<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
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 Blvd.
Brisbane, CA 94005-1840
(Address of principal executive offices)
(650) 615-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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. [ X ] Yes [ ] No
CLASS OUTSTANDING AS OF April 30, 1999
------------ --------------------------------
Common Stock 14,532,350
<PAGE> 2
THE GOOD GUYS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Operations -
Three and six month periods ended March 31, 1999 and 1998 4
Consolidated Statement of Changes in Shareholders' Equity -
Six month period ended March 31, 1999 5
Consolidated Statements of Cash Flows -
Six month periods ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
-------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,124 $ 3,051
Accounts receivable, net 26,184 26,653
Merchandise inventories 147,596 135,072
Prepaid expenses 6,530 6,445
-------- --------
Total current assets 183,434 171,221
PROPERTY AND EQUIPMENT:
Leasehold improvements 68,483 63,818
Furniture, fixtures and equipment 67,334 59,284
Construction in progress 8,613 12,684
-------- --------
Total property and equipment 144,430 135,786
Less accumulated depreciation and amortization 67,978 63,570
-------- --------
Property and equipment, net 76,452 72,216
OTHER ASSETS 7,283 7,421
-------- --------
Total Assets $267,169 $250,858
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 92,205 $ 96,517
Accrued expenses and other liabilities:
Accrued payroll 10,757 10,630
Sales taxes payable 5,806 5,940
Other 21,359 25,764
-------- --------
Total current liabilities 130,127 138,851
LOAN PAYABLE, NONCURRENT 29,305 --
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value:
Authorized - 2,000,000 shares
Issued -none -- --
Capital stock, $.001 par value
Authorized -40,000,000 shares
Issued and outstanding -14,532,350 and
14,250,218 shares, respectively 15 14
Additional paid-in-capital 66,475 65,152
Retained earnings 41,247 46,841
-------- --------
Total shareholders' equity 107,737 112,007
-------- --------
Total liabilities and Shareholders' Equity $267,169 $250,858
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 219,099 $ 209,062 $ 513,199 $ 499,365
Cost of sales 167,156 156,730 389,806 375,412
--------- --------- --------- ---------
Gross profit 51,943 52,332 123,393 123,953
Selling, general and administrative expenses 59,475 55,243 127,733 122,810
--------- --------- --------- ---------
Income (loss) from operations (7,532) (2,911) (4,340) 1,143
Interest expense, net 666 242 1,254 495
--------- --------- --------- ---------
Income (loss) before income taxes (8,198) (3,153) (5,594) 648
Income tax expense (benefit) (952) (1,159) 0 239
--------- --------- --------- ---------
Net income (loss) $ (7,246) $ (1,994) $ (5,594) $ 409
========= ========= ========= =========
Net income (loss) per common share
Basic $ (0.50) $ (.14) $ (0.39) $ .03
========= ========= ========= =========
Diluted $ (0.50) $ (.14) $ (0.39) $ .03
========= ========= ========= =========
Weighted average shares
Basic 14,508 13,995 14,378 13,856
========= ========= ========= =========
Diluted 14,508 13,995 14,378 13,889
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 14,250,218 $ 14 $ 65,152 $ 46,841 $ 112,007
Issuance of common stock 282,132 1 1,323 1,324
Net loss for the six-month period
ended March 31, 1999 (5,594) (5,594)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 14,532,350 $ 15 $ 66,475 $ 41,247 $ 107,737
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
THE GOOD GUYS, INC. AND SUBSIDIARY
CONSOLIDATED STATMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (5,594) $ 409
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,209 5,258
Early retirement of assets 702 --
Changes in assets and liabilities:
Accounts receivable 469 (7,580)
Income taxes receivable 6,176
Merchandise inventories (12,524) (27,666)
Prepaid expenses and other assets 53 1,069
Accounts payable (4,312) 10,759
Accrued expenses and other liabilities (4,412) 3,914
-------- --------
Net cash used in operating activities (19,409) (7,661)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (11,147) (7,106)
-------- --------
Net cash used in investing activities (11,147) (7,106)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 29,305 --
Proceeds from issuance of common stock 1,324 2,426
Repurchase and retirement of common stock -- (1,382)
-------- --------
Net cash provided by financing activities 30,629 1,044
-------- --------
Net increase (decrease) in cash and cash equivalents 73 (13,723)
Cash and cash equivalents at beginning of period 3,051 18,951
-------- --------
Cash and cash equivalents at end of the period $ 3,124 $ 5,228
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
THE GOOD GUYS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles and reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information contained therein. The consolidated financial statements
should be read in conjunction with the financial statements, notes and
supplementary data included and incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998.
2. Net income per common share has been computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). SFAS 128 requires a dual presentation of basic and
diluted earnings per share (EPS). Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. No potential common shares were included in the
computation of diluted per-share amounts for the periods presented,
during which a loss from operations was recorded, as such potential
shares would be anti-dilutive.
3. In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities,"
was issued, which defines derivatives, requires all derivatives be
carried at fair value, and provides for hedging accounting when certain
conditions are met. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Although the Company has
not fully assessed the implications of this new statement, the Company
does not believe adoption of this statement will have a material impact
on the Company's financial statements.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
BUSINESS OUTLOOK AND RISK FACTORS
The trend analyses and other non-historical information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor provisions
of those Sections. Such forward looking statements include, without limitation,
statements concerning the Company's future net sales, net earnings and other
operating results. The Company's actual results could differ materially from
those discussed in the forward looking statements, due to a number of factors,
including but not limited to success in finding a new chief executive officer,
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,
changes in the Company's merchandise sales mix, general economic conditions,
risks associated with Year 2000 issues, and other factors referred to in the
Company's fiscal 1998 Annual Report on Form 10-K under "Information Regarding
Forward Looking Statements".
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1999 were $219.1 million, an increase
of 5% from sales of $209.1 million last year. During the second quarter of
fiscal 1999, comparable store sales increased 1% from the same period last year.
During the quarter, sales of new digital technologies --- such as DVD, digital
television, digital camcorders and audio components --- were relatively strong,
but were partially offset by decreased same store dollar sales in older
technologies, such as VCR, home office, portable stereo, stereo systems, and
traditional photographic equipment. Also negatively impacting same store sales
was a decline in the sale of Premier Performance Guarantee contracts from 5.1%
of sales during the second quarter of fiscal 1998 to 4.7% this year.
For the six months ended March 31, 1999, sales increased by 3% to $513.2 million
compared to $499.4 million for the six months ended March 31, 1998. Comparable
store sales for the first six months of fiscal 1999 were level with the prior
year. The increase in net sales was primarily attributable to two new stores
that opened during the first quarter of fiscal 1999 and the remodeling of two
existing stores into the Audio/Video Exposition format, partially offset by the
impact of temporary store closings for remodel into the Expo format during the
period. During the first half of 1999, sales of new digital technologies ---
such as DVD, audio components, camcorders and digital television --- were
strong, but were partially offset by dollar same store sales decreases in VCR,
home office, portable audio, traditional photographic equipment and stereo
systems. Also negatively impacting same store sales was a decline in the sale of
Premier Performance Guarantee contracts from 5.0% of sales during the first six
months of fiscal 1998 to 4.5% this year.
The Company's gross profit as a percentage of sales was 23.7% during the second
fiscal quarter of 1999, versus 25.0% last year. The decrease in the gross profit
percentage resulted primarily from more promotional pricing, lower
year-over-year sales of Premier Performance Guarantee contracts, higher credit
card promotional expenses, and higher inventory shrinkage.
For the first half of fiscal 1999, the Company's gross profit as a percentage of
sales was 24.0%, versus 24.8% last year. The decreased gross profit percentage
in 1999 was primarily the result of lower year-over-year sales of Premier
Performance Guarantee contracts, higher credit card promotional expenses, and
higher inventory shrinkage.
8
<PAGE> 9
Selling, general and administrative expense increased by $4.2 million and $4.9
in the second quarter and first six months of fiscal 1999, respectively,
compared to the corresponding periods in fiscal 1998. Selling, general and
administrative expenses were 27.1% and 24.9% of net sales in the second quarter
and first six months of fiscal 1999, respectively, compared to 26.4% and 24.6%
of net sales in the corresponding periods of fiscal 1998. The increase in
selling, general and administrative expenses is primarily due to more stores in
operation and the pre-opening costs relating to the Company's Audio/Video
Exposition remodeling program, partially offset by lower net advertising
expenses.
Interest expense increased by $0.4 million and $0.8 million in the second
quarter and first six months of fiscal 1999, respectively, compared to the
corresponding periods in fiscal 1998. This increase was due to higher levels of
borrowings in the current fiscal year, primarily to finance the build-out of new
and remodeled stores, which the Company expects will continue for the balance of
the year.
The Company's effective tax benefit was 11.6% and 0% for the second quarter and
first six months of fiscal 1999, respectively, compared to a tax benefit of
36.8% and tax rate of 36.9% for the corresponding periods in fiscal 1998. The
change in the effective tax rate for the second quarter of 1999 is due to the
fact that the Company has now used all of the loss carrybacks available from
previous fiscal years.
As a result of the factors discussed above, the net loss in the second quarter
of fiscal 1999 was $7.2 million, compared to $2.0 million in the same period in
fiscal 1998; and diluted earnings per share were $(0.50) and $(0.14),
respectively. The net loss for the first six months of fiscal 1999 was $5.6
million, compared to net income of $0.4 million in the same period in fiscal
1998; and the diluted loss/earnings per share was $(0.39) and $0.03,
respectively.
The Company continues to focus on quality execution to enhance customer
satisfaction and competitive differentiation. Over the past quarter, it has also
taken steps to lower its store operating cost structure, enhance its advertising
tactics, refine the merchandising and presentation of existing product lines,
and introduce new product lines and technologies into its mix. By focusing on
these and other key initiatives, the Company expects to make progress towards
attaining profitability. However, the return to profitability is contingent on
many factors, including but not limited to the development of consumer
acceptance of new technologies, consumer demand for existing technologies, the
presence or absence of new features on existing merchandise, and economic
conditions in the regions in which our stores are located.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $53.3 million, and the
Company's cash and cash equivalents were $3.1 million, similar to September 30,
1998. Net cash used in operating activities was $19.4 million for the six months
ended March 31, 1999, compared to $7.7 million for the six months ended March
31, 1998. The decrease in net cash provided by operating activities for the
first six months of fiscal 1999 was primarily due to increased inventory levels
from September 30, 1999 and decreased net income.
9
<PAGE> 10
Net cash used in investing activities, which primarily consists of expenditures
for stores, distribution facilities and administrative property and equipment,
was $11.1 million for the six months ended March 31, 1999, as compared to $7.1
million for the six months ended March 31, 1998. During the first quarter of
fiscal 1999, the Company opened two Audio/Video Exposition-Enhanced WOW! stores,
one of which replaced an existing store. The Company also opened two new stores
in the Audio/Video Exposition format during that quarter.
At March 31, 1999, the Company maintained a revolving credit agreement which
allowed borrowings of up to $75 million. Effective April 29, 1999, the revolving
credit agreement limit was raised to allow borrowings up to $82.5 million. The
agreement requires maintenance of certain financial loan covenants, including
minimum tangible net worth, restrictions on capital expenditures and prohibits
payment of cash dividends, which, if violated, could be used as a basis for
termination of the agreement. The revolving credit is secured by the Company's
assets. For the six months ended March 31, 1999, the Company was in compliance
with all covenants under the credit agreement. The revolving credit also
includes a standby letter of credit facility. At March 31, 1999, the Company had
borrowings of $29.3 million outstanding under the revolving credit agreement and
$16 million of the credit line is reserved for outstanding letters of credit.
The Company expects to fund its working capital requirements and expansion
plans, including remodels and relocations, with a combination of cash flows from
operations, normal trade credit, and other financing arrangements.
Year 2000 Matters
As used by the Company, "Year 2000 Compliance" means that the Operating Systems
(OS), Data Base Systems, Application or Business Systems have been reviewed to
confirm that they store, process (including sorting and performing mathematical
operations), input, and output data containing date information correctly,
regardless of whether the data contains dates before, on or after January 1,
2000.
The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Internal and external resources are
being used to make the required modifications and test Year 2000 Compliance. The
Company anticipates that all testing will be concluded on or about September 30,
1999.
In addition, the Company is seeking assurances from vendors, suppliers and other
third parties with whom it does significant business to determine their Year
2000 Compliance readiness and the extent to which the Company is vulnerable to
any third party Year 2000 issues. Currently, the Company is unable to assess the
likelihood that it will experience significant operational problems due to the
unresolved Year 2000 issues of third parties who do business with the Company.
There can be no assurance that other entities will achieve timely Year 2000
compliance. If they do not, Year 2000 problems could have a material impact on
the Company's operations. Similarly, there can be no assurance that the Company
can timely mitigate its risks related to a supplier's failure to resolve its
Year 2000 issues. If such mitigation is not achievable, Year 2000 problems could
have a material impact on the Company's operations.
The Company estimates that the total cost of achieving Year 2000 compliance will
be in the range of $3,000,000 to $3,500,000, of which approximately $2.0 million
has been incurred through March 31, 1999. These costs and the date on which the
Company plans to complete the Year 2000 modifications and testing
10
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processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantees that these estimates will be achieved and actual
results could differ from those plans. The Company, however, does not anticipate
that these costs will be material to its financial position or results of
operations in any given year.
Quantitative and Qualitative Disclosures About Market Risk
The Company believes that because of competition among manufacturers and
technological changes in consumer electronics industry, inflation has not had a
material effect on net sales and cost of sales.
11
<PAGE> 12
THE GOOD GUYS, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On or about July 22, 1996, Jo 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. Plaintiffs, who are small agents
or subagents of the cellular service providers offering cellular telephone
products and service in the Orange County area, alleged a conspiracy to sell
cellular telephone equipment below cost with the intent to drive plaintiffs out
of business. This case was settled in April 1999 for an amount that was not
material to the financial condition, results of operations or liquidity.
The Company was named in July 1998 as defendants in an action entitled Cavnar,
et al. v. National Semiconductor Corp., et al., no. 996297, San Francisco
Superior Court, along with many other defendants. Plaintiffs' complaint is
styled as a class action and the primary allegation involving the Company is
that the Company's advertisements have misrepresented the amount of random
access memory in certain computers that is available for programming and
processing applications. The Company, along with several of the other retailers
defendants, filed demurrers to several of the Plaintiffs' causes of action, with
were granted without leave to amend. Two claims remain. The Company believes it
has meritorious claims for indemnification from the computer manufacturers from
which it has purchased personal computers and intends to defend the action and
pursue its indemnification claims vigorously. However, the Company, along with
other defendants, has engaged in extensive settlement negotiations in order to
resolve the litigation. A draft settlement agreement has been prepared, but has
not yet been executed by the parties and any final settlement would be subject
to court approval. If the suit were to be settled on the basis set forth in the
draft settlement agreement, the settlement would not have a material effect on
the Company's financial condition, results of operations or liquidity.
On January 13, 1999, the Company was named as a defendant in an action entitled
Johnson v. Circuit City Stores, et al., filed in Contra Costa County Superior
Court. The primary allegation is that a number of consumer electronics retailers
have sold computer hardware and software products that allegedly will not
properly process dates after December 31, 1999. Plaintiff claims that the
actions of the defendants violate the prohibitions in the California Business
and Professions Code on unfair business practices and false and misleading
advertising, and seeks injunctive relief, restitution, and attorney's fees. The
case is 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, however, believes it has meritorious defenses to the claims alleged in
the lawsuit and intends to defend the action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on February 10, 1999,
13,015,793 shares were present in person or by proxy. The matters voted upon and
the results of the voting are as follows:
12
<PAGE> 13
1. The election of directors.
<TABLE>
<CAPTION>
Votes Votes
Name For Withheld
---- ---------- -------
<S> <C> <C>
Stanley R. Baker 12,598,702 531,961
Robert A. Gunst 12,504,963 625,700
Russell M. Solomon 12,595,157 535,506
W. Howard Lester 12,594,805 535,858
John E. Martin 12,594,513 536,150
Horst H. Schulze 12,584,544 546,119
</TABLE>
2. The amendment to the Company's Employee Stock Purchase Plan to increase
the number of shares of Common Stock reserved for issuance under the
plan by 700,000: 11,030,726 votes in favor, 1,506,308 votes against and
478,759 abstentions.
3. The ratification of selection of Deloitte & Touche LLP as the
independent auditors of the Company: 12,899,169 votes in favor, 75,468
votes against and 41,156 abstentions.
Item 5. Other Information
In connection with the resignation of Robert A. Gunst as the Chief Executive
Officer of the Company, effective as of June 30, 1999, the Company entered into
a severance agreement with Mr. Gunst containing the terms set forth in Exhibit
10.13 to this report.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.11 Amendment to Loan Agreement, dated as of March 16, 1999,
between Wells Fargo and the Company.
10.12 Amendment to Loan Agreement, dated as of April 29,1999,
between Wells Fargo and the Company.
10.13 Agreement between Robert A. Gunst and the Company, dated
as of April 14, 1999.
27.1 Financial Data Schedule
b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended March 31, 1999, but reports on Form 8-K were
filed on April 23,1999 and May 5, 1999 relating to the
resignations of officers of the Company.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto.
THE GOOD GUYS, INC.
Date: May 13, 1999 By: /s/ Dennis C. Carroll
--------------------------- ------------------------------------
Dennis C. Carroll
Sr. VP, Finance & Administration,
Chief Financial Officer, Secretary
(Principal Financial Officer)
Date: May 13, 1999 By: /s/ Vance Schram
--------------------------- ------------------------------------
Vance Schram
Controller
(Principal Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
10.11 Third Amendment to Loan Agreement.
10.12 Fourth Amendment To Loan Agreement.
10.13 Employment Resignation Agreement.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.11
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Third Amendment") is
entered into as of March 16, 1999, by and among THE GOOD GUYS - CALIFORNIA,
INC., a California corporation ("Borrower"), each of the financial institutions
from time to time listed on Schedule I attached to the Loan Agreement defined
below, as amended from time to time (collectively, the "Lenders"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), as agent for the Lenders (in
such capacity, the "Agent").
RECITALS
--------
WHEREAS, Borrower is currently indebted to the Lenders pursuant to the
terms and conditions of that certain Loan Agreement among Borrower, the Lenders
and the Agent dated as of September 29, 1997, as amended from time to time (the
"Loan Agreement").
WHEREAS, the Lenders, the Agent and Borrower have agreed to certain
changes in the terms and conditions set forth in the Loan Agreement and have
agreed to amend the Loan Agreement to reflect such changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendment to Section 2.2(b). The second sentence of Section 2.2(b)
of the Loan Agreement setting forth the maximum amount of Letter of Credit
Obligations is amended in its entirety to read as follows:
Except in the Agent's and the Required Lender's discretion, the
amount of all Letter of Credit Obligations shall not at any time
exceed $20,000,000.00.
2. Conditions Precedent. The effectiveness of this Third Amendment and
the Agent's and Lenders' agreements set forth herein are subject to the
satisfaction of each of the following conditions precedent on or before March
23, 1999:
1. Documentation. Borrower shall have delivered or caused to be
delivered to the Agent, at Borrower's sole cost and expense the
following, each of which shall be in form and substance
satisfactory to the Agent:
(1) Two (2) executed original counterparts of this Third
Amendment;
(2) executed counterparts of the Consent and Reaffirmation of
Guarantor attached hereto in the form of Annex I; and
<PAGE> 2
(3) such additional agreements, certificates, reports, approvals,
instruments, documents, consents and/or reaffirmations as the
Agent or any Lender may reasonably request.
2. Amendment Fee. Borrower shall have paid to the Agent, for the
benefit of the Lenders, a non-refundable, fully earned amendment
fee of $2,500.
3. Miscellaneous. Except as specifically provided herein, all terms and
conditions of the Loan Agreement remain in full force and effect, without waiver
or modification. All terms defined in the Loan Agreement shall have the same
meaning when used in this Third Amendment. This Third Amendment and the Loan
Agreement shall be read together, as one document.
4. Representations and Warranties. Borrower hereby remakes all
representations and warranties contained in the Loan Agreement and reaffirms all
covenants set forth therein. Borrower further certifies that as of the date of
this Third Amendment there exists no Default or Event of Default as defined in
the Loan Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed as of the day and year first written above.
THE GOOD GUYS - CALIFORNIA, INC. WELLS FARGO BANK,
a California corporation NATIONAL ASSOCIATION,
as Agent and Lender
By: _______________________ By: _______________________________
Dale Foster
Title: _______________________ Vice President
<PAGE> 3
ANNEX I
-------
CONSENT AND REAFFIRMATION OF GUARANTOR
--------------------------------------
Reference is hereby made to the foregoing Third Amendment to Loan
Agreement ("Third Amendment") dated as of March 16, 1999, by and among The Good
Guys - California, Inc., a California corporation ("Borrower"), each of the
financial institutions from time to time listed on Schedule I attached to the
Loan Agreement described therein, as amended from time to time (collectively,
the "Lenders"), and Wells Fargo Bank, National Association ("Wells Fargo"), as
agent for the Lenders (in such capacity, the "Agent").
In order to induce the Agent and the Lenders to enter into the Third
Amendment, the undersigned hereby consents to the execution, delivery and
performance by Borrower, the Agent and the Lenders of the Third Amendment and
all other documents, instruments and agreements now or hereafter executed in
connection therewith (collectively, together with the Third Amendment, the
"Third Amendment Documents"). In connection therewith, the undersigned (a)
expressly and knowingly reaffirms its liability under the Continuing Guaranty
dated as of September 29, 1997 (the "Guaranty") and any and all security
agreements, pledge agreements, deeds of trust, mortgages and other collateral
documents (collectively, together with the Guaranty, the "Third Party
Documents"), heretofore executed and delivered by the undersigned from time to
time in favor of the Agent, for the benefit of the Lenders, (b) expressly agrees
to be and remain liable under the terms of such Third Party Documents for the
obligations of Borrower to the Agent and the Lenders and (c) acknowledges that
it has no defense, offset or counterclaim whatsoever against the Agent or the
Lenders with respect to the Third Party Documents to which it is a party.
The undersigned further agrees that the Third Party Documents to which
it is a party shall remain in full force and effect and are hereby ratified and
confirmed and shall guarantee payment and performance of, or continue to
constitute collateral security for, as the case may be, of all of Borrower's
obligations under the Loan Agreement and related Loan Documents, as any one or
more of the same may be amended by the Third Amendment Documents. The
undersigned acknowledges that (a) none of the Agent or the Lenders has any
obligation to inform it of the particulars of any modification or amendment to
the Loan Agreement or any other Loan Document executed in connection therewith,
and (b) it has established satisfactory means by which Borrower keeps it
informed with respect to any modification of or amendment to the Loan Agreement
and related Loan Documents.
<PAGE> 4
The undersigned further agrees that the execution of this Consent and
Reaffirmation is not necessary for the continued validity and enforceability of
the Third Party Documents to which it is a party, but is executed to induce the
Agent and the Lenders to enter into the Third Amendment Documents. The
undersigned further agrees that none of the Agent or the Lenders shall have any
obligation to notify it of any actions or omissions to act with respect to its
dealings with Borrower.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has caused this Consent and Reaffirmation to be executed as of March 16,
1999.
THE GOOD GUYS, INC.,
a Delaware corporation
By: _______________________________________
Title: _______________________________________
<PAGE> 1
EXHIBIT 10.12
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Fourth Amendment") is
entered into as of April 29, 1999, by and among THE GOOD GUYS - CALIFORNIA,
INC., a California corporation ("Borrower"), each of the financial institutions
from time to time listed on Schedule 1 attached to the Loan Agreement defined
below, as amended from time to time (collectively, the "Lenders"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION, ("Wells Fargo"), as agent for the Lenders (in
such capacity, the "Agent").
RECITALS
WHEREAS, Borrower is currently indebted to the lenders pursuant to the
terms and conditions of that certain Loan Agreement among Borrower, the Lenders
and the Agent dated as of September 29, 1997, as amended from time to time (the
"Loan Agreement").
WHEREAS, the Lenders, the Agent and Borrower have agreed to certain
changes in the terms and conditions set forth in the Loan Agreement and have
agreed to amend the Loan Agreement to reflect such changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
I. Amendment to Section 1.8. The definition of "Applicable Maximum
Amount" set forth in Section 1.8 of the Loan Agreement is
amended in its entirety to read as follows:
"Applicable Maximum Amount" means (a) from April 29, 1999,
through and including May 29, 1999, Eighty-Two Million Five
Hundred Thousand Dollars ($82,500,000), and (b) at any other
time, Seventy-Five Million Dollars ($75,000,000).
II. Amendment to Section 2.1(c). Section 2.1(c) of the Loan
Agreement is amended in its entirety to read as follows:
(c) Overadvance Subfeature; Non-Compliance with Advance
Limitations.
(i) Each Lender hereby severally agrees, on a pro
rata basis, to make Revolving Advances to
Borrower from time to time for the period from
April 29, 1999, through and including May 29,
1999, in excess of the amounts under the lending
formula (each, an "Overadvance"), but
nonetheless subject to the Applicable Maximum
Amount. The aggregate principal
<PAGE> 2
amount of such Overadvances shall not exceed, as
of any date of determination during said period,
Seven Million Five Hundred Thousand Dollars
($75,000,000.00).
(ii) The foregoing shall be referred to herein as the
"Overadvance Subfeature." Each Overadvance made
by Lender under the Overadvance Subfeature shall
be deemed a Revolving Advance under the Line of
Credit and shall be repaid by Borrower in
accordance with the terms and conditions of this
Agreement applicable to such Revolvng Advances;
provided, however, that (A) Overadvances under
the Overadvance Subfeature shall not be subject
to the lending formulas set forth in Section
2.1(a), and (B) the aggregate amount of all
outstanding Overadvances under the Overadvance
Subfeature shall be reserved under the Line of
Credit and shall not be available for Revolving
Advances thereunder.
(iii) In the event that the outstanding amount of any
component of the Revolving Advances, or the
aggregate amount of the outstanding Revolving
Advances and Letter of Credit Obligations,
exceed the amounts available under the lending
formulas, the sublimit for Overadvances set
forth in Section 2.1 (c)(i), the sublimits for
Letters of Credit set forth in Section 2.2(b) or
the then Applicable Maximum Amount, as the case
may be, such event shall not limit, waive or
otherwise affect any rights of the Agent in that
circumstances or on any future occasions and
Borrower shall, upon demand by the Agent, which
may be made at any time or from time to time,
immediately repay to Lenders the entire amount
of any such excess(es) for which payment is
demanded.
III. Exhibit B. Exhibit B (the Line of Credit Note) to the Loan
Agreement is amended and restated in its entirety by Exhibit B
attached hereto as Annex I.
IV. Conditions Precedent. The effectiveness of this Fourth Amendment
and the Agent's and Lenders' agreements set forth herein are
subject to the satisfaction of each of the following conditions
precedent on or before April 29, 1999:
A. Documentation. Borrower shall have delivered or
caused to be delivered to the Agent, at
Borrower's sole cost and expense the following,
each of which shall be in form and substance
satisfactory to the Agent:
<PAGE> 3
(a) Two (2) executed original counterparts
of this Fourth Amendment;
(b) executed counterparts of the Consent and
Reaffirmation of Guarantor attached
hereto in the form of Annex II;
(c) unanimous written consent of the board
of directors of Borrower authorizing
Borrower to borrow, under the Loan
Agreement, any amount not to exceed
$82,500,000.00;
(d) an Amended and Restated Line of Credit
Note executed by Borrower in favor Wells
Fargo substantially in the form of Annex
I attached hereto; and
(e) such additional agreements,
certificates, reports, approvals,
instruments, documents, consents and/or
reaffirmations as the Agent or any
Lender may reasonably request.
B. Amendment Fee. Borrower shall have paid to the Agent,
for the benefit of the Lenders, an amendment fee of
$75,000; provided that upon extension of the Loan
Agreement for a period of at least one year from the
Line Maturity Date, $25,000 of said amendment fee shall
be refunded to Borrower concurrently with the
effectiveness of such extension of the Loan Agreement.
V. Miscellaneous. Except as specifically provided herein, all terms
and conditions of the Loan Agreement remain in full force and
effect, without waiver or modification. All terms defined in the
Loan Agreement shall have the same meaning when used in this
Fourth Amendment. This Fourth Amendment and the Loan Agreement
shall be read together, as one document.
VI. Representations and Warranties. Borrower hereby remakes all
representations and warranties contained in the Loan Agreement
and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of this Fourth Amendment there
exits no Default of Event of Default as defined in the Loan
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to be executed as of the day and year first written above.
<PAGE> 4
THE GOOD GUYS - CALIFORNIA, INC. WELLS FARGO BANK,
a California corporation NATIONAL ASSOCIATION,
as Agent and Lender
By: By:
------------------------------- -------------------------------------
Dale Foster
Vice President
Title:
----------------------------
<PAGE> 5
ANNEX I
AMENDED AND RESTATED
LINE OF CREDIT NOTE
$82,500,000 April 29, 1999
FOR VALUE RECEIVED, the undersigned, THE GOOD GUYS - CALIFORNIA,
INC., a California corporation ("Borrower"), hereby promises to pay to the order
of WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association
("Lender"), on the Line Maturity Date the principal sum of Eighty-Two Million
Five Hundred Thousand Dollars ($82,500,000), or such lesser amount as shall
equal the aggregate outstanding principal balance of all Revolving Advances made
by Lender to Borrower pursuant to the Loan Agreement referred to below.
This promissory note is one of the Line of Credit Notes referred to in,
and subject to the terms of, that certain Loan Agreement among Borrower, Lender
and the other financial institutions from time to time parties thereto
(collectively, the "Lenders"), and Wells Fargo Bank, National Association, as
agent for the Lenders, dated as of September 29, 1997 (as amended, modified or
supplemented from time to time, the "Loan Agreement"). Capitalized terms used
herein shall have the respective meanings assigned to them in the Loan
Agreement. This promissory note amends and restates in its entirety that certain
Line of Credit Note dated as of September 29, 1997 executed and delivered by
Borrower to the order of Lender in the original principal amount of up to
$75,000,000 (the "Prior Note"). Amounts outstanding and committed under the
Prior Note shall, upon the effectiveness of this Note be deemed to be
outstanding and committed hereunder and evidenced hereby, subject, however, to
all terms and conditions hereunder and under the Loan Agreement.
Borrower further promises to pay interest on the outstanding principal
balance hereof at the interest rates, and payable on the dates, set forth in the
Loan Agreement. All payments of principal and interest hereunder shall be made
to Agent, at Agent's Office, for the account of Lender, in lawful money of the
United States and in same day or immediately available funds.
Lender is authorized, but not required, to record the date and amount of
each Revolving Advance evidenced hereby, each conversion to a different interest
rate and the length of each Fixed Rate Term, the date and amount of each payment
of principal and interest hereunder, and the resulting unpaid principal balance
hereof, in Lender's internal records, and any such recordation shall be prima
facie evidence of the accuracy of the information so recorded; provided however,
that Lender's failure to so record shall not limit or otherwise affect the
obligations of Borrower hereunder and under the Loan Agreement to repay the
principal hereof and interest hereon.
<PAGE> 6
The Loan Agreement provides, among other things, for acceleration (which
in certain cases shall be automatic) of the maturity hereof upon the occurrence
of certain stated events, in each case without presentment, demand, protest of
further notice of any kind, all of which are hereby expressly waived by
Borrower.
This promissory note is secured by certain collateral more specifically
described in the Loan Agreement and the other Loan Documents.
This promissory note shall be governed by and construed in accordance
with the laws of the State of California.
THE GOOD GUYS - CALIFORNIA, INC.
a California corporation
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 7
ANNEX II
CONSENT AND REAFFIRMATION OF GUARANTOR
Reference is hereby made to the foregoing Fourth Amendment to
Loan Agreement ("Fourth Amendment") dated as of April 29, 1999, by and among The
Good Guys - California, Inc., a California corporation ("Borrower"), each of the
financial institutions from time to time listed on Schedule I attached to the
Loan Agreement described therein, as amended from time to time (collectively,
the "Lenders"), and Wells Fargo Bank, National Association ("Wells Fargo"), as
agent for the Lenders (in such capacity, the "Agent").
In order to induce the Agent and the Lenders to enter into the
Fourth Amendment, the undersigned hereby consents to the execution, delivery and
performance by Borrower, the Agent and the Lenders of the Fourth Amendment and
all other documents, instruments and agreements now or hereafter executed in
connection therewith (collectively, together with the Fourth Amendment, the
"Fourth Amendment Documents"). In connection therewith, the undersigned (a)
expressly and knowingly reaffirms its liability under the Continuing Guaranty
dated as of September 29, 1997 (the "Guaranty") and any and all security
agreements, pledge agreements, deeds of trust, mortgages and other collateral
documents (collectively, together with the Guaranty, the "Third Party
Documents"), heretofore executed and delivered by the undersigned from time to
time in favor of the Agent, for the benefit of the Lenders, (b) expressly agrees
to be and remain liable under the terms of such Third Party Documents for the
obligations of Borrower to the Agent and the Lenders and (c) acknowledges that
it has no defense, offset or counterclaim whatsoever against the Agent or the
Lenders with respect to the Third Party Documents to which it is a party.
The undersigned further agrees that the Third Party Documents to
which it is a party shall remain in full force and effect and are hereby
ratified and confirmed and shall guarantee payment and performance of, or
continue to constitute collateral security for, as the case may be, of all of
Borrower's obligations under the Loan Agreement and related Loan Documents, as
any one or more of the same may be amended by the Fourth Amendment Documents.
The undersigned acknowledges that (a) none of the Agent or the Lenders has any
obligation to inform it of the particulars of any modification or amendment to
the Loan Agreement or any other Loan Document executed in connection therewith,
and (b) it has established satisfactory means by which Borrower keeps it
informed with respect to any modification of or amendment to the Loan Agreement
and related Loan Documents.
<PAGE> 8
The undersigned further agrees that the execution of this
Consent and Reaffirmation is not necessary for the continued validity and
enforceability of the Third Party Documents to which it is a party, but is
executed to induce the Agent and the Lenders to enter into the Fourth Amendment
Documents. The undersigned further agrees that none of the Agent or the Lenders
shall have any obligation to notify it of any actions or omissions to act with
respect to its dealings with Borrower.
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound hereby, has caused this Consent and Reaffirmation to be executed as of
April 29, 1999.
THE GOOD GUYS, INC.,
a Delaware corporation
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.13
AGREEMENT
This Agreement is entered into as of April 14, 1999, by and between The
Good Guys, Inc. (the "Company") and Robert A. Gunst (the "Employee").
W I T N E S S E T H:
WHEREAS, it has been agreed that the Employee will resign as an officer
and employee of the Company, effective as of June 30, 1999;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. Resignation as an Employee. The Employee's resignation as an officer
and employee of the Company, effective as of June 30, 1999 (the "Termination
Date"), is hereby accepted by the Company. During the period between the date
hereof and the Termination Date, the Employee shall (a) assist the Company in
finding a successor, (b) continue to perform his duties in his area of
responsibility, and (c) assist in the transition of his responsibilities to his
successor or to others in the Company, provided that the Employee shall be
entitled to devote a reasonable amount of time to seeking a new position. The
Employee shall continue to serve as a member of the Board of Directors until his
successor is elected by the shareholders of the Company or until he tenders his
resignation as a director or until he is requested, at any time after September
30, 1999 (the end of the Company's current fiscal year), to step down as a
member of the Board by a majority of the members of the Board other than the
Employee.
2. Severance Pay - 1990 Agreement. Employee is entitled to and shall
receive from the Company, on July 1, 1999, a lump sum payment in cash in an
amount calculated pursuant to the formula described in paragraph 2 of the
employment agreement entered into between Company and Employee, dated March 30,
1990.
3. Wages, Accrued Vacation and Other Benefits. Employee shall be paid
all wages, including any accrued vacation benefits, due through the Termination
Date. In addition, the Company shall pay the cost of continuation of the
existing health, disability and life insurance coverage for the Employee from
the Termination Date through June 30, 2000. Thereafter, the Employee shall have
the right to elect further continuation of such coverage to the extent available
under COBRA, provided the Company shall not have any obligation to pay the cost
of the coverage that continues beyond June 30, 2000. The Company's obligation to
pay the cost of continuation of health and disability insurance shall terminate
upon the Employee's becoming reemployed prior to July 1, 2000 and the Employee
agrees to promptly notify the Company of any such reemployment. On July 1, 2000,
or, if earlier, the date on which the Company receives notice of his
reemployment, the Company shall transfer to Employee the disability insurance
policy he brought with him from Shaklee Corporation. The Company agrees to pay
the fees charged by Price, Waterhouse to Employee for preparation of his
personal
-1-
<PAGE> 2
income tax returns for the tax year ending December 31, 1999, in accordance with
the current practice for officers of the Company.
4. Return of Property. Any property of the Company in the Employee's
possession shall be returned by him to the Company on or before the Termination
Date, provided that the Employee shall have the right to purchase from the
Company certain items of personal property for $1,500.
5. Stock Options. As to stock options held by the Employee that are
vested as of the later to occur of the date on which the Employee ceases to be
an officer of the Company or the date on which the Employee ceases to be a
director of the Company (the "Final Termination Date"), the Employee shall have
the right to exercise (i) options granted under the 1985 Stock Option Plan
during the three-month period following the Final Termination Date, as provided
in that Plan, and (ii) options granted under the 1994 Stock Incentive Plan
during the one-year period following the Final Termination Date, as provided in
that Plan.
6. Mutual Releases. (a) Employee (who shall be deemed to have executed
this release for himself and his heirs, successors and assignees) releases,
forever discharges and promises not to sue the Company and its past, present and
future predecessors, successors, assignees, officers, directors, shareholders,
employees, attorneys, agents, and other affiliates, from and for any and all
claims, demands, causes of action, actions, lawsuits, liabilities, indemnities,
costs, damages, obligations, and expenses (including, without limitation,
attorneys' fees) whatsoever which Employee may now have or hereafter acquire in
law or in equity past, present and future, known and unknown, suspected and
unsuspected, which in whole or in part, arise out of or in any manner relate to
the Company's employment of Employee and/or any agreements, acts, omissions,
opportunities or conduct at any time prior to the date of this Agreement,
including, without limitation, any and all of the same that Employee now has or
any time had based upon wrongful discharge, the California Fair Employment
Practices Act, national origin, age, sex, or other discrimination under the
federal Civil Rights Act of 1964, federal Age Discrimination in Employment Act,
the Americans with Disabilities Act, the Fair Employment and Housing Act, or any
other applicable law; provided, however, that this release shall not be
construed to extinguish or otherwise reduce the rights of Employee to indemnity
and contribution set forth in Paragraph 7(f).
(b) The Company (which shall be deemed to have executed this release for
itself and its affiliate company, directors, officers, successors and assignees)
releases, forever discharges and promises not to sue Employee and his relatives,
heirs, successors, assignees, attorneys and agents from and for any and all
claims, demands, causes of action, actions, lawsuits, liabilities, indemnities,
costs, damages, obligations, and expenses (including, without limitation,
attorneys' fees) whatsoever which the Company may now have or hereafter acquire
in law or in equity, past, present and future, known and unknown, suspected and
unsuspected, which in whole or in part, arise out of or in any manner relate to
the Company's employment of Employee and/or any agreements, acts, omissions,
opportunities or conduct at any time prior to the date of this Agreement,
-2-
<PAGE> 3
except that the foregoing release shall not apply to any act or omission of
Employee at any time before or after the date of this Agreement which
constituted fraud, dishonesty, or willful misconduct. In the event any person or
entity for which Company has executed this release, brings any action or makes
any claim against Employee which would otherwise be covered by the release
contained in this subparagraph, Company shall indemnify and defend Employee with
respect to such claim or action.
(c) The Company and the Employee expressly waive the provisions of
Section 1542 of the Civil Code of the State of California, which provides
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
(d) Notwithstanding anything to contrary in the foregoing, the Company
and the Employee agree that the provisions of this Section 6 shall not release
or otherwise diminish the obligations of the Company and the Employee to perform
their respective obligations under the provisions of this Agreement.
7. Additional Covenants.
(a) Employee agrees that he shall not make any disparaging remarks to
any other person or entity about the Company, its business or any of its
employees. The Company agrees that it will use reasonable efforts to assure that
no officer or director of the Company shall make any disparaging remarks to any
other person or entity about Employee, including a direct instruction to such
officers and directors not to do so.
(b) Employee agrees that he shall not voluntarily testify, provide
evidence, or otherwise assist any person or entity to pursue any legal claim or
claims against the Company or any of its employees, officers and/or directors,
except as may otherwise be required by law or in connection with enforcing his
rights under this Agreement. Employee also agrees to cooperate with the Company
by making himself reasonably available to testify on behalf of the Company or
any of its affiliates in any action, suit or proceeding relating to events
occurring during Employee's employment with the Company and to assist the
Company or any of its affiliates in any such action, suit or proceeding by
providing information and meeting and consulting with the Company's Board of
Directors or its representatives or counsel, as reasonably requested by the
Board or such representatives or counsel, provided that Employee shall receive
reimbursement for any expenses reasonably incurred by him (including reasonable
attorneys fees) in connection with any such matters and provided further that
Employee shall receive reasonable compensation for any services rendered by him
after the Termination Date in connection with any such matters. All such
requests by Company and Employee's obligations with respect thereto shall take
into account Employee's obligations and
-3-
<PAGE> 4
responsibilities to any new employer or other party with whom Employee has
contractual or business commitments.
(c) Employee and the Company, respectively, agree not to disclose either
the existence of this Agreement or any of the terms of this Agreement,
indirectly or indirectly, to anyone other than the immediate family of Employee
or the parties' counsel, accountants and/or financial advisers, or except as
such disclosure may be required for accounting or tax reporting purposes or law
(including any applicable securities laws).
(d) Employee will not at any time disclose or use for his own benefit or
for purposes of any other person or entity, other than the Company or its
affiliates, any trade secrets, information, data, or other confidential
information relating to the business and affairs of the Company or its
affiliates generally; provided that the foregoing shall not apply to (i)
information which is generally known to the industry or the public other than as
a result of Employee's breach of this covenant, or (ii) disclosures to the
extent required by law, provided that Employee shall afford the Company
reasonable notice and opportunity at its expense to obtain protective orders in
connection with any such disclosure.
(e) For the period of two years following the date hereof, the Employee
agrees not, directly or indirectly, to solicit for employment or hire any
employee of the Company or its affiliates, except that he shall not be precluded
from hiring M.J. Parker or hiring any employee who initiates discussions
regarding such employment without any direct or indirect solicitation by the
Employee.
(f) The Employee shall continue after the Termination Date to have the
benefit of indemnification and contribution rights to which he is entitled as a
former officer or director of the Company under the indemnification agreement
between him and the Company and under the Certificate of Incorporation and
By-Laws of the Company and under any directors' and officers' insurance
maintained by the Company.
(g) Employee acknowledges that he has consulted his own legal or tax
advisers to the extent he desired to do so in connection with this Agreement,
and is not relying upon the Company or its attorneys or other agents concerning
any tax, legal or financial issues relating to this Agreement.
8. General Provisions.
(a) With the exception of the indemnification agreement referred to in
Section 7(f) above, this Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior negotiations, correspondence, memorandum, agreements and
understandings, whether written or oral. This Agreement may be amended only by a
writing signed by Employee and an officer of the Company or member of the
Compensation Committee.
-4-
<PAGE> 5
(b) Notices under this Agreement shall be sufficient only if mailed by
verified or registered United States mail, return receipt requested, delivered
by facsimile transmission with machine generated confirmation, or personally
delivered, to the parties at their addresses set forth below or as amended by
notice pursuant to this subsection. Notice by mail shall be deemed received two
(2) days after deposit.
(c) This Agreement shall be governed by the internal laws of the State
of California without regard to principles of conflicts of law.
(d) This Agreement may be signed in counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.
(e) In the event of any dispute hereunder, the prevailing party shall be
entitled to recovery of reasonable attorneys' fees. EMPLOYEE UNDERSTANDS THAT HE
WAS ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND
ACKNOWLEDGES THAT HE HAS BEEN GIVEN THE OPPORTUNITY, IF HE SO DESIRED, TO
CONSIDER THIS AGREEMENT FOR TWENTY-ONE (21) DAYS BEFORE EXECUTING IT. IN THE
EVENT THAT EMPLOYEE HAS EXECUTED THIS AGREEMENT WITHIN LESS THAN TWENTY-ONE (21)
DAYS OF THE DATE OF DELIVERY TO HIM, EMPLOYEE ACKNOWLEDGES THAT SUCH DECISION
WAS ENTIRELY VOLUNTARY AND THAT HE HAD THE OPPORTUNITY TO CONSIDER THIS
AGREEMENT FOR THE ENTIRE TWENTY-ONE (21) DAY PERIOD. THE COMPANY ACKNOWLEDGES
THAT FOR A PERIOD SEVEN (7) DAYS FROM THE DATE OF EXECUTION OF THIS AGREEMENT,
EMPLOYEE SHALL RETAIN THE RIGHT TO REVOKE THIS AGREEMENT BY WRITTEN NOTICE THAT
IS RECEIVED BY THE COMPANY BEFORE THE END OF SUCH 7 DAY PERIOD, AND THAT THIS
AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH
REVOCATION PERIOD.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE GOOD GUYS, INC.
By: /s/ Signature Illegible
-----------------------------------
Its: Chairman of the Compensation
Committee
/s/ ROBERT A. GUNST
----------------------------------------
Robert A. Gunst
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,124
<SECURITIES> 0
<RECEIVABLES> 27,341
<ALLOWANCES> 1,157
<INVENTORY> 147,596
<CURRENT-ASSETS> 183,434
<PP&E> 144,430
<DEPRECIATION> 67,978
<TOTAL-ASSETS> 267,169
<CURRENT-LIABILITIES> 130,127
<BONDS> 29,305
0
0
<COMMON> 15
<OTHER-SE> 107,722
<TOTAL-LIABILITY-AND-EQUITY> 267,169
<SALES> 513,199
<TOTAL-REVENUES> 513,199
<CGS> 389,806
<TOTAL-COSTS> 389,806
<OTHER-EXPENSES> 126,742
<LOSS-PROVISION> 991
<INTEREST-EXPENSE> 1,254
<INCOME-PRETAX> (5,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,594)
<EPS-PRIMARY> (.39)
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