTAL-REVENUES> 925,714
<CGS> 711,463
<TOTAL-COSTS> 711,463
<OTHER-EXPENSES> 223,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468
<INCOME-PRETAX> (9,990)
<INCOME-TAX> (3,771)
<INCOME-CONTINUING> (6,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,219)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
