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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 27, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-11566
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COMPUSA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2261497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 per share par value New York Stock Exchange
9 1/2% Senior Subordinated Notes Due 2000 New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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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, based on the closing price of these shares on the New York Stock
Exchange on September 7, 1998 was $773,864,008. For the purposes of this
disclosure only, the registrant has assumed that its directors, executive
officers, and beneficial owners of 5% or more of the registrant's common stock
are the affiliates of the registrant.
The registrant had 90,936,442 shares of common stock, $.01 per share par
value, outstanding as of September 7, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting
of stockholders of the Company to be held November 4, 1998 are incorporated by
reference into Part III of this Report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 7
Item 3. Legal Proceedings........................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......................................... 8
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters...................... 9
Item 6. Selected Financial Data..................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................................... 20
Item 8. Financial Statements and Supplementary Data................................................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 20
PART III
Item 10. Directors and Executive Officers of the Company............................................. 21
Item 11. Executive Compensation...................................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 21
Item 13. Certain Relationships and Related Transactions.............................................. 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 22
Signatures.................................................................................. 26
Index to Consolidated Financial Statements............................................................... F-1
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PART I
ITEM 1. BUSINESS
CompUSA Inc. ("CompUSA" or the "Company") is one of the leading retailers
and resellers of personal computers and related products and services,
principally through its Computer Superstores-SM- located throughout the United
States. Although retail sales through its Computer Superstores are the largest
component of the Company's business, its stores also fulfill the principal
marketing, product, and service functions of the Company's other businesses,
including direct sales to corporate, government, and education customers and
training and technical services.
The Company opened its first retail store in April 1985 and its first
Computer Superstore in April 1988. As of June 27, 1998, the Company operated 162
Computer Superstores averaging approximately 27,000 square feet in 73
metropolitan areas in 40 states. In fiscal 1998, the Company's stores achieved
average sales per square foot of $1,290. The Company plans to open approximately
15 to 20 Computer Superstores in fiscal 1999. In fiscal 1998, the Company tested
a "small market" store concept by opening five stores ranging from 6,000 to
15,000 square feet in markets with populations of approximately 40,000 to
150,000 people.
In May 1996, the Company acquired PCs Compleat, Inc. ("PCs Compleat"), a
leading direct reseller of brand-name personal computers and peripherals,
located in Marlborough, Massachusetts, the operations of which were fully
integrated into the Company's direct mail operations and became a part of the
Company's "CompUSA Direct" division in August 1997. CompUSA Direct operates a
distribution and configuration facility with integrated telephone, computer, and
distribution systems.
On August 31, 1998, the Company completed its acquisition of Computer City,
Inc. ("Computer City") from Tandy Corporation for approximately $211 million,
payable in a note and cash. The purchase price is subject to certain
post-closing adjustments based on the completion of an audit of Computer City's
balance sheet as of the closing date. The sale will be accounted for under the
purchase accounting method. The acquired operations include 96 retail stores
located in the United States, including two locations that had not opened, 58 of
which the Company currently intends to close upon completion of the liquidation
of the inventories in those stores. The acquired operations also include seven
retail stores in Canada, none of which the Company currently intends to close,
and six corporate sales and/or training offices, five of which the Company
currently intends to close. The Company also acquired a call center and a
technical configuration center located in the Dallas/Ft. Worth area, both of
which the Company currently intends to operate. The acquired stores in the
United States will be operated under the "CompUSA" name, while those in Canada
will continue to be operated under the "Computer City" name. All of the acquired
stores that will be operated by the Company will continue to offer personal
computers and related products and services and will be converted to the
Company's format and merchandise mix.
As of September 15, 1998, the Company operated 200 CompUSA Computer
Superstores in 79 metropolitan areas in 40 states (excluding the 58 Computer
City stores that the Company intends to close) and seven Computer City stores in
Canada. In addition, the Company operates seven "small market" concept stores.
The Company was incorporated in Delaware in 1988 to effect the acquisition
of a company formed in 1984 called Soft Warehouse, Inc. Until March 1991, the
Company operated under the name "Soft Warehouse, Inc." Except where the context
indicates otherwise, all references in this Annual Report to "CompUSA" or "the
Company" include all subsidiaries of CompUSA. The Company's principal executive
offices are located at 14951 North Dallas Parkway, Dallas, Texas 75240, and its
telephone number is (972) 982-4000.
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MERCHANDISE
The Company offers thousands of personal computer hardware and software and
related products and accessories as an essential component of its merchandising
strategy. In addition to its in-store selection, which the Company believes is
sufficiently broad to satisfy the needs of most of its customers, CompUSA offers
customers the ability to special order approximately 30,000 additional products.
Although prices for products and services are typically determined centrally,
local personnel regularly compare these centrally determined prices with
publicly available information regarding prices of competitors, and managers
have the authority to adjust prices in response to local competitive conditions
within guidelines established and controlled centrally. Additionally, prices for
special order items are established at each store. Major types of products
offered are as follows:
HARDWARE. Hardware products include desktop and laptop model personal
computers; peripherals, such as printers, modems, monitors, data storage
devices, add-on circuit boards, and connectivity products; certain business
machines, such as facsimile machines, video conferencing equipment, and other
related equipment and supplies; and certain electronics products such as digital
cameras, hand-held personal computers, pagers, cellular phones, calculators, and
virtual reality accessories. Major vendors include 3-Com, Apple, Canon, Compaq,
Epson, Hewlett-Packard, IBM, Maxtor, NEC, Packard Bell, Sony, Texas Instruments,
and Toshiba.
In the first quarter of fiscal 1998, the Company introduced the "CompUSA
PC-TM-" brand of desktop personal computers. The CompUSA PC products are
manufactured exclusively for the Company by third-party manufacturers and built
to customers' specifications. Customers are able to place their orders through
the Company's Computer Superstores as well as through CompUSA Direct, using the
Company's toll-free telephone number, 1-800-COMPUSA, or its web site,
www.compusa.com. Upon manufacture, the personal computers are shipped directly
to the customers from the manufacturer.
SOFTWARE. The Company sells over 2,000 different software packages in the
business and personal productivity, entertainment, education, utility, language,
and reference categories. Major vendors include Broderbund, Claris, Disney, IBM,
Intuit, Lotus, Microsoft, Netscape, Novell, Soft Key, and Symantec.
ACCESSORIES. Accessories sold by the Company include a broad range of
personal computer-related items and supplies such as peripherals, CD-ROM drives,
sound cards, media storage, and other computer-related supplies. Major vendors
include 3M, Avery, Curtis, Daisytek, Fellowes, Gemini, Globe, Hewlett-Packard,
Iomega, Kensington, Microsoft, Sony, and Western Digital.
DIRECT SALES
The Company believes that its presence in 79 metropolitan areas, broad
product assortment, competitive pricing, customer service, and training and
technical services position it to serve the diverse needs of corporate,
government, education, and mail order customers by offering a "total solution"
to their personal computing needs. CompUSA targets these customers primarily
through direct solicitations, telemarketing sales, and catalogs. Direct sales
are fulfilled by the Company from the on-hand inventories in its Computer
Superstores, from its distribution and configuration facility located in the
Dallas/Fort Worth area, consisting of approximately 143,500 square feet of
distribution space and 32,500 square feet of configuration space, or from
CompUSA Direct's distribution and configuration facility in Marlborough,
Massachusetts, and with respect to its CompUSA PC brand, from the third-party
manufacturers' facilities.
CORPORATE. All of the Company's stores have corporate sales groups that
solicit potential corporate customers and offer phone ordering, delivery,
business credit, leasing, and other services, including a corporate assistance
window for merchandise pickup and technical assistance. The Company offers
volume purchase and national account agreements to qualified major customers.
The Company's corporate sales group markets on the basis of overall merchandise
selection, pricing, and service along with classroom
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training and technical services. Larger customers are assigned specific account
executives who manage the Company's relationships with these customers. Account
managers process the orders from each location.
GOVERNMENT AND EDUCATION. The government and education sales group markets
to federal, state, and local governments, government related entities, and the
education market, both directly and as a supplier to systems integrators and
other contractors.
Over 10,000 products sold by the Company, from over 75 vendors, have been
approved by the Federal General Services Administration ("GSA") on the fiscal
1996-1999 GSA schedule, making such products eligible for purchase by federal
agencies and certain state and local governments. In addition to products listed
on the GSA schedule, the Company also sells to government customers via the
federal procurement card, electronic order placement via the Internet, and
state, county, and city contracts. The Company is also an approved training and
service vendor on the GSA schedule.
To address the needs of its education customers, CompUSA assigns an account
manager to each of its education accounts. In addition to product purchases,
schools can contract with CompUSA for technical services including upgrades,
network design, maintenance, and telephone help desk support, as well as
computer training courses for students, faculty, and administration.
MAIL ORDER. CompUSA Direct is a direct marketer of brand-name personal
computers and peripherals, primarily to small to medium-size businesses,
individuals, and corporate customers pursuant to employee purchase programs and
other major fulfillment programs. The mission of CompUSA Direct is to provide
its customers with the broad product selection of the Company's Computer
Superstores, the value and convenience of a direct marketer, and superior
service. CompUSA Direct's mail order fulfillment and call center is located in
CompUSA Direct's 55,000 square foot distribution and configuration facility in
Marlborough, Massachusetts, while advertising and merchandising functions are
centralized at CompUSA's corporate headquarters.
CompUSA Direct maintains a central call center for telephone orders. By
dialing 1-800-COMPUSA toll-free, customers nationwide can order from a selection
of more than 50,000 personal computers and related products. CompUSA Direct
customers can pick up orders, return and exchange purchases, or receive
technical service at any CompUSA Computer Superstore nationwide. CompUSA Direct
also provides convenient and affordable delivery and installation, as well as
custom configuration. In addition, customers who purchase complete personal
computer systems receive toll-free technical support.
CompUSA mail order customers can also place orders via the Internet by
visiting the CompUSA web site, located at www.compusa.com. Featuring a "virtual
Computer Superstore," the CompUSA web site offers an extensive product catalog,
information about CompUSA, and links to vendor web sites.
Substantially all of CompUSA's advertisements, including its color
circulars, feature the Company's toll-free 1-800-COMPUSA telephone number. The
Company advertises major brands of personal computer hardware, software,
accessories, and supplies, as well as its full service offerings of training and
technical services in computer journals, magazines, catalogs, and many other
publications.
SERVICES
TRAINING. The Company offers training for customers in classroom facilities
located in all of the Company's Computer Superstores. Classes are offered for a
variety of application and advanced technology software. A Computer Superstore
typically has from one to three classrooms, each equipped with a personal
computer for each participant. In total, the Company has over 500 classrooms in
or adjacent to its stores. Most classrooms accommodate 12 to 14 students and
each store offers approximately five to six full-day classes in each classroom
per week. The Company's instructors receive periodic training both from software
vendors and from the Company on new technology as well as instructional skills
development. In addition, the Company provides training at customers' facilities
or at other off-site locations.
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The Company offers classroom training for all popular software applications,
including networking and the Internet. In addition, the Company offers
computer-based training and computerized skills assessment as well as training
delivered via satellite and the Internet. The Company also offers project
management services to facilitate the registration of students and reporting of
training classes taken.
TECHNICAL SERVICES. The Company provides its customers with numerous
technical services. Services provided at each location include computer
upgrades, custom configurations, networking, diagnostic testing, maintenance,
repair, and delivery and installation. The Company also performs repairs for
third-party service centers and extended service plan providers under national
service agreements. The Company is a vendor-authorized service provider for
Apple, Compaq, Epson, Hewlett-Packard, IBM, Microsoft, NEC, Novell, Packard
Bell, Toshiba, and other leading manufacturers.
In July 1998, the Company opened a new 1,000-plus seat call center facility
in Plano, Texas offering a wide range of inbound and outbound services. The
facility is divided into the sales and customer service department and the
technical support department to offer high-volume call capacity and fully
customizable sales, technical support, and customer support services for
businesses of all sizes. The call center's sales and customer service group
offers custom-designed inbound/outbound services for third-party, personal
computer-related manufacturers and software publishers. In addition, this group
provides customer service telephone support for CompUSA's retail and business
customers. CompUSA's technical support group offers a full menu of technical
support outsourcing and help desk services for third parties, while also
functioning as the support center for CompUSA's "tech-service-by-phone"
offerings. The Technical Support group gives personal computer users three
flexible tech-service-by-phone options. The "Dial-A-Tech" option is a technical
service card which offers the customer unlimited technical service calls within
a specified time period (90, 180, 365 days). Customers that select CompUSA's
"per incident" tech service option (1-888-NOW-TECH) are charged a flat rate of
$24.95 per call. Customers that prefer to be charged by-the-minute can call
1-900-CALL-COMP for technical support at a rate of $2.49 per minute (first
minute is free). Each of these services is provided 24 hours a day, seven days a
week.
In addition to the store technical services departments in its Computer
Superstores, the Company has outbound technical support and CompUSA Integrated
Services ("CIS") teams supporting 20 major markets. These CIS teams are designed
to provide on-site services for corporate, government, and education customers.
Services include product consultation, evaluation, design, system configuration,
installation, testing, upgrades, maintenance, and repairs. Other CIS team
support functions include telephone help-desk services, on-site technicians,
inventory control, asset management, customized training, and 24-hour emergency
response. The Company also sells various extended service contracts that are
administered and insured by an independent third party. Hardware customers whose
purchases are still under manufacturers' warranties may call the Company for
technical support at no charge for the first 30 days after purchase.
PURCHASING, VENDOR SELECTION, AND PRODUCT OBSOLESCENCE
The Company manages the purchase and replenishment of all store merchandise
centrally. The inventory management department makes all purchases and directs
merchandise transportation and transfers between the Company's facilities. The
Company purchases a majority of its merchandise inventory directly from
manufacturers, supplemented with purchases from distributors. Manufacturers and
distributors ship merchandise inventories directly to the Company's stores, the
Company's Dallas/Fort Worth area central distribution and configuration
facility, CompUSA Direct's centralized distribution facility in Marlborough,
Massachusetts, and the five regional cross-dock facilities utilized by the
Company that consolidate vendor shipments and transfer merchandise to the
stores. Substantially all inventory is held at the Company's stores.
The Company considers numerous factors in vendor selection, including
customer demand, product availability, product performance, price, and credit
terms. The Company believes that its significant
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purchase volumes generally allow it to acquire products at or near the lowest
prices available. The Company has maintained long-term relationships with
vendors but does not have material long-term contracts or commitments with any
of them. Brand names and individual products are important to the Company's
business. In fiscal 1998, purchases of products manufactured by each of
Hewlett-Packard Company and Compaq Computer Corporation constituted in excess of
10% of the Company's aggregate purchases.
Components used in CompUSA PC personal computers are purchased by
third-party manufacturers engaged by the Company from vendors approved by
CompUSA. Component and spare parts inventories are maintained at the third-party
manufacturers' facilities. Because these personal computers are built to
customers' specifications, no significant inventory of finished products is
maintained.
As a retailer of personal computer products, the Company's exposure to
product obsolescence and technological advances is less than that faced by
manufacturers of such products. Substantially all of the Company's major
vendors, either contractually or as a result of the vendor following industry
practices, have reduced the Company's exposure to inventory obsolescence by
providing favorable provisions, including price protection, stock balancing
privileges, and other return privileges, subject to restrictions and limitations
in certain circumstances, and promotional allowances for most products
purchased. The Company has also entered into agreements with certain vendors
that limit the Company's return privileges in exchange for additional purchase
rebates. The Company further reduces technology and obsolescence risk through
inventory management policies designed to maximize rapid inventory turnover. In
fiscal 1998, the Company turned its inventory 7.2 times. A reduction in, or the
discontinuation of, current vendor practices related to price protection, stock
balancing privileges, and other return privileges or a significant decline in
the Company's inventory turnover rate could expose the Company to product
obsolescence risks which could have a material adverse effect on the Company.
There can be no assurance that vendors will not change these provisions and
privileges to the Company's detriment in the future.
CREDIT
CompUSA extends credit to qualified corporate, government, education, and
mail order customers, generally pursuant to 30-day payment terms. CompUSA makes
available revolving credit payment terms to corporations and individual
consumers through private label credit card programs, which are provided by
independent financial services companies. In addition, the Company accepts most
major credit cards, including Visa, Mastercard, American Express, Diners Club,
and Discover Card.
The Company has third-party leasing programs pursuant to which the Company
refers corporations and individual consumers desiring financing to independent
leasing companies that purchase the specified equipment and lease it directly to
these customers.
SEASONALITY
Based upon its past operating history, the Company believes that its
business is seasonal. Excluding the effects of new store openings, net sales and
earnings are generally lower during the first and fourth fiscal quarters than in
the second and third fiscal quarters. See Note 15 of Notes to Consolidated
Financial Statements.
PERSONNEL
The Company considers its relationship with its employees to be excellent.
None of the Company's employees are covered by collective bargaining agreements.
At September 15, 1998, the Company employed approximately 13,700 full-time and
4,900 part-time employees (excluding approximately 2,300 employees at the
Computer City stores that the Company currently intends to close).
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INDUSTRY AND COMPETITION
The Company believes that unit sales of personal computers and related
products and services have increased as a result of the following factors: (i)
growth of the service/information-based sector of the economy; (ii) improvements
in personal computer hardware performance and new software applications; (iii)
the emergence of industry standards and component compatibility; (iv) reductions
in prices of hardware and software; (v) increased user familiarity with personal
computers; (vi) the replacement of obsolete hardware, software and peripherals;
(vii) increased consumer awareness created, in part, by the "information
superhighway" and Internet capabilities; (viii) office automation and the
reengineering of the workplace; and (ix) the integration of personal computers
into the educational curricula for students at all grade levels. The Company
also believes that as higher performance personal computers continue to become
available at even more attractive prices, the market for personal computers and
related products and services should continue to grow.
The personal computer industry is undergoing significant change. Rapid
technological advances, in combination with an increasingly computer literate
population, have increased the use and popularity of personal computers,
resulting in the emergence and growth of a variety of distribution channels. The
Company believes that individuals, businesses, schools, and governments, having
gained familiarity with personal computers, require less assistance in making
their purchasing decisions and have become increasingly price sensitive. At the
same time, intense competition for market share has forced hardware and
accessory manufacturers, along with software vendors, to reduce prices and seek
new channels through which to sell their products. These factors have resulted
in widespread and intense competition among personal computer product resellers.
CompUSA believes that its business strategy positions it well to compete
successfully in this industry.
The Company competes with a large number and variety of resellers of
personal computers and related products and services in various businesses. In
the retail business, the Company primarily competes with other large format
computer retailers, large format consumer electronics and office supply
retailers, mail order houses, mass merchants, discounters, specialty electronics
retailers, software specialty retailers, manufacturers and distributors that
sell directly to the public, and other personal computer retailers. In the
corporate, government, and education businesses, the Company primarily competes
with outbound dealers, manufacturers, value-added resellers, other large format
computer retailers, large format office supply retailers, and general office
equipment retailers. In the mail order business, the Company competes with mail
order houses, manufacturers and distributors that sell directly to the public
through the use of mail order catalogs, general trade publications or the
Internet, and other large format computer retailers. In the training business,
the Company primarily competes with various local, regional, and national chains
of training centers and other large format computer retailers. In the technical
services business, the Company primarily competes with other large format
computer retailers, manufacturers, various other computer retailers, specialty
electronics retailers, and large format consumer electronics and office supply
retailers.
The Company believes that the major competitive factors in its businesses
include customer service, breadth and depth of selection, price, technical
support, and marketing and sales capabilities. The Company's utilization of
trained personnel and the ability to use national and local advertising media
are important to the Company's ability to compete in its businesses. The Company
believes it is a strong competitor with respect to each of the factors
referenced above. Given the highly competitive nature of the personal computer
industry, no assurances can be given that the Company will continue to compete
successfully with respect to the factors referenced above. Also, the Company
would be adversely affected if its competitors were to offer their products at
significantly lower prices or if the Company were unable to obtain products in a
timely manner for an extended period of time. Some of the Company's competitors
are larger and/or have substantially greater resources than the Company.
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TRADEMARKS AND SERVICE MARKS
The Company conducts its business in the United States under the trade names
"CompUSA," "CompUSA The Computer Superstore," "CompUSA Direct," and "CompUSA
PC." In Canada, the Company conducts business under the trade names "Computer
City" and "Computer City Direct." The Company holds United States federal
registrations for "CompUSA," "CompUSA The Computer Superstore," "CompUSA
Direct," and other marks, and has applied for United States federal
registrations for several other trademarks and service marks, including "CompUSA
PC." The Company has also registered trademarks and service marks in numerous
foreign countries. The Company pursues a program of registering and enforcing
its trademarks and service marks in the United States and throughout the world.
The Company sells products under various trademarks and service marks and
uses various trade names to which reference is made in this Annual Report that
are the property of others.
ITEM 2. PROPERTIES
At September 15, 1998, the Company operated 200 CompUSA Computer Superstores
in 79 metropolitan areas in the 40 states listed below (excluding the 58
Computer City stores that the Company currently intends to close) and seven
Computer City stores in Canada.
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NUMBER OF NUMBER OF
STATE STORES STATE STORES
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Alabama..................................... 1 Minnesota................................... 4
Alaska...................................... 1 Mississippi................................. 1
Arizona..................................... 6 Missouri.................................... 3
California.................................. 30 Nevada...................................... 3
Colorado.................................... 5 New Hampshire............................... 1
Connecticut................................. 3 New Jersey.................................. 10
Delaware.................................... 1 New Mexico.................................. 1
Florida..................................... 18 New York.................................... 9
Georgia..................................... 8 North Carolina.............................. 4
Hawaii...................................... 2 Ohio........................................ 7
Idaho....................................... 1 Oklahoma.................................... 2
Illinois.................................... 7 Oregon...................................... 2
Indiana..................................... 1 Pennsylvania................................ 4
Iowa........................................ 1 Rhode Island................................ 1
Kansas...................................... 2 Tennessee................................... 4
Kentucky.................................... 2 Texas....................................... 20
Louisiana................................... 2 Utah........................................ 3
Maryland.................................... 5 Virginia.................................... 5
Massachusetts............................... 7 Washington.................................. 6
Michigan.................................... 5 Wisconsin................................... 2
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All but four of the Company's stores are leased or subleased by the Company
with lease terms expiring between 1998 and 2019. In most instances, the Company
has renewal options at increased rents. Four stores are owned by the Company.
The Company's stores range in size from 11,300 to 58,800 square feet and average
approximately 26,000 square feet. The Company's headquarters, located in Dallas,
Texas, occupies approximately 196,000 square feet of leased space. The initial
lease term for the Company's headquarters has approximately five years remaining
and the Company has renewal options at increased rents. In addition, the Company
leases call center, distribution, warehouse, and office space that aggregates
approximately 1,085,000 square feet and is subject to leases expiring at various
dates through 2013. See Note 7 of Notes to Consolidated Financial Statements.
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ITEM 3. LEGAL PROCEEDINGS
On April 23, 1998, a lawsuit, Hoeck v. CompUSA Inc. et al., was filed by a
stockholder of the Company in the United States District Court for the Northern
District of Texas against the Company and certain of its officers, seeking class
action status on behalf of the purchasers of the Company's Common Stock and
related publicly traded options during the class period. The action alleges
various violations of federal securities laws. Damages have not been specified.
On June 24, 1998, a second stockholder suit was filed against the Company making
virtually the same allegations. On August 24, 1998, a consolidated amended
complaint was filed in the Hoeck case effectively consolidating the two cases.
The Company believes the claims are without merit and intends to vigorously
defend against such charges. In addition, the Company is a defendant from time
to time in lawsuits incidental to its business. Based on currently available
information, the Company believes that resolution of all known contingencies
would not have a material adverse impact on the Company's financial statements.
However, there can be no assurances that future costs would not be material to
the results of operations of the Company for a particular future period. In
addition, the Company's estimates of future costs are subject to change as
circumstances change and additional information becomes available during the
course of litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during
the fourth quarter of fiscal 1998.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "CPU." The following table sets forth the high and low sales prices
per share for the Common Stock as reported to the Company by the NYSE for the
periods indicated:
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HIGH LOW
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FISCAL YEAR 1997
First Quarter.......................................................... $ 26.75 $ 15.50
Second Quarter......................................................... 30.88 18.38
Third Quarter.......................................................... 20.88 13.88
Fourth Quarter......................................................... 23.38 15.75
FISCAL YEAR 1998
First Quarter.......................................................... $ 35.38 $ 21.25
Second Quarter......................................................... 37.81 25.69
Third Quarter.......................................................... 35.00 25.63
Fourth Quarter......................................................... 26.00 14.75
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At September 7, 1998 there were 1,585 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends on
the Common Stock. The Company currently intends to retain earnings for use in
the operation and expansion of its business and therefore does not anticipate
paying cash dividends in the foreseeable future. The terms of the Company's
9 1/2% Senior Subordinated Notes due 2000 (the "Senior Subordinated Notes")
limit the Company's ability to pay dividends generally to 50% of cumulative net
income since June 17, 1993, plus 100% of the consideration received from the
issuance of capital stock since such date, less the amount of other restricted
payments, as defined. See Note 9 of Notes to Consolidated Financial Statements.
In addition, the terms of the Company's bank credit agreement limit the
Company's ability to pay dividends on the Common Stock. See Note 8 of Notes to
Consolidated Financial Statements.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and operating
data as of and for the years ended June 25, 1994 through June 27, 1998. This
information should be read in conjunction with the Consolidated Financial
Statements and related Notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
--------------------------------------------------------------------
JUNE 27, JUNE 28, JUNE 29, JUNE 24, JUNE 25,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(2)
Net sales................................... $ 5,286,041 $ 4,610,523 $ 3,829,786 $ 2,935,901 $ 2,219,457
Cost of sales and occupancy costs........... 4,540,717 3,943,407 3,311,682 2,573,945 1,955,183
Gross profit................................ 745,324 657,116 518,104 361,956 264,274
Operating expenses.......................... 507,180 401,722 328,344 263,654 208,356
Pre-opening expenses........................ 8,704 6,220 5,466 2,454 7,266
General and administrative expenses......... 116,399 92,183 75,488 54,940 47,963
Non-recurring amortization charge(3)........ 55,885 -- -- -- --
Transaction costs related to Merger(4)...... -- -- 3,453 -- --
Restructuring costs......................... -- -- -- -- 9,918
Operating income (loss)..................... 57,156 156,991 105,353 40,908 (9,229)
Interest expense............................ 12,331 12,229 12,487 12,015 12,156
Other income, net........................... (6,463) (7,900) (6,983) (2,409) (2,063)
Income (loss) before income taxes........... 51,288 152,662 99,849 31,302 (19,322)
Income tax expense (benefit)................ 19,745 58,776 40,184 6,963 (2,298)
Net income (loss)........................... $ 31,543 $ 93,886 $ 59,665 $ 24,339 $ (17,024)
Basic earnings (loss) per share(5).......... $ 0.35 $ 1.03 $ 0.68 $ 0.31 $ (0.22)
Diluted earnings (loss) per share(5)........ $ 0.33 $ 0.99 $ 0.65 $ 0.30 $ (0.22)
Weighted average common shares(5)........... 91,369 90,835 87,510 79,798 77,070
Weighted average common shares assuming
dilution(5)............................... 94,616 94,589 91,220 81,736 77,070
SELECTED OPERATING DATA:(2)
Computer Superstores open at end of
period.................................... 162 129 105 85 76
Average net sales per gross square
foot(6)(7)................................ $ 1,290 $ 1,364 $ 1,405 $ 1,336 $ 1,268
Total gross square footage at end of
period.................................... 4,467,400 3,507,800 2,867,800 2,254,500 1,965,200
Percentage increase in comparable store
sales(7)(8)............................... 1.7% 5.9% 12.6% 10.3% 9.0%
BALANCE SHEET DATA:(2)
Working capital............................. $ 288,867 $ 363,963 $ 305,899 $ 190,128 $ 210,018
Total assets................................ 1,160,510 1,124,592 909,337 641,329 522,501
Long-term debt, excluding current portion... 111,872 112,458 115,066 115,153 153,292
Stockholders' equity........................ 414,638 427,967 325,905 186,704 160,372
</TABLE>
- ------------------------
NOTES ON FOLLOWING PAGE
10
<PAGE>
(1) The Company's fiscal year is a 52/53 week year ending on the last Saturday
of each June. The Company's fiscal years ended June 27, 1998 and June 28,
1997 each contained fifty-two weeks. The Company's fiscal year ended June
29, 1996 contained fifty-three weeks. The fiscal years ended June 24, 1995
and June 25, 1994 each contained fifty-two weeks.
(2) None of the above financial data include the financial data of Computer
City, which was acquired by the Company on August 31, 1998. The acquisition
of Computer City will be accounted for under the purchase accounting method.
(3) For a discussion of the Company's non-recurring amortization charge, see
Note 2 of Notes to Consolidated Financial Statements.
(4) For a discussion of the Company's acquisition of PCs Compleat, see Note 3 of
Notes to Consolidated Financial Statements.
(5) All references in this table to the number of shares, basic earnings per
share, and diluted earnings per share have been adjusted on a retroactive
basis to reflect the two-for-one stock splits declared by the Company's
Board of Directors effective April 8, 1996 and November 18, 1996, and the
issuance of shares in connection with the Company's acquisition of PCs
Compleat.
(6) Calculated using net sales divided by gross square footage of the Company's
Computer Superstores open at the end of the period, weighted by the number
of months open during the period. Average net sales per gross square foot
for the fiscal year ended June 29, 1996 has been calculated on the basis of
a fifty-two week fiscal year.
(7) Net sales for purposes of the calculations in footnotes (6) and (8) are
comprised of net sales generated from Computer Superstores, as well as sales
of the Company's national accounts group, but exclude mail order sales.
(8) Comparable store sales are net sales for Computer Superstores open the same
months in both the indicated and previous period, including stores that were
relocated or expanded during either period. The comparable store sales
increase for fiscal 1997 has been calculated by comparing net sales for the
fifty-two weeks ended June 28, 1997 with net sales for the fifty-two weeks
ended June 29, 1996. The comparable store sales increase for fiscal 1996 has
been calculated by comparing net sales for the fifty-three weeks ended June
29, 1996 with net sales for the fifty-three weeks ended July 1, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Annual Report on Form 10-K contains forward-looking statements about
the business, financial condition, prospects of the Company, and Year 2000
issues. The actual results of the Company could differ materially from those
indicated by the forward-looking statements because of various risks and
uncertainties, including without limitation changes in product demand, the
availability of products, changes in competition, the ability of the Company to
open new stores in accordance with its plans, economic conditions, real estate
market fluctuations, interest rate fluctuations, dependence on manufacturers'
product development, various inventory risks due to changes in market
conditions, changes in tax and other governmental rules and regulations
applicable to the Company, and other risks indicated in the Company's filings
with the Securities and Exchange Commission. The Company's entry into the
build-to-order market in the first quarter of fiscal 1998 with its CompUSA PC
brand personal computers involves significant additional risks, including
without limitation failure to achieve customer acceptance of the new products
and substantial dependence on third parties for product quality and reliability
and timely fulfillment of customer orders. Additionally, the Company's recent
acquisition of Computer City involves certain risks and uncertainties, including
without limitation the ability of the Company to operate the acquired stores
profitably; to dispose of inventories and other assets, as well as future lease
commitments,
11
<PAGE>
related to Computer City stores anticipated to be closed following completion of
inventory liquidation; to retain Computer City's retail and corporate customers;
and other uncertainties.
All of the foregoing risks and uncertainties are beyond the ability of the
Company to control, and in many cases, the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements. When used in this Annual
Report on Form 10-K, the words "believes," "estimates," "plans," "expects," and
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
GENERAL
All references herein to "fiscal 1998" relate to the fifty-two weeks ended
June 27, 1998. References to "fiscal 1999" relate to the fifty-two weeks ending
June 26, 1999, references to "fiscal 1997" relate to the fifty-two weeks ended
June 28, 1997, and references to "fiscal 1996" relate to the fifty-three weeks
ended June 29, 1996.
The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Stores open at end of the year............................. 162 129 105
Stores opened during the year.............................. 33 24 20
Stores relocated during the year........................... 2 -- 1
Average net sales per gross square foot(1)(2).............. $ 1,290 $ 1,364 $ 1,405
Comparable store sales increase(2)(3)...................... 1.7% 5.9% 12.6%
</TABLE>
- ------------------------
(1) Calculated using net sales divided by gross square footage of the Company's
Computer Superstores open at the end of the period, weighted by the number
of months open during the period. Average net sales per gross square foot
for fiscal 1996 has been calculated on the basis of a fifty-two week fiscal
year.
(2) Net sales for purposes of the above calculations are comprised of net sales
generated from Computer Superstores, as well as the Company's national
accounts group, but exclude mail order sales.
(3) Comparable store sales are net sales for Computer Superstores open the same
number of months in both the indicated and previous period, including stores
that were relocated or expanded during either period. The comparable store
sales increase for fiscal 1997 has been calculated by comparing net sales
for the fifty-two weeks ended June 28, 1997 with net sales for the fifty-two
weeks ended June 29, 1996. The comparable store sales increase for fiscal
1996 has been calculated by comparing net sales for the fifty-three weeks
ended June 29, 1996 with net sales for the fifty-three weeks ended July 1,
1995.
Average net sales per gross square foot declined during fiscal 1998 compared
with fiscal 1997 primarily due to reductions in average net sales per Computer
Superstore. In fiscal 1998, average net sales per Computer Superstore decreased
approximately 6% from fiscal 1997. Average net sales per Computer Superstore
were negatively impacted by declines in average selling prices of certain of the
Company's products and increased sales of lower-end computer systems.
Additionally, in fiscal 1998, net sales of stores open less than two years
comprised a higher proportion of the Company's total net sales than in fiscal
1997. Less mature stores typically have lower net sales per gross square foot
than more mature stores. In addition, management believes net sales have
decreased at certain stores when the Company has opened additional stores in the
same market.
The comparable store sales increase declined in fiscal 1998 compared with
fiscal 1997 due to the reasons noted above. In addition, the Company believes
the opening of additional Computer Superstores
12
<PAGE>
in existing markets has resulted in some reductions in the rate of comparable
store sales growth. CompUSA has opened additional stores in existing markets
largely to increase market penetration and to provide customers with more
convenience and better service. The Company plans to continue its strategy of
opening additional Computer Superstores in existing markets. Management believes
the resulting diversion of sales from existing stores has adversely affected the
Company's comparable store sales. However, the Company believes that this
strategy should increase its awareness with local consumers, enhance its
competitive position in such markets, and create efficiencies in advertising and
management, and therefore is in the Company's long-term best interest.
ACQUISITION OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City
from Tandy Corporation for $211 million, payable in a note and cash. See
"--Liquidity and Capital Resources." The purchase price is subject to certain
post-closing adjustments based on the completion of an audit of Computer City's
balance sheet as of the closing date. The acquisition will be accounted for
under the purchase accounting method.
The 58 Computer City stores that the Company currently intends to close are
generally in closer proximity to, and therefore the Company believes would have
been more directly competitive with, existing CompUSA Computer Superstores than
the 36 Computer City stores in the United States that will remain open as
CompUSA Computer Superstores. Of the 36 stores that will remain open, 29 are
located in metropolitan areas in which there are existing CompUSA Computer
Superstores. The Company believes its decision to continue to operate these 29
stores is consistent with its strategy of opening additional Computer
Superstores in existing markets to increase market penetration and to provide
customers with more convenience and better service. However, the continued
operation of these 29 stores may cause the rate of comparable store sales growth
in the CompUSA Computer Superstores already in operation in such metropolitan
areas to be lower than it would have been if these 29 stores had been closed.
RESULTS OF OPERATIONS
As a result of the expansion of the Company's store base, period-to-period
comparisons of financial results may not be meaningful and the results of
operations for historical periods may not be indicative of the results to be
expected in future periods. In addition, the Company expects that its quarterly
results of operations will fluctuate depending on the timing of the opening of,
and the amount of net sales contributed by, new stores and the timing of costs
associated with the selection, leasing, construction, and opening of new stores,
as well as seasonal factors, product introductions, and changes in product mix.
See
13
<PAGE>
"--Quarterly Data and Seasonality." The following table sets forth certain items
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales and occupancy costs.............................. 85.9 85.7 86.5
--------- --------- ---------
Gross profit................................................... 14.1 14.3 13.5
Operating expenses............................................. 9.6 8.7 8.6
Pre-opening expenses........................................... 0.1 0.2 0.1
General and administrative expenses............................ 2.2 2.0 2.0
Non-recurring amortization charge(1)........................... 1.1 -- --
Transaction costs related to Merger(2)......................... -- -- 0.1
--------- --------- ---------
Operating income............................................... 1.1 3.4 2.7
Interest expense and other income, net......................... 0.1 0.1 0.1
--------- --------- ---------
Income before income taxes..................................... 1.0 3.3 2.6
Income tax expense............................................. 0.4 1.3 1.0
--------- --------- ---------
Net income..................................................... 0.6% 2.0% 1.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) For a discussion of the Company's non-recurring amortization charge, see
Note 2 of Notes to Consolidated Financial Statements.
(2) For a discussion of the Company's acquisition of PCs Compleat, see Note 3 of
Notes to Consolidated Financial Statements.
FISCAL 1998 COMPARED WITH FISCAL 1997
Net sales for fiscal 1998 increased 14.7% to $5.29 billion from $4.61
billion for fiscal 1997. The increase in net sales was primarily due to the
additional sales volume attributable to the new stores opened subsequent to
fiscal 1997 and an increase in comparable store sales of 1.7%. Despite an
increase in overall sales and the number of personal computer systems sold in
fiscal 1998, sales were negatively impacted by, among other things, declines in
average selling prices for certain of the Company's products, including desktop
and notebook computers and monitors, as well as increased sales of lower-end
computer systems. Additionally, in fiscal 1998, average net sales per Computer
Superstore decreased approximately 6% from fiscal 1997. The Company believes
average net sales per Computer Superstore were negatively impacted by decreases
in average selling prices, an increase in sales of lower-end computer systems,
and an increase in the number of the Company's stores open less than two years.
In general, less mature stores generate lower sales than more mature stores.
Gross profit was $745 million, or 14.1% of net sales, in fiscal 1998,
compared with $657 million, or 14.3% of net sales, in fiscal 1997. The decline
in gross profit as a percentage of net sales in fiscal 1998 compared with fiscal
1997 is due, in part, to costs associated with the CompUSA PC line of
build-to-order personal computers, increases in inventory shrinkage and freight
expense, and the deleveraging of occupancy costs, which are generally fixed in
nature. These declines were partially offset by an increase in the ratio of
service revenues to total revenues. Service revenues typically have higher gross
margins than merchandise sales.
Operating expenses were $507 million, or 9.6% of net sales, in fiscal 1998,
compared with $402 million, or 8.7% of net sales, in fiscal 1997. The increase
in operating expenses as a percentage of net sales is due primarily to the
deleveraging of facilities expenses, an increase in the ratio of service
revenues to total revenues, and the Company's efforts to expand certain of its
businesses, offset by lower incentive
14
<PAGE>
compensation. Facilities expenses are generally fixed in nature and deleveraged
in fiscal 1998 as a result of lower average net sales per store. The increase in
the ratio of service revenues to total revenues had the effect of increasing
operating expenses as a percentage of net sales because operating expenses are
generally higher for service revenues than for merchandise sales.
Pre-opening expenses consist primarily of personnel expenses incurred prior
to a store's opening and promotional costs associated with the opening. The
Company's policy is to expense all pre-opening expenses in the month of the
store's grand opening. In fiscal 1998, the Company incurred $8.7 million in
pre-opening expenses in connection with the opening of 33 Computer Superstores
and the relocation of two Computer Superstores, compared with $6.2 million in
pre-opening expenses incurred in fiscal 1997 in connection with the opening of
24 Computer Superstores.
General and administrative expenses were $116 million, or 2.2% of net sales,
in fiscal 1998, compared with $92.2 million, or 2.0% of net sales, in fiscal
1997. The increase in general and administrative expenses as a percentage of net
sales was primarily due to costs related to the expansion of the Company's
corporate facilities to support the Company's growth as well as the deleveraging
of corporate facilities expenses, which are generally fixed in nature. In
addition, general and administrative expenses increased as a result of costs
associated with the Company's efforts to expand certain of its businesses as
well as to develop new business opportunities. These increases were partially
offset by lower incentive compensation. General and administrative expenses per
store were approximately $812,000 in fiscal 1998, compared with $785,000 in
fiscal 1997.
During the fourth quarter of fiscal 1998, the Company committed to a plan to
implement a new information technology ("IT") strategy. Pursuant to the
strategy, the Company plans to outsource substantially all of its IT processes
and implement an Enterprise Resource Management ("ERM") program. Implementation
of the ERM program will result in the replacement of a substantial portion of
the Company's existing IT systems, as well as certain systems in the development
stage. The Company is in negotiations with software and IT service companies and
currently plans to announce definitive agreements in the second quarter of
fiscal 1999. Implementation of the ERM program is expected to take approximately
18 to 24 months after execution of such agreements. As a result of the adoption
of this new strategy, the Company incurred a non-recurring, pre-tax amortization
charge of $55.9 million ($34.4 million after tax) related to the impairment of
existing IT systems and the abandonment of certain systems under development.
See Note 2 of Notes to Consolidated Financial Statements.
Interest expense and other income, net, of $5.9 million, or 0.1% of net
sales, in fiscal 1998, remained relatively constant as a percentage of net sales
compared with $4.3 million, or 0.1% of net sales, in fiscal 1997. See
"--Liquidity and Capital Resources."
The Company's effective tax rate was 38.5% for both fiscal 1998 and fiscal
1997. The effective tax rate for both fiscal 1998 and fiscal 1997 differed from
the federal statutory rate primarily due to state income taxes, offset, in part,
by the benefits of tax exempt interest earned by the Company.
As a result of the above, net income for fiscal 1998 was $31.5 million, or
$0.33 per diluted share, compared with net income of $93.9 million, or $0.99 per
diluted share for fiscal 1997.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales for fiscal 1997 increased 20.4% to $4.61 billion from $3.83
billion for fiscal 1996. Fiscal 1997 was a fifty-two week period while fiscal
1996 was a fifty-three week period. Net sales for fiscal 1997 increased 22% from
the comparable fifty-two week period ended June 29, 1996. The increase in net
sales was due to the additional sales volume attributable to the new stores
opened during and subsequent to fiscal 1996 and an increase in comparable store
sales of 5.9%. The Company believes the increase in comparable store sales was
primarily due to the maturation of the Company's store base, increased customer
demand, and increased growth in the Company's direct sales and service
businesses. While
15
<PAGE>
comparable store sales increased 5.9% in fiscal 1997, the Company believes the
opening of Computer Superstores in existing markets resulted in the diversion of
sales from existing stores.
Gross profit was $657 million, or 14.3% of net sales, in fiscal 1997,
compared with $518 million, or 13.5% of net sales, in fiscal 1996. The increase
in gross profit as a percentage of net sales was primarily due to higher product
margin, an improvement in controllable costs such as inventory shrinkage and
freight, and an increase in the ratio of service revenues to total revenues.
Service revenues typically have higher gross margins than merchandise sales.
Operating expenses were $402 million, or 8.7% of net sales, in fiscal 1997,
compared with $328 million, or 8.6% of net sales, in fiscal 1996. During fiscal
1997, net advertising expense decreased as a percentage of net sales and other
operating expenses increased as a percentage of net sales. The decrease in net
advertising expense as a percentage of net sales resulted primarily from
increased vendor participation. Other operating expenses increased as a
percentage of net sales primarily due to the increases in both new store net
sales and service revenues as percentages of net sales. The increases in new
store net sales and service revenues as percentages of net sales had the effect
of increasing other operating expenses as percentages of net sales because of
the following factors: (1) other operating expenses in general, and store
personnel expenses in particular, generally constitute a higher percentage of
net sales for less mature stores because of the lower sales volumes generated by
less mature stores and (2) other operating expenses are generally higher for
service revenues than for merchandise sales.
In fiscal 1997, the Company incurred $6.2 million in pre-opening expenses in
connection with the opening of 24 new stores, compared with $5.5 million in
pre-opening expenses incurred in fiscal 1996 in connection with the opening of
20 new stores, two Training Supercenter Plus locations, and the relocation of
one store.
General and administrative expenses were $92.2 million, or 2.0% of net
sales, for fiscal 1997, compared with $75.5 million, or 2.0% of net sales, for
fiscal 1996. Increases in general and administrative expenses in fiscal 1997
were offset by the leveraging of such expenses over higher sales. General and
administrative expenses per store were approximately $785,000 in fiscal 1997,
compared with $814,000 in fiscal 1996.
Interest expense and other income, net, was $4.3 million in fiscal 1997,
compared with $5.5 million in fiscal 1996. The decrease in net expense is
attributable to increased other income related to higher average investment
levels during fiscal 1997. See "--Liquidity and Capital Resources."
The Company's effective tax rate for fiscal 1997 was 38.5%, compared with an
effective tax rate of 40% for fiscal 1996. The fiscal 1997 effective tax rate
differed from the federal statutory rate primarily due to state income taxes
offset, in part, by the benefits of tax exempt interest income earned by the
Company. The effective tax rate differed in fiscal 1996 from the federal
statutory rate primarily due to state income taxes and nondeductible transaction
costs related to the Company's acquisition of PCs Compleat, offset in part by
the benefits from tax exempt interest income earned by the Company.
As a result of the above, net income for fiscal 1997 was $93.9 million, or
$0.99 per diluted share, compared with net income of $59.7 million, or $0.65 per
diluted share, for fiscal 1996.
QUARTERLY DATA AND SEASONALITY
The Company expects that its quarterly results of operations will fluctuate
depending on the timing of the opening of, and the amount of net sales
contributed by, new stores and the timing of costs associated with the
selection, leasing, construction, and opening of new stores, as well as seasonal
factors, product introductions, and changes in product mix.
Based upon its past operating history, the Company believes that its
business is seasonal. Excluding the effects of new store openings, net sales and
earnings are generally lower during the first and fourth
16
<PAGE>
fiscal quarters than in the second and third fiscal quarters. See Note 15 of
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 27, 1998, total assets were $1.16 billion, $923 million of which
were current assets, including $152 million of cash and cash equivalents. Net
cash provided by operating activities for fiscal 1998 was $128 million, compared
with net cash provided by operating activities of $72.3 million for fiscal 1997.
Approximately three-fourths of the Company's net sales during both fiscal
1998 and fiscal 1997 were sales for which the Company received payment at the
time of sale either in cash, by check, or by third-party credit card. The
remaining net sales were primarily sales for which the Company provided credit
terms to corporate, government, and education customers.
Capital expenditures during fiscal 1998 were $138 million, $42.7 million of
which were for new stores, compared with $74.2 million of capital expenditures
during fiscal 1997, $18.1 million of which were for new stores. The Company
opened 33 new Computer Superstores during fiscal 1998 and 24 new Computer
Superstores during fiscal 1997. The Company plans to open approximately 15 to 20
Computer Superstores in fiscal 1999. In addition to the capital expenditures
made in connection with new stores, the Company also incurred capital
expenditures in fiscal 1998 and fiscal 1997 related to improvements in
information systems and existing stores, and additions to property and equipment
at the Company's corporate facilities. In fiscal 1998, the Company incurred
additional capital expenditures related to the Company's new call center and
distribution center. Excluding the effects of new store openings, the Company's
greatest short-term capital requirements occur during the second fiscal quarter
to support a higher level of sales in that quarter. Short-term capital
requirements are satisfied primarily by available cash and cash equivalents and
vendor and bank financing.
The Company has an unsecured $300 million credit agreement (the "Credit
Agreement") with a consortium of banks that expires in March 2001. The Credit
Agreement requires that the Company maintain certain financial ratios and a
minimum net worth and restricts, among other things, the Company's ability to
incur additional indebtedness. The Credit Agreement allows the Company to
securitize up to $200 million of certain assets. The Company's ability to incur
borrowings under the Credit Agreement is reduced by outstanding letters of
credit and, in certain circumstances, further reduced based upon the financial
covenants contained in the Credit Agreement. The Company's ability to incur
borrowings under the Credit Agreement could be further limited in certain
circumstances pursuant to the terms of the indenture related to the Senior
Subordinated Notes. At June 27, 1998, no borrowings were outstanding under the
Company's Credit Agreement. See Note 8 of Notes to Consolidated Financial
Statements.
Concurrent with the acquisition of Computer City, the Credit Agreement was
amended with respect to certain of the financial ratios required to be
maintained by the Company and the calculation of amounts available for future
borrowings. As of August 31, 1998, after giving effect to the issuance of the
Seller Note (as defined below) and the revisions to the Credit Agreement, the
Company had $194 million available for future borrowings under the Credit
Agreement.
The Company also finances certain fixture and equipment acquisitions through
equipment lessors. Lease financing is available from numerous sources and the
Company evaluates equipment leasing as a supplemental source of financing on a
continuing basis.
In connection with the acquisition of Computer City, the Company issued a
$136 million subordinated promissory note payable to Tandy Corporation (the
"Seller Note"). The Seller Note provides for its repayment in semi-annual
installments over a period of ten years at 9.48% interest per annum. The first
three years of payments are interest only, with the first principal payment due
in December 2001. The Seller Note ranks pari passu with the Senior Subordinated
Notes. The unpaid principal amount of the
17
<PAGE>
Seller Note may be prepaid, in whole or in part, at any time at the option of
the Company, without premium or penalty.
In September 1997, the Company's Board of Directors authorized the purchase
of up to $60 million of Common Stock. As of June 27, 1998, the Company had
purchased 2.2 million shares of Common Stock, to be held as treasury stock, for
$60 million ($27.34 per share), pursuant to the September 1997 authorization. No
additional purchases of Common Stock can currently be made by the Company
pursuant to such authorization.
The Company believes that its available cash and cash equivalents, funds
generated by operations, currently available vendor and floor plan financing,
lease financing, and funds available under the Credit Agreement should be
sufficient to finance its continuing operations and expansion plans through the
end of fiscal 1999 and to make all required payments of interest on the Senior
Subordinated Notes and the Seller Note. The level of future expansion will be
contingent upon market conditions and the availability of additional capital.
INFLATION
While inflation has not had, and the Company does not expect it to have, a
material impact upon operating results, there can be no assurances that the
Company's business will not be affected by inflation in the future.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information, which are effective for fiscal years
beginning after December 15, 1997. The Company will adopt the provisions of SFAS
No. 130 and SFAS No. 131 in fiscal 1999. The American Institute of Certified
Public Accountants (the "AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use," which is effective for fiscal years beginning after December 15, 1998. The
Company's current policy falls within the guidelines of SOP 98-1. Also, the
AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for fiscal years beginning after December 15, 1998. Beginning in the
first quarter of fiscal year 1999, the Company will elect to adopt the
provisions of SOP 98-5. Management believes that the adoption of SOP 98-5 will
have no material impact on the Company's financial statements.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the Year 2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as IT systems, including
accounting, data processing, and telephone/PBX systems, cash registers,
hand-held terminals, scanning equipment, and other miscellaneous systems, as
well as systems that are not commonly thought of as IT systems, such as alarm
systems, fax machines, or other miscellaneous systems. Both IT and non-IT
systems may contain imbedded technology, which complicates the Company's Year
2000 identification, assessment, remediation, and testing efforts. Based upon
its identification and assessment efforts to date,
18
<PAGE>
the Company believes that certain of the computer equipment and software it
currently uses will require replacement or modification. In addition, in the
ordinary course of replacing computer equipment and software, the Company
attempts to obtain replacements that are Year 2000 compliant. Utilizing both
internal and external resources to identify and assess needed Year 2000
remediation, the Company currently anticipates that its Year 2000
identification, assessment, remediation and testing efforts, which began in
October 1996, will be completed by June 30, 1999, and that such efforts will be
completed prior to any currently anticipated impact on its computer equipment
and software. The Company estimates that as of September 15, 1998, it had
completed approximately 40% of the initiatives that it believes will be
necessary to fully address potential Year 2000 issues relating to its computer
equipment and software. The projects comprising the remaining 60% of the
initiatives are in process and expected to be completed on or about June 30,
1999.
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
- -------------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Initial IT system identification and assessment....................................... 10/96-3/97 100%
Remediation and testing regarding central system issues............................... 5/97-4/98 100%
Remediation and testing regarding departmental system issues.......................... 3/98-6/99 75%
Remediation and testing regarding store and distribution system issues................ 8/98-6/99 5%
Upgrades to telephone/PBX and other systems........................................... 3/98-11/98 80%
Electronic data interchange trading partner conversions............................... 3/98-3/99 20%
Identification, assessment, remediation and testing regarding desktop and individual
system issues....................................................................... 2/98-6/99 65%
Identification and assessment regarding non-IT system issues.......................... 4/98-12/98 30%
Remediation and testing regarding non-IT system issues................................ 9/98-6/99 0%
</TABLE>
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with many strategic customers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from or by such
entities are Year 2000 compliant. As of September 15, 1998, the Company had
received responses from approximately 42% of such third parties, and 76% of the
companies that have responded have provided written assurances that they expect
to address all their significant Year 2000 issues on a timely basis. A follow-up
mailing to significant vendors and service providers that did not initially
respond, or whose responses were deemed unsatisfactory by the Company, has been
completed, with responses due by October 1, 1998.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $5 million, which expenditures will be funded from
operating cash flows. Such amount represents approximately 3% of the Company's
total actual and anticipated IT expenditures for fiscal 1997 through fiscal
1999. As of June 27, 1998, the Company had incurred costs of approximately $1.6
million related to its Year 2000 identification, assessment, remediation and
testing efforts. All of the $1.6 million relates to analysis, repair or
replacement of existing software, upgrades of existing software, or evaluation
of information received from significant vendors, service providers, or
customers. Other non-Year 2000 IT efforts have not been materially delayed or
impacted by Year 2000 initiatives. The Company presently believes that the Year
2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation and testing are not effected timely with respect to Year 2000
problems that are identified, there can be no assurance that the Year 2000 issue
will not materially adversely impact the Company's results of operations or
adversely affect the Company's relationships with customers, vendors, or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
19
<PAGE>
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
The Company has engaged an independent expert to evaluate its Year 2000
identification, assessment, remediation and testing efforts.
The costs of the Company's Year 2000 identification, assessment, remediation
and testing efforts and the dates on which the Company believes it will complete
such efforts are based upon management's best estimates, which were derived
using numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans, and other
factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology, and similar uncertainties. In
addition, variability of definitions of "compliance with Year 2000" and the
myriad of different products and services, and combinations thereof, sold by the
Company may lead to claims whose impact on the Company is not currently
estimable. No assurance can be given that the aggregate cost of defending and
resolving such claims, if any, will not materially adversely affect the
Company's results of operations. Although some of the Company's agreements with
manufacturers and others from whom it purchases products for resale contain
provisions requiring such parties to indemnify the Company under some
circumstances, there can be no assurance that such indemnification arrangements
will cover all of the Company's liabilities and costs related to claims by third
parties related to the Year 2000 issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's Credit Agreement provides for borrowings which bear
interest at variable rates based on either a prime rate or the London Interbank
Offering Rate. The Company had no borrowings outstanding pursuant to the Credit
Agreement in fiscal 1998. The Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates on the Company's
financial position, results of operations, and cash flows should not be
material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1. Supplementary
quarterly financial information for the Company is included in Note 15 of Notes
to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in connection
with the Company's Annual Meeting of Stockholders to be held November 4, 1998
under the heading "Proposal No. 1--Election of Directors," which information is
incorporated herein by reference. Information concerning each executive officer
of the Company is set forth in the Proxy Statement under the heading
"MANAGEMENT--Executive Officers," which information is incorporated herein by
reference. Information concerning compliance by directors, officers, and 10%
stockholders of the Company with the filing requirements of Section 16(a) of the
Securities Exchange Act of 1934 is set forth in the Proxy Statement under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance," which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "EXECUTIVE COMPENSATION," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "PRINCIPAL
STOCKHOLDERS AND MANAGEMENT OWNERSHIP," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the heading "CERTAIN TRANSACTIONS," which
information is incorporated herein by reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K.
1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Exhibits:
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and among the
Company, Snowstorm Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of the Company, and PCs Compleat, pursuant to which the Company
acquired PCs Compleat, Inc.(7)
2.2 Stock Purchase Agreement dated as of June 21, 1998 ("Stock Purchase
Agreement") by and between Tandy Corporation and the Company for the purchase
and sale of all outstanding capital stock of Computer City, Inc.(16)
2.3 Amendment to Stock Purchase Agreement dated August 31, 1998.(16)
3.1 Restated and Amended Certificate of Incorporation.(14)
3.2 Restated and Amended Bylaws.(4)
4.1 Specimen Common Stock Certificate (as amended).(13)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000.(3)
4.3 Indenture dated June 17, 1993 (the "Indenture") among CompUSA Inc., as
Issuer, Compudyne Products, Inc., Compudyne Direct, Inc., CompFinance Inc.,
CompService Inc., as Guarantors and U.S. Trust Company of Texas, N.A., as
Trustee relating to 9 1/2% Senior Subordinated Notes Due 2000.(1)
4.4 First Supplemental Indenture dated as of December 1, 1995 among the Company,
CompTeam Inc., CompFinance Inc., CompService Inc., and U.S. Trust Company of
Texas, N.A., as Trustee.(6)
4.5 Second Supplemental Indenture dated as of February 7, 1996 among the Company,
CompTeam Inc., CompFinance Inc., CompService Inc., CompUSA Holdings II Inc.,
and U.S. Trust Company of Texas, N.A., as Trustee.(10)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among the Company,
CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA Holdings II Inc.,
Snowstorm Merger Corp. and U.S. Trust Company of Texas, N.A., as Trustee.(10)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among the Company,
CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA Holdings II Inc.,
PCs Compleat, Inc. and U.S. Trust Company of Texas, N.A., as Trustee.(10)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996 among the
Company, CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA Holdings
II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA Management
Company, CompUSA Stores L.P., CompUSA Holdings Company and U.S. Trust Company
of Texas, N.A., as Trustee.(10)
4.9 Sixth Supplemental Indenture dated as of August 31, 1998 among the Company,
CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings
I Inc., CompUSA Stores L.P., CompUSA Holdings Company, CompUSA Management
Company, Computer City, Inc. and U.S. Trust Company of Texas, N.A., as
Trustee.(17)
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
4.10 Subsidiary Guarantees of the Company's indebtedness under the Indenture
executed by CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc.,
CompUSA Holdings I Inc., CompUSA Management Company, CompUSA Stores L.P. and
CompUSA Holdings Company.(10)
4.11 Subsidiary Guaranty dated as of August 31, 1998, of the Company's
indebtedness under the Indenture executed by Computer City, Inc.(17)
4.12 Rights Agreement dated April 29, 1994, between the Company and Bank One,
Texas, N.A., as Rights Agent.(4)
4.13 Letter of the Company dated August 16, 1996, appointing American Stock
Transfer & Trust Company as substitute Rights Agent under the Rights
Agreement.(10)
4.14 Subordinated Promissory Note dated August 31, 1998, in the principal amount
of $136,000,000 issued in favor of Tandy Corporation.(16)
10.1 $300,000,000 Second Amended and Restated Credit Agreement dated March 12,
1998, among the Company, certain lenders and NationsBank, N.A. (as successor
to NationsBank of Texas, N.A.), as administrative lender (the "Credit
Agreement").(15)
10.2 First Amendment to the Credit Agreement, dated June 16, 1998, among the
Company, certain lenders and NationsBank, N.A., as administrative lender.(17)
10.3 Second Amendment to the Credit Agreement, dated August 31, 1998, among the
Company, certain lenders and NationsBank, N.A., as administrative lender.(17)
10.4 Subsidiary Guaranty dated as of March 12, 1998, of the Company's indebtedness
under the Credit Agreement by CompUSA Holdings II Inc., PCs Compleat, Inc.,
CompUSA Holdings I Inc., CompTeam Inc., CompUSA Management Company, CompUSA
Stores L.P., and CompUSA Holdings Company.(17)
10.5 Agreement and Adoption of Subsidiary Guaranty dated August 31, 1998, of the
Company's indebtedness under the Credit Agreement by Computer City, Inc. and
the other subsidiaries of the Company.(17)
10.6 Promissory Note dated March 12, 1998, in the principal amount of $35,000,000,
issued in favor of NationsBank, N.A. (as successor to NationsBank of Texas,
N.A.).(17)
10.7 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of Bank One, Texas, N.A.(17)
10.8 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000,
issued in favor of Credit Lyonnais New York Branch.(17)
10.9 Promissory Note dated March 12, 1998, in the principal amount of $30,000,000,
issued in favor of Wells Fargo Bank (Texas), N.A.(17)
10.10 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of The Bank of New York.(17)
10.11 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of The Bank of Nova Scotia.(17)
10.12 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000,
issued in favor of Fleet National Bank.(17)
10.13 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of Fifth Third Bank.(17)
10.14 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000,
issued in favor of Hibernia National Bank.(17)
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
10.15 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000,
issued in favor of Credit Suisse First Boston.(17)
10.16 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of Chase Bank of Texas National Association.(17)
10.17 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000,
issued in favor of First Union National Bank.(17)
10.18 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000,
issued in favor of Bank of America NT&SA.(17)
10.19 The Addison Office Lease Agreement dated September 1, 1992, between
Carter-Crowley Properties, Inc. as Landlord and CompUSA Inc. as Tenant.(2)
10.20 Form of Employment Agreement between the Company and each of J. Samuel
Crowley, Paul F. Ewert, Ronald J. Gilmore, Harold D. Greenberg, Melvin D.
McCall, Barry C. McCook, Lawrence N. Mondry, Stuart M. Needleman, Honorio J.
Padron, Paul B. Poyfair, Robert N. Sayewitz, Robert S. Seay, James E.
Skinner, Ronald D. Strongwater, Mark R. Walker and Anthony A. Weiss.(17)
10.21 Form of Employment Agreement between the Company and each of Gary M. Bale,
Aka A. DeMesa, Richard H. Foster, Rick L. Fountain, Ronald E. Freeman, J.
Robert Gary, Robert M. Howe III, Edmund G. Jurica, Jr., Richard W. Levine,
John S. Lostroscio, Leslie C. Marshall, Kellie J. McCluskey, Robert J.
Verhagen and Catherine C. Witt.(17)
10.22 Form of Employment Agreement dated as of August 16, 1996, between the Company
and James F. Halpin.(10)
10.23 Form of Employment Agreement dated as of August 16, 1996, between the Company
and Harold F. Compton.(10)
10.24 CompSavings Plan for Employees of CompUSA Inc. Plan and Trust Agreement, as
Amended and Restated effective January 1, 1998.(17)
10.25 Amended and Restated CompUSA Inc. Deferred Compensation Plan.(13)
10.26 CompUSA Inc. Long-Term Incentive Plan.(12)
10.27 PCs Compleat, Inc. 1991 Stock Option Plan.(9)
10.28 CompUSA Inc. Officers' Bonus Plan.(17)
11 Computations of Earnings per Share.(17)
21 Subsidiaries.(17)
23 Consent of Ernst & Young LLP.(17)
27.1 Financial Data Schedule as of and for the year ended June 27, 1998.(18)
27.2 Restated Financial Data Schedule as of and for the years ended June 28, 1997
and June 29, 1996.(18)
</TABLE>
(b) Reports on Form 8-K
1. Report on Form 8-K filed with the Securities and Exchange Commission on
June 26, 1998, in connection with the execution by the Company of a
definitive agreement relating to its acquisition of Computer City, as
announced on June 22, 1998.
24
<PAGE>
(c) Exhibits.
See Exhibit Index following page F-21.
- ------------------------
(1) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended June 27, 1992, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 23, 1995, and incorporated
herein by reference.
(6) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996, and incorporated herein
by reference.
(7) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996.
(8) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(9) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1996, and incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Registration Statement No.
1-11566 on Form 8-A/A filed December 6, 1996, as amended.
(12) Previously filed as an exhibit to Registration Statement No. 333-18033 on
Form S-8 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996, and incorporated
herein by reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 27, 1997, and incorporated
herein by reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1998, and incorporated herein
by reference.
(16) Previously filed as an exhibit to the Company's Report on Form 8-K filed
on September 15, 1998, and incorporated herein by reference.
(17) Filed herewith.
(18) Included with EDGAR version only.
25
<PAGE>
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.
COMPUSA INC.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<S> <C> <C>
/s/ JAMES F. HALPIN
--------------------------------- President and Chief Executive Officer September 22, 1998
James F. Halpin
/s/ JAMES E. SKINNER Executive Vice President and Chief Financial
--------------------------------- Officer (Principal Financial and Accounting September 22, 1998
James E. Skinner Officer)
</TABLE>
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>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<S> <C> <C>
/s/ GILES H. BATEMAN
--------------------------------- Chairman of the Board of Directors September 22, 1998
Giles H. Bateman
/s/ JAMES F. HALPIN
--------------------------------- Director September 22, 1998
James F. Halpin
/s/ LEONARD L. BERRY
--------------------------------- Director September 22, 1998
Leonard L. Berry, Ph.D.
/s/ WARREN D. FELDBERG
--------------------------------- Director September 22, 1998
Warren D. Feldberg
/s/ LAWRENCE MITTMAN
--------------------------------- Director September 22, 1998
Lawrence Mittman
/s/ KEVIN J. ROCHE
--------------------------------- Director September 22, 1998
Kevin J. Roche
/s/ DENISE ILITCH
--------------------------------- Director September 22, 1998
Denise Ilitch
/s/ MORTON E. HANDEL
--------------------------------- Director September 22, 1998
Morton E. Handel
/s/ BARRY L. WILLIAMS
--------------------------------- Director September 22, 1998
Barry L. Williams
</TABLE>
26
<PAGE>
COMPUSA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of CompUSA Inc. are included
in response to Item 8:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of June 27, 1998 and June 28, 1997.......................................... F-3
Consolidated Statements of Income for the fiscal years ended June 27, 1998, June 28, 1997, and June 29,
1996..................................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 27, 1998, June 28, 1997,
and June 29, 1996........................................................................................ F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 27, 1998, June 28, 1997, and June 29,
1996..................................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
Separate financial statements relating to the Company's subsidiaries are
omitted since all of them are wholly owned and have each guaranteed the
Company's 9 1/2% Senior Subordinated Notes due 2000 on a full, unconditional and
joint and several basis and the Company does not consider such separate
financial statements to be material to investors.
All financial statement schedules have been omitted because the required
information is not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is included in
the financial statements, including the notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CompUSA Inc.
We have audited the accompanying consolidated balance sheets of CompUSA Inc.
(the "Company") as of June 27, 1998 and June 28, 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 27, 1998. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CompUSA Inc. at
June 27, 1998 and June 28, 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 27,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
August 12, 1998, except for Note 14,
as to which the date is August 31, 1998
F-2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 151,779 $ 209,929
Accounts receivable, net of allowance for doubtful accounts of $3,524 and $2,883 at
June 27, 1998 and June 28, 1997, respectively..................................... 214,084 214,568
Merchandise inventories............................................................. 520,762 501,426
Deferred income taxes - current (Note 6)............................................ 9,762 6,833
Prepaid expenses and other.......................................................... 26,480 11,688
------------ ------------
Total current assets.............................................................. 922,867 944,444
Property and equipment, net (Note 4).................................................. 210,528 170,801
Deferred income taxes (Note 6)........................................................ 18,076 --
Other assets.......................................................................... 9,039 9,347
------------ ------------
$ 1,160,510 $ 1,124,592
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 534,620 $ 483,548
Accrued liabilities (Note 5)........................................................ 98,714 93,794
Current portion of capital lease obligations (Note 7)............................... 666 3,139
------------ ------------
Total current liabilities......................................................... 634,000 580,481
Capital lease obligations (Note 7).................................................... 1,872 2,458
Senior Subordinated Notes (Note 9).................................................... 110,000 110,000
Deferred income taxes (Note 6)........................................................ -- 3,686
Commitments and contingencies (Notes 7 and 10)........................................ -- --
Stockholders' equity (Note 12):
Preferred stock, $.01 per share par value, 10,000 shares authorized, none issued.... -- --
Common stock, $.01 per share par value; 325,000,000 shares authorized with
93,372,545 shares issued at June 27, 1998; 200,000,000 shares authorized with
91,763,372 shares issued at June 28, 1997......................................... 934 918
Paid-in capital..................................................................... 278,000 262,908
Retained earnings................................................................... 198,045 166,502
------------ ------------
476,979 430,328
Less: Treasury stock, at cost, 2,507,227 shares at June 27, 1998 and 316,627 shares
at June 28, 1997.................................................................. (62,341) (2,361)
------------ ------------
Total stockholders' equity........................................................ 414,638 427,967
------------ ------------
$ 1,160,510 $ 1,124,592
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMPUSA INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 5,286,041 $ 4,610,523 $ 3,829,786
Cost of sales and occupancy costs....................................... 4,540,717 3,953,407 3,311,682
------------ ------------ ------------
Gross profit.......................................................... 745,324 657,116 518,104
Operating expenses...................................................... 507,180 401,722 328,344
Pre-opening expenses.................................................... 8,704 6,220 5,466
General and administrative expenses..................................... 116,399 92,183 75,488
Non-recurring amortization charge (Note 2).............................. 55,885 -- --
Transaction costs related to Merger (Note 3)............................ -- -- 3,453
------------ ------------ ------------
Operating income...................................................... 57,156 156,991 105,353
Other expense (income):
Interest expense...................................................... 12,331 12,229 12,487
Other income, net..................................................... (6,463) (7,900) (6,983)
------------ ------------ ------------
5,868 4,329 5,504
------------ ------------ ------------
Income before income taxes.............................................. 51,288 152,662 99,849
Income tax expense (Note 6)............................................. 19,745 58,776 40,184
------------ ------------ ------------
Net income.............................................................. $ 31,543 $ 93,886 $ 59,665
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share................................................ $ 0.35 $ 1.03 $ 0.68
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share.............................................. $ 0.33 $ 0.99 $ 0.65
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares.......................................... 91,369 90,835 87,510
Weighted average common shares assuming dilution........................ 94,616 94,589 91,220
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- PAID-IN RETAINED TREASURY
SHARES PAR VALUE CAPITAL EARNINGS STOCK TOTAL
------------ --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 24, 1995................... 80,931,840 $ 809 $ 172,944 $ 12,951 $ -- $ 186,704
Issuance of Common Stock for cash, net of
offering costs........................... 8,050,000 81 76,704 -- -- 76,785
Issuance of Common Stock upon exercise of
stock options and other.................. 1,233,876 12 5,448 -- -- 5,460
Purchase of treasury stock................. -- -- -- -- (3,521) (3,521)
Sale of treasury stock to benefit plan..... -- -- 120 -- 692 812
Net income................................. -- -- -- 59,665 -- 59,665
------------ --------- ---------- ---------- ---------- ----------
Balance at June 29, 1996................... 90,215,716 902 255,216 72,616 (2,829) 325,905
Issuance of Common Stock upon exercise of
stock options and other.................. 1,547,656 16 6,927 -- -- 6,943
Sale of treasury stock to benefit plan..... -- -- 765 -- 468 1,233
Net income................................. -- -- -- 93,886 -- 93,886
------------ --------- ---------- ---------- ---------- ----------
Balance at June 28, 1997................... 91,763,372 918 262,908 166,502 (2,361) 427,967
Issuance of Common Stock upon exercise of
stock options and other.................. 1,609,173 16 15,092 -- -- 15,108
Purchase of treasury stock................. -- -- -- -- (59,980) (59,980)
Net income................................. -- -- -- 31,543 -- 31,543
------------ --------- ---------- ---------- ---------- ----------
Balance at June 27, 1998................... 93,372,545 $ 934 $ 278,000 $ 198,045 $ (62,341) $ 414,638
------------ --------- ---------- ---------- ---------- ----------
------------ --------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income............................................................... $ 31,543 $ 93,886 $ 59,665
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization (including non-recurring amortization
charge of $55,885) (Note 2).......................................... 104,852 35,625 27,625
Restructuring costs.................................................... -- -- (214)
Deferred income tax.................................................... (24,691) 753 266
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................................ 484 (66,459) (44,175)
Merchandise inventories............................................ (19,336) (102,585) (86,639)
Prepaid expenses and other......................................... (14,792) (2,852) (278)
Other assets....................................................... (507) (2,387) (63)
Increase in accounts payable and accrued liabilities................. 50,296 116,291 131,524
----------- ----------- ----------
Total adjustments................................................ 96,306 (21,614) 28,046
----------- ----------- ----------
Net cash provided by operating activities........................ 127,849 72,272 87,711
Cash flows used in investing activities:
Capital expenditures..................................................... (138,098) (74,168) (47,418)
Other.................................................................... 123 929 (565)
----------- ----------- ----------
Net cash used in investing activities............................ (137,975) (73,239) (47,983)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock................................... 15,108 6,943 79,344
Purchase of treasury stock............................................... (59,980) -- (3,521)
Sale of treasury stock to benefit plan................................... -- 1,233 812
Borrowings under line of credit agreements............................... -- -- 48,750
Repayments of borrowings under line of credit agreements................. -- -- (48,750)
Payments under capital lease obligations................................. (3,152) (4,894) (5,243)
----------- ----------- ----------
Net cash (used in) provided by financing activities.............. (48,024) 3,282 71,392
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents....................... (58,150) 2,315 111,120
Cash and cash equivalents at beginning of year............................. 209,929 207,614 96,494
----------- ----------- ----------
Cash and cash equivalents at end of year................................... $ 151,779 $ 209,929 $ 207,614
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--CompUSA Inc. (the "Company") is a retailer and reseller of
personal computer hardware, software, accessories, and related products and
services conducting its operations principally through its Computer Superstores
in the United States. The Company operated 162 Computer Superstores at June 27,
1998, 129 Computer Superstores at June 28, 1997, and 105 Computer Superstores at
June 29, 1996. In addition to the retail sales of its stores, the Company's
stores also fulfill the principal marketing, product, and service functions of
the Company's other businesses, including direct sales to corporate, government,
and education customers and training and technical services. In addition, the
Company conducts mail order operations through CompUSA Direct and sells
build-to-order CompUSA PCs.
FISCAL YEAR--The Company's fiscal year is a 52/53-week year ending on the
last Saturday of each June. All references to the fiscal year ended June 27,
1998 relate to the fifty-two weeks then ended. All references to the fiscal year
ended June 28, 1997 relate to the fifty-two weeks then ended. All references to
the fiscal year ended June 29, 1996 relate to the fifty-three weeks then ended.
CONSOLIDATION--The financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
USE OF ESTIMATES--The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets, liabilities, revenues, and expenses and the
disclosure of gain and loss contingencies at the date of the consolidated
financial statements. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash on hand in stores, deposits in banks, and
short-term investments with original maturities of three months or less are
considered cash and cash equivalents. Cash and cash equivalents are carried at
cost, which approximates fair value.
ACCOUNTS RECEIVABLE--Accounts receivable represent amounts due from
customers related to the sale of the Company's products and services. Such
receivables are generally unsecured and are generally due from a diverse group
of corporate, government, and education customers located throughout the United
States and, accordingly, do not include any specific concentrations of credit
risk. The Company believes it has provided adequate reserves for potentially
uncollectible accounts. For the fiscal years ended June 27, 1998, June 28, 1997,
and June 29, 1996, the Company's bad debt expense was $1.6 million, $959,000,
and $878,000, respectively.
MERCHANDISE INVENTORIES--Merchandise inventories are valued at the lower of
cost, determined on a weighted average basis, or market.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is provided in amounts sufficient to charge the cost of the
respective assets to operations over their estimated service lives on a
straight-line basis. Estimated service lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures........................................ 5-10 years
Equipment..................................................... 3-5 years
Life of
Leasehold improvements........................................ lease
Life of
Equipment under capital leases................................ lease
</TABLE>
F-7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSES--Advertising expenses are expensed in the month
incurred, subject to reduction by reimbursement from vendors. Net advertising
expenses were not a significant component of store operating expenses for the
fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996.
PRE-OPENING COSTS--Pre-opening costs are deferred prior to the date of the
store's grand opening and are expensed in the month of the store's grand
opening. Pre-opening costs consist primarily of personnel and advertising
expenses incurred prior to a store's opening and promotional costs associated
with the opening.
The American Institute of Certified Public Accountant's (the "AICPA")
Accounting Standards Executive Committee has issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. The SOP requires that entities expense start-up costs and organization
costs as they are incurred. Beginning in the first quarter of fiscal year 1999,
the Company will adopt the provisions of SOP 98-5 and begin expensing all
pre-opening costs as they are incurred. Management believes that the adoption of
SOP 98-5 will have no material impact on the Company's financial statements.
INCOME TAXES--Income taxes are maintained in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
whereby deferred income tax assets and liabilities result from temporary
differences. Temporary differences are differences between the tax bases of
assets and liabilities and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years.
INCOME PER SHARE--The Company adopted the provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" in the
preparation of the financial statements included in the Quarterly Report on Form
10-Q for the thirteen weeks ended December 27, 1997. In accordance with the
provisions of SFAS No. 128, the Company is required to report both "basic" and
"diluted" earnings per share and to restate previously reported earnings per
share amounts to conform to the provisions of SFAS No. 128. Basic earnings per
share has been computed using the weighted average number of shares of common
stock of the Company ("Common Stock") outstanding for each period presented. The
dilutive effect of stock options and other common stock equivalents is included
in the calculation of diluted earnings per share using the treasury stock
method. Earnings per share data for all periods prior to December 27, 1998
presented herein have been restated to conform with the provisions of SFAS No.
128.
F-8
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of basic and diluted earnings per share is summarized as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income................................................... $ 31,543 $ 93,886 $ 59,665
Weighted average common shares outstanding................... 91,369 90,835 87,510
--------- --------- ---------
Basic earnings per share..................................... $ 0.35 $ 1.03 $ 0.68
--------- --------- ---------
--------- --------- ---------
DILUTED EARNINGS PER SHARE:
Net income................................................... $ 31,543 $ 93,886 $ 59,665
Weighted average common shares outstanding................... 91,369 90,835 87,510
Incremental shares assuming dilution......................... 3,247 3,754 3,710
--------- --------- ---------
Weighted average common shares assuming dilution............. 94,616 94,589 91,220
--------- --------- ---------
Diluted earnings per share................................... $ 0.33 $ 0.99 $ 0.65
--------- --------- ---------
--------- --------- ---------
</TABLE>
On March 27, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a stock dividend to stockholders of record
on April 8, 1996, payable on April 22, 1996. On November 6, 1996, the Company's
Board of Directors declared a two-for-one stock split effected in the form of a
stock dividend to stockholders of record on November 18, 1996, payable on
December 2, 1996. Stock options and all other agreements payable in Common Stock
were amended to reflect the splits. Amounts equal to the par value of shares
issued in connection with the stock splits were transferred from additional
paid-in capital to the common stock account.
All references to the number of shares of Common Stock (except for shares
authorized) and basic and diluted earnings per share amounts in the consolidated
financial statements and the accompanying notes have been adjusted on a
retroactive basis to reflect the stock splits and the issuance of shares in
connection with the Company's acquisition of PCs Compleat, Inc. ("PCs
Compleat").
LONG-LIVED ASSETS--In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that
losses on the impairment of long-lived assets used in operations be recorded
when indicators of impairment are present and the undiscounted cash flows to be
generated by those assets are less than the assets' carrying amounts. The
standard was adopted by the Company in the preparation of its financial
statements for the fiscal year ended June 28, 1997. Adoption of the standard had
no impact on the Company's financial statements.
COMPREHENSIVE INCOME--In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires enterprises to report comprehensive
income to measure more effectively all changes in equity of an enterprise that
result from certain recognized transactions and other economic events other than
income earned from the ordinary course of business. SFAS No. 130 is effective
for financial statements for fiscal years beginning after
F-9
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 15, 1997, and therefore the Company will adopt the annual and quarterly
disclosure requirements of SFAS No. 130 in the fiscal year ending June 26, 1999.
Management believes the adoption of SFAS No. 130 will have no impact on the
Company's financial statements.
SEGMENT REPORTING--In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
standards requiring public business enterprises to report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997, and therefore the Company will adopt the annual
disclosure requirements in the preparation of its Annual Report on Form 10-K for
the fiscal year ending June 26, 1999, while the quarterly disclosure
requirements will be adopted in fiscal year 2000. Management has not determined
the impact of SFAS No. 131 on the Company's financial statement disclosures.
2. NON-RECURRING AMORTIZATION CHARGE
During the fourth quarter of fiscal 1998, the Company committed to a plan to
implement a new information technology ("IT") strategy. Pursuant to the
strategy, the Company plans to outsource substantially all of its IT processes
and implement an Enterprise Resource Management ("ERM") program. Implementation
of the ERM program will result in the replacement of a substantial portion of
the Company's existing IT systems, as well as certain systems in the development
stage. The Company is in negotiations with software and IT service companies and
currently plans to announce definitive agreements in the second quarter of
fiscal 1999. Implementation of the ERM program is expected to take approximately
18 to 24 months after execution of such agreements. As a result of the adoption
of this new strategy, the Company incurred a non-recurring, pre-tax amortization
charge of $55.9 million ($34.4 million after tax) related to the impairment of
existing IT systems and the abandonment of certain systems under development.
3. ACQUISITION OF PCS COMPLEAT, INC.
On May 30, 1996, pursuant to an Agreement and Plan of Merger dated as of May
15, 1996 (the "Merger Agreement") between the Company and PCs Compleat, PCs
Compleat, a leading direct reseller of brand name personal computers and
peripherals, located in Marlborough, Massachusetts, became a wholly-owned
subsidiary of the Company (the "Merger"). The operations of PCs Compleat were
fully integrated into the Company's direct mail order operations and became a
part of the Company's "CompUSA Direct" division in August 1997.
The Company's consolidated financial statements reflect the Merger under the
application of the pooling of interests method of accounting. Under the pooling
of interests method of accounting, the historical book values of the assets,
liabilities, and stockholders' equity of PCs Compleat, as reported on its
balance sheet, have been carried over onto the consolidated balance sheet of the
Company and no goodwill or other intangible assets were created. In addition,
the Company has restated its consolidated financial statements for all periods
prior to the Merger to include the results of operations of PCs Compleat.
F-10
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------
JUNE 27, JUNE 28,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures, and equipment.................................... $ 199,946 $ 139,399
Leasehold improvements................................................ 112,965 61,426
Equipment under capital leases........................................ 23,726 23,842
Land.................................................................. 9,720 6,440
Capital projects in progress.......................................... 7,991 40,812
---------- ----------
354,348 271,919
Less accumulated depreciation and amortization........................ 143,820 101,118
---------- ----------
$ 210,528 $ 170,801
---------- ----------
---------- ----------
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------
JUNE 27, JUNE 28,
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries and bonuses.................................................... $ 32,034 $ 34,198
Taxes, other than income and payroll.................................... 22,398 19,933
Rent.................................................................... 16,106 10,898
Other................................................................... 28,176 28,765
--------- ---------
$ 98,714 $ 93,794
--------- ---------
--------- ---------
</TABLE>
6. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision:
Current:
Federal................................................. $ 38,183 $ 49,894 $ 35,325
State................................................... 6,253 8,129 4,593
Deferred.................................................. (24,691) 753 266
---------- --------- ---------
$ 19,745 $ 58,776 $ 40,184
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-11
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The reconciliation of the income tax provision to the amount calculated
based on the federal statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate......................... $ 17,951 $ 53,432 $ 34,947
State income taxes, less federal benefit..................... 1,769 5,114 3,047
Reversal of valuation allowance.............................. -- -- (1,252)
Nondeductible expenses, primarily transaction costs.......... -- -- 1,209
Nontaxable income............................................ (1,402) (1,501) (1,471)
Other........................................................ 1,427 1,731 3,704
--------- --------- ---------
$ 19,745 $ 58,776 $ 40,184
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences giving rise to the deferred tax
asset (liability) at June 27, 1998 and June 28, 1997 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
----------------------------------------------
JUNE 27, 1998 JUNE 28, 1997
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Property and equipment........................ $ -- $ 10,540 $ -- $ (6,941)
Accounts receivable........................... 1,371 -- 1,119 --
Merchandise inventories....................... (2,874) -- (2,176) --
Prepaid expenses and other deferrals.......... (641) 1,335 (569) 512
Deferred rentals.............................. -- 6,201 -- 4,196
Accrued liabilities and other................. 11,906 -- 8,459 (1,453)
--------- ----------- --------- -----------
$ 9,762 $ 18,076 $ 6,833 $ (3,686)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
7. LEASES
The Company leases equipment under capital and operating leases that expire
at various dates through 2000. The Company operates in facilities leased under
noncancelable operating leases that expire at various dates through 2016 and the
majority of which contain renewal options and require the Company to pay a
proportionate share of common area maintenance.
F-12
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASES (CONTINUED)
At June 27, 1998, future minimum lease payments under all leases with
initial or remaining noncancelable lease terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- ------------------------------------------------------------------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C>
1999.................................................................... $ 2,138 $ 85,051
2000.................................................................... 1,127 82,481
2001.................................................................... 256 75,644
2002.................................................................... 5 68,796
2003.................................................................... 3 62,174
Thereafter.............................................................. -- 435,007
--------- ----------
Total minimum lease payments............................................ 3,529 $ 809,153
----------
----------
Less amount representing interest....................................... 991
---------
Present value of minimum lease payments................................. 2,538
Less current portion.................................................... 666
---------
Capital lease obligations due after one year............................ $ 1,872
---------
---------
</TABLE>
Rental expense of the Company amounted to $79.0 million in fiscal 1998,
$56.3 million in fiscal 1997 and $37.7 million in fiscal 1996.
8. CREDIT AGREEMENT
The Company has an unsecured $300 million credit agreement (the "Credit
Agreement") with a consortium of banks that expires in March 2001. The Credit
Agreement replaces a previous $150 million unsecured credit agreement. The funds
available under the Credit Agreement may be used for any corporate purpose,
including purchasing or redeeming the Senior Subordinated Notes in part or in
full. The Credit Agreement requires that the Company maintain certain financial
ratios and a minimum net worth. The Credit Agreement imposes certain limitations
on indebtedness, liens, and mergers and consolidations.
The Company's ability to incur borrowings under the Credit Agreement is
reduced by outstanding letters of credit and, in certain circumstances, further
reduced based upon the financial covenants contained in the Credit Agreement
(Note 14). The Company's ability to incur borrowings under the Credit Agreement
could be further limited in certain circumstances pursuant to the terms of the
indenture related to the Senior Subordinated Notes (Note 9). At June 27, 1998,
no borrowings were outstanding under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either a prime rate (8.5% per annum as of June 27, 1998) or a rate
based on the London Interbank Offering Rate (LIBOR) ranging from 5.7% to 5.8%
per annum as of June 27, 1998, plus a specified margin, currently 0.875%. The
Company also pays certain commitment and agent fees. The Company has the annual
option to extend the Credit Agreement for an additional year with the banks'
approval.
The Credit Agreement also limits the Company's ability to pay dividends and
purchase shares of Common Stock. As of June 27, 1998, the Company had
approximately $54.0 million available to pay
F-13
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CREDIT AGREEMENT (CONTINUED)
dividends and purchase Common Stock pursuant to the provisions of the Credit
Agreement. The Credit Agreement allows the Company to securitize up to $200
million of certain assets. The indebtedness under the Credit Agreement is
guaranteed on a full, unconditional, and joint and several basis by all
subsidiaries of the Company. However, the Credit Agreement allows the Company to
designate one or more of its subsidiaries to be free from most of the
restrictions under the Credit Agreement so long as no default will exist and
such subsidiaries do not contribute more than 10% of the Company's consolidated
cash flow or hold more than 10% of the Company's consolidated assets.
9. SENIOR SUBORDINATED NOTES
In June 1993, the Company issued $110,000,000 in principal amount of 9 1/2%
Senior Subordinated Notes due June 15, 2000 (the "Senior Subordinated Notes").
Interest on the Senior Subordinated Notes is payable semi-annually on each June
15 and December 15. The Senior Subordinated Notes are subordinated in right of
payment to all existing and future senior indebtedness of the Company, as
defined. Senior indebtedness, which totaled approximately $537 million and $489
million at June 27, 1998 and June 28, 1997, respectively, consists primarily of
capital lease obligations, indebtedness incurred under the Credit Agreement, and
trade payables.
The Senior Subordinated Notes are redeemable on or after June 15, 1998, at
the option of the Company, in whole or in part, at 102.714% of the principal
amount, declining to 100% of the principal amount on June 15, 1999 and
thereafter. The Senior Subordinated Notes grant the holders the right to require
the Company to repurchase all or any portion of their notes at 101% of the
principal amount thereof, together with accrued interest, following the
occurrence of a change in control of the Company, as defined.
The indenture related to the Senior Subordinated Notes restricts, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness or issue preferred stock, pay dividends and make other
distributions, sell or issue stock of a subsidiary, create encumbrances on the
ability of any subsidiary that is a guarantor to pay dividends or make other
restricted payments, engage in certain transactions with affiliates, dispose of
certain assets, merge or consolidate with or into, or sell or otherwise transfer
their properties and assets as an entirety to, another entity, incur
indebtedness that would rank senior in right of payment to the Senior
Subordinated Notes and be subordinated to any other indebtedness of the Company,
or create additional liens.
F-14
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SENIOR SUBORDINATED NOTES (CONTINUED)
The Senior Subordinated Notes are guaranteed on a full, unconditional and
joint and several basis by all of the Company's direct and indirect
subsidiaries, each of which is wholly owned. The combined summarized information
of these subsidiaries is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE
FISCAL YEAR ENDED
--------------------------
JUNE 27, JUNE 28,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Intercompany receivables.......................................... $ 79,462 $ 70,285
Other current assets.............................................. 399,717 360,754
Noncurrent assets................................................. 175,479 141,159
Intercompany payables............................................. 115,329 4,521
Other current liabilities......................................... 71,269 158,987
Long-term debt and liabilities.................................... 1,413 4,191
Net sales......................................................... 3,575,910 3,230,511
Intercompany revenues............................................. 220,732 178,612
Costs and expenses................................................ 3,552,274 3,142,991
Intercompany expenses............................................. 143,333 123,545
Net income........................................................ 62,137 87,878
</TABLE>
In preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated.
The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $111.7 million at June 27, 1998 and $113.9 million at
June 28, 1997.
10. COMMITMENTS AND CONTINGENCIES
On April 23, 1998, a lawsuit, Hoeck v. CompUSA Inc. et al., was filed by a
stockholder of the Company in the United States District Court for the Northern
District of Texas against the Company and certain of its officers, seeking class
action status on behalf of the purchasers of the Company's Common Stock and
related publicly traded options during the class period. The action alleges
various violations of the federal securities laws. Damages have not been
specified. On June 24, 1998, a second stockholder suit was filed against the
Company making virtually the same allegations. The Company believes the claims
are without merit and intends to vigorously defend against such charges. In
addition, the Company is a defendant from time to time in lawsuits incidental to
its business. Based on currently available information, the Company believes
that resolution of all known contingencies would not have a material adverse
impact on the Company's financial statements. However, there can be no
assurances that future costs would not be material to the results of operations
of the Company for a particular future period. In addition, the Company's
estimates of future costs are subject to change as circumstances change and
additional information becomes available during the course of litigation.
11. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution profit-sharing plan (the "401(k)
Plan") covering employees of the Company and its subsidiaries who are at least
21 years of age. Effective April 1, 1998,
F-15
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
eligible employees may become participants as of the first day of the next
calendar quarter after their hire date. The 401(k) Plan is intended to
constitute a qualified profit sharing plan within the meaning of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), which includes a
qualified cash or deferred arrangement within the meaning of Code section
401(k). In addition, the Company sponsors a deferred compensation plan that
permits eligible officers and employees to defer a portion of their
compensation. Contributions to both the 401(k) Plan and the deferred
compensation plan consist of employee pre-tax contributions determined as a
percentage of each participating employee's compensation and the Company's
matching contributions up to a specified limit. The Company may make additional
contributions to either or both plans at the discretion of the Company's Board
of Directors. The Company's expense for contributions to the 401(k) Plan and the
deferred compensation plan aggregated $2.3 million for the fiscal year ended
June 27, 1998, $1.4 million for the fiscal year ended June 28, 1997, and $1.7
million for the fiscal year ended June 29, 1996.
Effective February 26, 1998, a defined contribution plan sponsored by PCs
Compleat was consolidated with the Company's 401(k) Plan and all plan assets
were transferred to the Company's 401(k) Plan on that date. Prior to the
consolidation of the plans, PCs Compleat sponsored a defined contribution profit
sharing plan that was intended to be qualified within the meaning of Code
section 401(a) and that included a qualified cash or deferred arrangement within
the meaning of Code section 401(k). The plan covered substantially all employees
of PCs Compleat who met minimum age and service requirements and allowed
participants to defer a portion of their annual compensation on a pre-tax basis.
No contributions were made to the plan by PCs Compleat for the fiscal years
ended June 27, 1998, June 28, 1997, and June 29, 1996.
12. STOCKHOLDERS' EQUITY
COMMON STOCK--In September 1995, the Company completed a public offering,
selling 8,050,000 newly-issued shares of Common Stock and receiving net proceeds
of approximately $76,800,000 (net of offering costs of approximately
$3,500,000).
TREASURY STOCK--In September 1997, the Company's Board of Directors
authorized the purchase of up to $60 million of Common Stock. As of June 27,
1998, the Company had purchased 2.2 million shares of Common Stock, to be held
as treasury stock, for $60.0 million ($27.34 per share), pursuant to the
September 1997 authorization. No additional purchases of Common Stock can
currently be made by the Company pursuant to such authorization.
In February 1996, the Company made a cash contribution to the 401(k) Plan to
effect the Company's required contribution to the plan for 1995, which the plan
used to purchase 92,940 shares of treasury stock from the Company. In March
1997, the Company made a cash contribution to the 401(k) Plan to effect the
Company's required contribution to the plan for 1996, which the plan used to
purchase 62,833 shares of treasury stock from the Company.
STOCK-BASED INCENTIVE COMPENSATION PLANS--The CompUSA Inc. Long-Term
Incentive Plan (the "Long-Term Incentive Plan") provides for the granting of
stock-based incentive compensation in the form of stock options, restricted
stock grants, stock appreciation rights, performance share awards, and stock
unit awards, or a combination thereof. The Long-Term Incentive Plan, as restated
and amended, authorizes the issuance of up to 16,788,736 shares of Common Stock
upon the exercise of such incentive awards to employees, nonemployee directors,
and advisors of the Company.
F-16
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
Under the Long-Term Incentive Plan, stock option awards may be granted in
the form of incentive stock options or nonstatutory stock options and generally
become exercisable in cumulative installments over periods of three to four
years and expire after ten years. Exercise prices of incentive stock options
must be equal to or greater than 100% of the fair market value of the Common
Stock on the grant date.
Prior to the Merger, PCs Compleat maintained a stock option plan (the "PCs
Compleat Plan") for the benefit of its employees. In connection with the Merger,
the Company assumed all outstanding options granted under the PCs Compleat Plan
and converted such options into options to purchase an aggregate of 650,826
shares of Common Stock of the Company.
Stock option transactions related to both the Long-Term Incentive Plan and
the PCs Compleat Plan are summarized in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------
JUNE 27, 1998 JUNE 28, 1997
------------------------ ------------------------ JUNE 29, 1996
WEIGHTED WEIGHTED --------------------------
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF OPTION PRICE
OPTIONS PRICE OPTIONS PRICE OPTIONS PER SHARE
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 8,699,954 $ 16.21 5,944,456 $ 4.77 6,308,538 $ 0.27- 7.78
Granted............................. 834,229 30.53 4,764,394 26.88 1,028,330 1.33-17.69
Exercised........................... (1,521,023) 4.31 (1,473,030) 2.95 (1,070,312) 0.27- 7.83
Canceled............................ (115,428) 13.65 (535,866) 20.57 (322,100) 0.27- 8.85
----------- ----------- -----------
Outstanding at end of year.......... 7,897,732 $ 20.05 8,699,954 $ 16.21 5,944,456 $ 0.27-17.69
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table summarizes information about stock options outstanding
at June 27, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
---------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING LIFE EXERCISE EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
- -------------- ---------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.27- 4.91 1,026,518 6.1 $ 3.35 923,863 $ 3.44
5.72-10.38 1,679,180 6.0 7.33 1,373,244 7.08
13.88-23.25 1,548,003 8.1 21.99 703,973 22.13
24.81-34.82 3,644,031 8.4 29.79 1,333,329 29.69
---------- ----------
7,897,732 4,334,409
---------- ----------
---------- ----------
</TABLE>
For the fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996,
the Company granted restricted stock awards for 88,150, 80,002, and 163,572
shares of Common Stock, respectively, to the Company's officers. The restricted
stock awards vest to the employees on the fifth anniversary of the grant date.
The vesting period may be accelerated to a minimum of three years if specified
performance goals are met. As of June 27, 1998, the restricted stock awards
granted in the fiscal year ended June 29, 1996 were vested to the employees due
to the attainment of the specified performance goals. A provision for restricted
shares is made ratably over the vesting period. Expense recognized under the
plan for restricted shares was $1.3 million for fiscal 1998 and $729,500 for
fiscal 1997.
F-17
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has adopted the pro forma disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As required by SFAS 123, pro forma information
regarding net income and net income per share has been determined as if the
Company had accounted for employee stock options and stock-based awards granted
subsequent to June 24, 1995 under the fair value method provided for under SFAS
123. The fair value for those options was estimated at the date of grant using a
Black-Sholes option pricing model with the following weighted-average
assumptions: risk-free interest rates ranging from 5.04% to 6.75% for the fiscal
year ended June 29, 1996, ranging from 5.67% to 6.60% for the fiscal year ended
June 28, 1997, and ranging from 5.38% to 6.15% for the fiscal year ended June
27, 1998; a dividend yield of 0%; expected volatility of 52.6% for both the
fiscal year ended June 29, 1996 and June 28, 1997, and 51.9% for the fiscal year
ended June 27, 1998; and a weighted-average expected life of each option ranging
from 1.66 years to 3.75 years for both the fiscal year ended June 29, 1996 and
June 28, 1997, and 2.52 years to 3.61 years for the fiscal year ended June 27,
1998. The weighted average exercise prices and the weighted average fair values
of employee stock options and restricted stock awards granted is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------------
JUNE 27, 1998 JUNE 28, 1997 JUNE 29, 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED
EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE
PRICE FAIR VALUE PRICE FAIR VALUE PRICE FAIR VALUE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Exercise price of award on grant date:
Less than market value......................... $ 0.00 $ 24.81 $ 0.00 $ 17.09 $ 1.82 $ 6.99
Equals market value............................ 30.53 12.68 20.58 7.95 8.75 3.16
Exceeds market value........................... -- -- 27.50 7.67 -- --
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting period.
Because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to June 24, 1995, its pro forma effect will not be fully reflected
until the completion of one full vesting cycle. The Company's pro forma
information is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported................................................ $ 31,543 $ 93,886 $ 59,665
Pro forma.................................................. 24,174 89,156 59,631
Basic earnings per share:
As reported................................................ $ 0.35 $ 1.03 $ 0.68
Pro forma.................................................. 0.26 0.98 0.68
Diluted earnings per share:
As reported................................................ $ 0.33 $ 0.99 $ 0.65
Pro forma.................................................. 0.26 0.94 0.65
</TABLE>
F-18
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK--The Company has authorized 10,000 shares of preferred
stock, $.01 per share par value, none of which was issued and outstanding as of
June 27, 1998. However, the Board of Directors has the authority, without
further stockholder approval, to issue shares of preferred stock in one or more
series and to determine the dividend rights, any conversion rights or rights of
exchange, voting rights, rights and terms of redemption (including sinking fund
provisions), liquidation preferences, and any other rights, preferences,
privileges, and restrictions of any series of preferred stock, and the number of
shares constituting such series and the designation thereof. The Company has no
present plans to issue any shares of preferred stock. The terms of the Company's
Senior Subordinated Notes limit the Company's ability to issue preferred stock
(see Note 10).
RIGHTS AGREEMENT--On April 29, 1994, the Board of Directors of the Company
declared a dividend of one right to purchase preferred stock (a "Right") for
each outstanding share of Common Stock. As a result of the two-for-one stock
split declared by the Board of Directors effective April 8, 1996 and November
18, 1996, the number of Rights associated with each outstanding share of Common
Stock has been decreased to one-fourth of a Right in accordance with the
provision of the Rights Agreement. The Rights will expire on April 28, 2004.
Each Right will entitle its holder, in certain circumstances, to buy one
ten-thousandth of a newly issued share of Series A Junior Participating
Preferred Stock (the "Junior Preferred Stock") of the Company at the purchase
price of $120.
The Rights will be exercisable and transferable apart from the Common Stock
only if a person or group acquires beneficial ownership of 20% or more of the
outstanding Common Stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 20% or more of
the outstanding Common Stock.
The Company will generally be entitled to redeem the Rights at $.001 per
Right at any time until a person or group has become the beneficial owner of 20%
or more of the outstanding Common Stock. Under the Rights' "flip-in" feature, if
any person or group becomes the beneficial owner of 20% or more of the
outstanding Common Stock, then each Right not owned by such person or group of
certain related parties will entitle its holder to purchase, at the Right's then
current purchase price, shares of Common Stock (or in certain circumstances as
determined by the Board of Directors, cash, other property, or other securities)
having a value of twice the Right's purchase price.
Under the Rights' "flip-over" provision, if, after any person or group
becomes the beneficial owner of 20% or more of the outstanding Common Stock, the
Company is involved in a merger or other business combination transaction with
another person, or sells 50% or more of its assets or earning power to another
person in one or more transactions, each Right will entitle its holder to
purchase, at the Right's then current purchase price, shares of common stock of
such other person having a value of twice the Right's purchase price.
The Junior Preferred Stock will not be redeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, will be subordinate to all other series of the Company's preferred stock.
Each share of Junior Preferred Stock will represent the right to receive, when
and if declared, a quarterly dividend at an annual rate equal to the greater of
$1.00 per share or 10,000 times the quarterly per share cash dividends declared
on the Common Stock during the immediately preceding fiscal year. In addition,
each share of Junior Preferred Stock will represent the right to receive 10,000
times any noncash dividends (other than dividends payable in Common Stock)
declared on the Common Stock, in like kind. In the event of the liquidation,
dissolution or winding up of the Company,
F-19
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
each share of Junior Preferred Stock will represent the right to receive a
liquidation payment in an amount equal to the greater of $1.00 per share or
10,000 times the liquidation payment made per share of Common Stock. Each share
of Junior Preferred Stock will have 10,000 votes, voting together with the
Common Stock. In the event of any merger, consolidation, or other transaction in
which common shares are exchanged, each share of Junior Preferred Stock will
represent the right to receive 10,000 times the amount received per share of
Common Stock. The rights of the Junior Preferred Stock as to dividends,
liquidation, voting rights, and merger participation are protected by
anti-dilution provisions.
EXECUTIVE SEVERANCE ARRANGEMENTS--The Company has severance arrangements for
all officers that provide severance pay benefits in the event of a change in
control of the Company, as defined in the severance agreements. The Company's
officers (32 persons) have employment agreements containing provisions pursuant
to which those persons will receive lump sum severance payments in an amount up
to 2.99 times the sum of (i) their current base salary at the time of
termination, (ii) two times their target bonus for the bonus period in which the
change in control occurs, and (iii) their annualized automobile allowance,
together with payments in lieu of continued group insurance benefits.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest..................................................... $ 10,957 $ 11,154 $ 11,611
--------- --------- ---------
--------- --------- ---------
Income taxes................................................. $ 48,623 $ 59,823 $ 35,253
--------- --------- ---------
--------- --------- ---------
</TABLE>
Financing and investing activities not affecting cash are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Additions to property and equipment under capital leases........ $ 93 $ 1,043 $ 4,491
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
14. ACQUISITION OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City,
Inc. ("Computer City") from Tandy Corporation, for $211 million, payable in a
note and cash. The purchase price is subject to certain post-closing adjustments
based on the completion of an audit of Computer City's balance sheet as of the
closing date. The sale will be accounted for under the purchase accounting
method.
In connection with the acquisition of Computer City, the Company issued a
$136 million subordinated promissory note payable to Tandy Corporation (the
"Seller Note"). The Seller Note provides for its repayment in semi-annual
installments over a period of ten years at 9.48% interest per annum. The first
three years of payments are interest only, with the first principal payment due
in December 2001. The
F-20
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. ACQUISITION OF COMPUTER CITY (CONTINUED)
Seller Note ranks pari passu with the Senior Subordinated Notes. The unpaid
principal amount of the Seller Note may be prepaid, in whole or in part, at any
time at the option of the Company, without premium or penalty.
Concurrent with the acquisition, the Credit Agreement was amended with
respect to certain of the financial ratios required to be maintained by the
Company and the calculation of amounts available for future borrowings. As of
August 31, 1998, after giving effect to the issuance of the Seller Note and the
revisions to the Credit Agreement, the Company had approximately $194 million
available for future borrowings under the Credit Agreement.
15. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 27, 1998:
Net sales................................................ $ 1,191,812 $ 1,456,725 $ 1,451,819 $ 1,185,685
Cost of sales and occupancy costs........................ 1,016,213 1,241,979 1,246,634 1,035,891
Non-recurring amortization charge........................ -- -- -- 55,885
Operating income (loss).................................. 39,283 56,267 42,631 (81,025)
Net income (loss)........................................ 23,459 34,067 25,438 (51,421)
Basic earnings (loss) per share.......................... $ 0.26 $ 0.37 $ 0.28 $ (0.57)
Diluted earnings (loss) per share........................ $ 0.25 $ 0.36 $ 0.27 $ (0.57)
Weighted average common shares........................... 91,659 91,405 91,518 90,893
Weighted average common shares assuming dilution......... 95,514 95,508 94,692 90,893
YEAR ENDED JUNE 28, 1997:
Net sales................................................ $ 990,530 $ 1,198,603 $ 1,272,882 $ 1,148,508
Cost of sales and occupancy costs........................ 853,610 1,031,876 1,089,902 978,019
Operating income......................................... 24,444 40,225 53,944 38,378
Net income............................................... 14,546 23,728 32,715 22,897
Basic earnings per share................................. $ 0.16 $ 0.26 $ 0.36 $ 0.25
Diluted earnings per share............................... $ 0.15 $ 0.25 $ 0.35 $ 0.24
Weighted average common shares........................... 90,094 90,788 91,110 91,348
Weighted average common shares assuming dilution......... 94,540 94,737 94,450 94,630
</TABLE>
F-21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and among the Company, Snowstorm Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, and PCs Compleat,Inc.,
pursuant to which the Company acquired PCs Compleat.(7)
2.2 Stock Purchase Agreement dated as of June 21, 1998 ("Stock Purchase Agreement") by and between Tandy
Corporation and the Company for the purchase and sale of all outstanding capital stock of Computer
City, Inc.(16)
2.3 Amendment to Stock Purchase Agreement dated August 31, 1998.(16)
3.1 Restated and Amended Certificate of Incorporation.(14)
3.2 Restated and Amended Bylaws.(4)
4.1 Specimen Common Stock Certificate (as amended).(13)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000.(3)
4.3 Indenture dated June 17, 1993 (the "Indenture") among CompUSA Inc., as Issuer, Compudyne Products,
Inc., Compudyne Direct, Inc., CompFinance Inc., CompService Inc., as Guarantors and U.S. Trust
Company of Texas, N.A., as Trustee relating to 9 1/2% Senior Subordinated Notes Due 2000.(1)
4.4 First Supplemental Indenture dated as of December 1, 1995 among the Company, CompTeam Inc.,
CompFinance Inc., CompService Inc., and U.S. Trust Company of Texas, N.A., as Trustee.(6)
4.5 Second Supplemental Indenture dated as of February 7, 1996 among the Company, CompTeam Inc.,
CompFinance Inc., CompService Inc., CompUSA Holdings II Inc., and U.S. Trust Company of Texas, N.A.,
as Trustee.(10)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., Snowstorm Merger Corp. and U.S. Trust
Company of Texas, N.A., as Trustee.(10)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc. and U.S. Trust Company
of Texas, N.A., as Trustee.(10)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I
Inc., CompUSA Management Company, CompUSA Stores L.P., CompUSA Holdings Company and U.S. Trust
Company of Texas, N.A., as Trustee.(10)
4.9 Sixth Supplemental Indenture dated as of August 31, 1998 among the Company, CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA Holdings
Company, CompUSA Management Company, Computer City, Inc. and U.S. Trust Company of Texas, N.A., as
Trustee.(17)
4.10 Subsidiary Guarantees of the Company's indebtedness under the Indenture executed by CompTeam Inc.,
CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA Management Company,
CompUSA Stores L.P. and CompUSA Holdings Company.(10)
4.11 Subsidiary Guaranty dated as of August 31, 1998, of the Company's indebtedness under the Indenture
executed by Computer City, Inc.(17)
4.12 Rights Agreement dated April 29, 1994, between the Company and Bank One, Texas, N.A., as Rights
Agent.(4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.13 Letter of the Company dated August 16, 1996, appointing American Stock Transfer & Trust Company as
substitute Rights Agent under the Rights Agreement.(10)
4.14 Subordinated Promissory Note dated August 31, 1998, in the principal amount of $136,000,000 issued in
favor of Tandy Corporation.(16)
10.1 $300,000,000 Second Amended and Restated Credit Agreement dated March 12, 1998, among the Company,
certain lenders and NationsBank, N.A.(as successor to NationsBank of Texas, N.A.), as administrative
lender (the "Credit Agreement").(15)
10.2 First Amendment to the Credit Agreement, dated June 16, 1998, among the Company, certain lenders and
NationsBank, N.A., as administrative lender.(17)
10.3 Second Amendment to the Credit Agreement, dated August 31, 1998, among the Company, certain lenders
and NationsBank, N.A., as administrative lender.(17)
10.4 Subsidiary Guaranty dated as of March 12, 1998, of the Company's indebtedness under the Credit
Agreement by CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompTeam Inc.,
CompUSA Management Company, CompUSA Stores L.P., and CompUSA Holdings Company.(17)
10.5 Agreement and Adoption of Subsidiary Guaranty dated August 31, 1998, of the Company's indebtedness
under the Credit Agreement by Computer City, Inc. and the other subsidiaries of the Company.(17)
10.6 Promissory Note dated March 12, 1998, in the principal amount of $35,000,000, issued in favor of
NationsBank, N.A.(as successor to NationsBank of Texas, N.A.).(17)
10.7 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of Bank
One, Texas, N.A.(17)
10.8 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000, issued in favor of
Credit Lyonnais New York Branch.(17)
10.9 Promissory Note dated March 12, 1998, in the principal amount of $30,000,000, issued in favor of
Wells Fargo Bank (Texas), N.A.(17)
10.10 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of The
Bank of New York.(17)
10.11 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of The
Bank of Nova Scotia.(17)
10.12 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000, issued in favor of
Fleet National Bank.(17)
10.13 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of
Fifth Third Bank.(17)
10.14 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000, issued in favor of
Hibernia National Bank.(17)
10.15 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000, issued in favor of
Credit Suisse First Boston.(17)
10.16 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of
Chase Bank of Texas National Association.(17)
10.17 Promissory Note dated March 12, 1998, in the principal amount of $15,000,000, issued in favor of
First Union National Bank.(17)
10.18 Promissory Note dated March 12, 1998, in the principal amount of $29,000,000, issued in favor of Bank
of America NT&SA.(17)
10.19 The Addison Office Lease Agreement dated September 1, 1992, between Carter-Crowley Properties, Inc.
as Landlord and CompUSA Inc. as Tenant.(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.20 Form of Employment Agreement between the Company and each of J. Samuel Crowley, Paul F. Ewert, Ronald
J. Gilmore, Harold D. Greenberg, Melvin D. McCall, Barry C. McCook, Lawrence N. Mondry, Stuart M.
Needleman, Honorio J. Padron, Paul B. Poyfair, Robert N. Sayewitz, Robert S. Seay, James E. Skinner,
Ronald D. Strongwater, Mark R. Walker and Anthony A. Weiss.(17)
10.21 Form of Employment Agreement between the Company and each of Gary M. Bale, Aka A. DeMesa, Richard H.
Foster, Rick L. Fountain, Ronald E. Freeman, J. Robert Gary, Robert M. Howe III, Edmund G. Jurica,
Jr., Richard W. Levine, John S. Lostroscio, Leslie C. Marshall, Kellie J. McCluskey, Robert J.
Verhagen and Catherine C. Witt.(17)
10.22 Form of Employment Agreement dated as of August 16, 1996, between the Company and James F.
Halpin.(10)
10.23 Form of Employment Agreement dated as of August 16, 1996, between the Company and Harold F.
Compton.(10)
10.24 CompSavings Plan for Employees of CompUSA Inc. Plan and Trust Agreement, as Amended and Restated
effective January 1, 1998.(17)
10.25 Amended and Restated CompUSA Inc. Deferred Compensation Plan.(13)
10.26 CompUSA Inc. Long-Term Incentive Plan.(12)
10.27 PCs Compleat, Inc. 1991 Stock Option Plan.(9)
10.28 CompUSA Inc. Officers' Bonus Plan.(17)
11 Computations of Earnings per Share.(17)
21 Subsidiaries.(17)
23 Consent of Ernst & Young LLP.(17)
27.1 Financial Data Schedule as of and for the year ended June 27, 1998.(18)
27.2 Restated Financial Data Schedule as of and for the years ended June 28, 1997 and June 29, 1996.(18)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended June 27, 1992, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 23, 1995, and incorporated
herein by reference.
(6) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996, and incorporated herein
by reference.
(7) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996.
(8) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(9) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
<PAGE>
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1996, and incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Registration Statement No.
1-11566 on Form 8-A/A filed December 6, 1996, as amended.
(12) Previously filed as an exhibit to Registration Statement No. 333-18033 on
Form S-8 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996, and incorporated
herein by reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 27, 1997, and incorporated
herein by reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1998, and incorporated herein
by reference.
(16) Previously filed as an exhibit to the Company's Report on Form 8-K filed
on September 15, 1998, and incorporated herein by reference.
(17) Filed herewith.
(18) Included with EDGAR version only.
<PAGE>
EXHIBIT 4.9
-----------
COMPUSA INC.,
as Issuer,
COMPTEAM INC.
COMPUSA HOLDINGS II INC.
PCS COMPLEAT, INC.
COMPUSA HOLDINGS I INC.
COMPUSA STORES L.P.
COMPUSA HOLDINGS COMPANY
COMPUSA MANAGEMENT COMPANY
and
COMPUTER CITY, INC.
as Guarantors,
and
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
-----------
SIXTH SUPPLEMENTAL INDENTURE
Dated as of August 31, 1998
- --------------------------------------------------------------------------------
Supplement to Indenture dated as of June 17, 1993, among CompUSA Inc., as
Issuer, Compudyne Products, Inc., Compudyne Direct, Inc., CompFinance Inc., and
CompService Inc., as Guarantors, and U.S. Trust Company of Texas, N.A., as
Trustee, relating to CompUSA Inc.'s $110,000,000 principal amount of 9 1/2%
Senior Subordinated Notes due 2000
- --------------------------------------------------------------------------------
<PAGE>
SIXTH SUPPLEMENTAL INDENTURE
SIXTH SUPPLEMENTAL INDENTURE, dated as of August 31, 1998, among CompUSA
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (the "Issuer"), CompUSA Management Company and CompUSA Holdings
Company, both business trusts duly organized and existing under the laws of the
State of Delaware, CompUSA Stores L.P., a limited partnership duly organized and
existing under the laws of the State of Texas, and CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc. and Computer City,
Inc., all corporations duly organized and existing under the laws of the State
of Delaware (collectively, the "Guarantors"), and U.S. Trust Company of Texas,
N.A., a national banking association duly organized and existing under the laws
of the United States (the "Trustee"), as Trustee under the Indenture hereinafter
mentioned.
WITNESSETH:
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., Compudyne
Products, Inc. and Compudyne Direct, Inc. heretofore executed and delivered to
the Trustee an Indenture dated as of June 17, 1993 (the "Indenture"), providing
for the issuance of $110,000,000 principal amount of the Issuer's 9 1/2% Senior
Subordinated Notes due 2000 (the "Securities"); and
WHEREAS, Compudyne Products, Inc. and Compudyne Direct, Inc. have been
merged with and into the Issuer and are therefore no longer in existence; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc. and CompTeam Inc.
heretofore executed and delivered to the Trustee the First Supplemental
Indenture dated as of December 1, 1995, by which CompTeam Inc. was added as a
Guarantor of the Indenture; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc. and
CompUSA Holdings II Inc. heretofore executed and delivered to the Trustee the
Second Supplemental Indenture dated as of February 7, 1996, by which CompUSA
Holdings II Inc. was added as a Guarantor of the Indenture; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II Inc. and Snowstorm Merger Corp. heretofore executed and
delivered to the Trustee the Third Supplemental Indenture dated as of May 14,
1996, by which Snowstorm Merger Corp. was added as a Guarantor of the Indenture;
and
WHEREAS, Snowstorm Merger Corp. has been merged with and into PCs Compleat,
Inc. and is therefore no longer in existence; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II Inc. and PCs Compleat, Inc. heretofore executed and
delivered to the Trustee the Fourth Supplemental Indenture dated as of May 30,
1996, by which PCs Compleat, Inc. was added as a Guarantor of the Indenture; and
-2-
<PAGE>
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II, Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA
Stores L.P., CompUSA Holdings Company and CompUSA Management Company heretofore
executed and delivered to the Trustee the Fifth Supplemental Indenture dated as
of June 14, 1996, by which CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA
Holdings Company and CompUSA Management Company were added as Guarantors of the
Indenture; and
WHEREAS, CompService Inc. has been merged with and into CompFinance Inc.
and CompFinance Inc. has been merged with and into the Issuer, and CompService
Inc. and CompFinance Inc. are therefore no longer in existence; and
WHEREAS, Computer City, Inc. is now a wholly owned subsidiary of the Issuer
and wishes to guarantee Issuer's obligations with respect to the repayment of
the Securities;
WHEREAS, Section 9.01 of Indenture, "Amendment -- Without Consent of
Securityholders", provides that provisions of the Indenture may be amended or
supplemented without the consent of the Holders with respect to certain matters
therein identified; and
WHEREAS, all conditions necessary to authorize the execution and delivery
of this Sixth Supplemental Indenture and to make this Sixth Supplemental
Indenture valid and binding have been complied with or have been done or
performed;
NOW, THEREFORE, in consideration of the above premises, and in accordance
with the terms of the Indenture, the Issuer, the Guarantors and the Trustee
agree as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01. For all purposes of the Indenture and this Sixth
Supplemental Indenture, except as otherwise expressly provided or unless the
context otherwise requires:
(a) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to the Indenture and this Sixth Amendment to Indenture
as a whole and not to any particular Article, Section or subdivision; and
(b) capitalized terms used but not defined herein shall have the
meanings assigned to them in the Indenture.
ARTICLE TWO
AMENDMENT AND SUPPLEMENT
SECTION 2.01. The definition of "Guarantor," which follows the definition
of "Guarantee" in Section 1.01 of the Indenture, is hereby deleted and replaced
with the following new definition:
-3-
<PAGE>
"Guarantor" means each of CompTeam Inc., CompUSA Holding II Inc., PCs
Compleat, Inc., CompUSA Holdings I Inc., CompUSA Management Company,
CompUSA Stores L.P., CompUSA Holdings Company, Computer City, Inc. and
any other direct or indirect Subsidiary of the Company that executes a
Subsidiary Guarantee after the date hereof, and their respective
successors or assigns.
SECTION 2.02. Computer City, Inc. hereby agrees to be bound by all of the
terms and conditions of the Indenture as a Guarantor and to execute such
documents, including without limitation a written Subsidiary Guarantee, as shall
be necessary to evidence its status as a Guarantor.
ARTICLE THREE
MISCELLANEOUS
SECTION 3.01. Except as amended by the First Supplemental Indenture, the
Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth
Supplemental Indenture, the Fifth Supplemental Indenture and this Sixth
Supplemental Indenture, the Indenture remains in full force and effect in
accordance with its terms.
SECTION 3.02. The Trustee accepts the modification of the Indenture
effected by this Sixth Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture. Without limiting the generality of the
foregoing, the Trustee assumes no responsibility for the correctness of the
recitals herein contained, which shall be taken as the statements of the Issuer.
The Trustee makes no representation and shall have no responsibility as to the
validity of this Sixth Supplemental Indenture.
SECTION 3.03. In case any provision in this Sixth Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Sixth Supplemental Indenture
or the Indenture shall not in any way be affected or impaired thereby.
SECTION 3.04. This Sixth Supplemental Indenture shall be governed by and
construed in accordance with the laws of the jurisdiction which governs the
Indenture and its construction.
SECTION 3.05. This Sixth Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
-4-
<PAGE>
SECTION 3.06. The address for any notice or communication to Computer
City, Inc. is:
Computer City, Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: President
IN WITNESS WHEREOF, the Issuer, the Guarantors and the Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized and their respective corporate seals, duly attested, to be hereunto
duly affixed, all as of the day and the year first above written.
CompUSA Inc.
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Senior Vice President
- ---------------------
CompTeam Inc.
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
CompUSA Holdings II Inc.
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
-5-
<PAGE>
PCs Compleat, Inc.
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
CompUSA Holdings I Inc.
[SEAL]
By: /s/ Mark R.Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
CompUSA Stores L.P.
[SEAL] By: CompUSA Inc., General Partner
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Senior Vice President
- ---------------------
CompUSA Holdings Company
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
CompUSA Management Company
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Secretary
- ---------------------
-6-
<PAGE>
Computer City, Inc.
[SEAL]
By: /s/ Mark R. Walker
------------------------------------
Attest: Name: Mark R. Walker
Title: Senior Vice President
- ---------------------
U.S. Trust Company of Texas, N.A.,
[SEAL] as Trustee
By: /s/ Melissa Scott
------------------------------------
Attest: Name: Melissa Scott
Title: Vice President
/s/ [Illegible]
- ---------------------
-7-
<PAGE>
EXHIBIT 4.11
SUBSIDIARY GUARANTEE
Computer City, Inc., a Delaware corporation ("Guarantor"), hereby
executes this Subsidiary Guarantee (this "Subsidiary Guarantee") on behalf of
its sole stockholder, CompUSA Inc., a Delaware corporation (the "Company"),
in connection with that certain Indenture (the "Indenture") dated as of June
17, 1993, among the Company, certain of its subsidiaries (collectively, with
the Guarantor, the "Guarantors") and U.S. Trust Company of Texas, N.A. (the
"Trustee"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Indenture.
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability
of the Indenture, the Securities and the obligations of the Company
thereunder, that: (a) the principal of and interest on the Securities will be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and
interest on the Securities, if any, if lawful, and all other obligations of
the Company to the Securityholders or the Trustee under the Indenture and the
Securities will be promptly paid in full or performed, all in accordance with
the terms thereof; and (b) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantor will be jointly
and severally obligated (together with the other Guarantors) to pay the same
immediately. The Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or the Indenture, the absence of any action
to enforce the same, any waiver or consent by any Securityholder with respect
to any provisions thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance that might otherwise
constitute a legal or equitable discharge or defense of the Guarantor. The
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice
and all demands whatsoever and covenants that this Subsidiary Guarantee will
not be discharged except by complete performance of the obligations contained
in the Securities and the Indenture. If any Securityholder or the Trustee is
required by any court or otherwise to return to the Company or any Guarantor,
or any Custodian, Trustee, liquidator or other similar official acting in
relation to either the Company or the Guarantors, any amount paid by either
to the Trustee or such Securityholder, this Subsidiary Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
The Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Securityholders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
The Guarantor further agrees that, as between the Guarantors, on the one
hand, and the Securityholders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed
<PAGE>
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the
obligations guaranteed thereunder, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 of the Indenture,
such obligations (whether or not due and payable) shall forthwith become due
and payable by the Guarantors for the purpose of this Subsidiary Guarantee.
The Guarantor shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Securityholders under this Subsidiary Guarantee.
The Guarantor agrees to pay any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Subsidiary Guarantee; PROVIDED, HOWEVER, that
the maximum liability of the Guarantor pursuant to this Subsidiary Guarantee
shall be limited by the following paragraph.
The Guarantor hereby confirms that it is the intention of all parties
that the guarantee by the Guarantor pursuant to this Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar federal or state law. To effectuate the foregoing
intention, the Guarantor hereby irrevocably agrees that the obligations of
such Guarantor under this Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of the Guarantor and after giving effect to any collection from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Subsidiary Guarantee, result in
the obligations of the Guarantor under this Subsidiary Guarantee not
constituting such fraudulent transfer or conveyance.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Guarantor shall have any personal liability under
this Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
This Subsidiary Guarantee shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any
transfer or assignment of rights by any Securityholder or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof.
The obligations of the Guarantor to the Securityholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
subordinated to the extent set forth in Article 11 of the Indenture and
reference is hereby made to such Indenture for the precise terms of such
subordination.
Concurrently with a sale or other disposition of assets or all of the
capital stock of the Guarantor in compliance with the terms and conditions
set forth in the Indenture, including
-2-
<PAGE>
Sections 4.10 and 11.04 thereof, such assets shall automatically be released
from any Liens in favor of the Trustee and, if the assets sold or otherwise
disposed of include all or substantially all of the assets of the Guarantor
or all of the capital stock of the Guarantor, then the Guarantor (in the
event of a sale or other disposition of all of the capital stock of such
Guarantor) or the purchaser of the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor)
shall automatically be released from and relieved of any obligations under
the Subsidiary Guarantee without any action required on the part of the
Trustee or any Securityholder.
EXECUTED as of the 31st day of August, 1998.
Computer City, Inc.
By: /s/ Mark R. Walker
----------------------------------
Name: Mark R. Walker
Title: Secretary
-3-
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "First Amendment"), dated as of June 16, 1998, is entered into among
CompUSA Inc., a Delaware corporation ("Borrower"), the banks listed on the
signature pages hereof (collectively, the "Lenders"), and NationsBank, N.A.
(successor by merger to NationsBank of Texas, N.A.), as Administrative Lender
(in said capacity, the "Administrative Lender").
BACKGROUND
A. Borrower, Lenders and Administrative Lender are parties to that
certain Second Amended and Restated Credit Agreement, dated as of March 12,
1998 (the "Credit Agreement"; the terms defined in the Credit Agreement and
not otherwise defined herein shall be used herein as defined in the Credit
Agreement).
B. Borrower, Lenders and Administrative Lender desire to make certain
amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
Borrower, Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The defined term "SPECIAL REPURCHASE PERIOD" is hereby added to
SECTION 1.1 of the Credit Agreement in proper alphabetical order to read as
follows:
"SPECIAL REPURCHASE PERIOD" means a period which begins on the date
when the Borrower elects, by written notice to the Administrative Lender,
to repurchase its shares of common capital stock in public market
transactions as part of a special Treasury Stock Purchase program in the
aggregate amount not to exceed $150,000,000 and ends on the earliest of the
following events: (a) December 26, 1998, (b) the Borrower consummates
Treasury Stock Purchases in the aggregate amount of $150,000,000, or
(c) the Borrower terminates such period pursuant to a written notice to the
Administrative Lender. The Borrower may have only one Special Repurchase
Period election."
(b) SECTION 7.6 of the Credit Agreement is hereby amended to read as
follows:
<PAGE>
"Section 7.6 RESTRICTED PAYMENTS. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly declare,
pay or make any Restricted Payments; provided, however, (a) any Restricted
Subsidiary may declare and pay Dividends to the Borrower or another
Restricted Subsidiary, (b) the Borrower may make loans to directors,
officers and employees of Borrower and its Subsidiaries during any Fiscal
Year (calculated net of loan repayments), together with the Guaranty of
Indebtedness of directors, officers and employees permitted pursuant to
SECTION 7.5 hereof during such Fiscal Year, in an aggregate amount not to
exceed $1,000,000, (c) the Borrower may defease, redeem, repurchase or
prepay the Senior Subordinated Notes in part or in full, (d) the Borrower
may make Treasury Stock Purchases of its common capital stock during the
Special Repurchase Period not to exceed $150,000,000 in aggregate amount,
and (e) the Borrower may pay Dividends and make Treasury Stock Purchases
other than during the Special Repurchase Period (net of cash proceeds
received by the Borrower upon the reissuance of any treasury stock) of its
shares of capital stock in an aggregate amount (excluding the amount of any
Treasury Stock Purchases during the Special Repurchase Period) not to
exceed the sum of (i) $50,000,000, plus (ii) 50% of cumulative Net Income
for the period from, but not including, September 27, 1997 through the date
of the proposed payment or purchase (but excluding from the calculation of
such cumulative Net Income the effect, if any, of any Fiscal Quarter (or
portion of a Fiscal Quarter not then ended) of the Borrower for which Net
Income was a negative number); provided, however, the Borrower shall not
pay or make any such Restricted Payments set forth in clause (b), (c), (d)
or (e) above unless there shall exist no Default prior to or after giving
effect to any such proposed Restricted Payment.
(c) SECTION 7.11 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.11 NET WORTH. The Borrower shall not permit the Net Worth
to be less than an amount equal to the sum of (a) $384,800,000, plus
(b) 50% of cumulative Net Income for the period from, but not including,
September 27, 1997 through the date of calculation (but excluding from the
calculation of such cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended) of the Borrower for
which Net Income was a negative number), plus (c) an amount equal to 75% of
the net worth of any Person that becomes a Subsidiary of the Borrower or is
merged into or consolidated with the Borrower or any Subsidiary of the
Borrower or substantially all of the assets of which are acquired by the
Borrower or any Subsidiary of the Borrower to the extent the purchase price
paid therefor if paid in equity securities of the Borrower or any of its
Subsidiaries (including the reissuance of any treasury stock purchased
during the Special Repurchase Period), plus (d) 75% of the Net Cash
Proceeds (but without duplication) of any offerings of capital stock or
other equity interests of the Borrower or any of its Subsidiaries
(including the reissuance of any treasury stock purchased during the
Special Repurchase Period) or pursuant to the conversion or exchange of any
convertible Subordinated Debt or redeemable preferred stock into capital
stock or other equity interests of the Borrower or any of its Subsidiaries
since September 27, 1997, minus (e) the amount of Treasury Stock
-2-
<PAGE>
Purchases by the Borrower during the Special Repurchase Period not to
exceed $150,000,000 in aggregate amount."
(d) The Compliance Certificate is hereby amended to be in the form of
EXHIBIT C attached to this First Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of the
date hereof as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Borrower has full power and authority to execute and deliver this
First Amendment and the Credit Agreement, as amended hereby, and this First
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of Borrower, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
debtor relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as
rights to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this First
Amendment or the Credit Agreement, as amended hereby, nor the consummation of
any transactions contemplated herein or therein, will conflict with any Law,
the articles of incorporation, bylaws or other governance document of
Borrower or any of its Subsidiaries, or any indenture, agreement or other
instrument to which Borrower or any of its Subsidiaries or any of their
respective property is subject; and
(e) no authorization, approval consent, or other action by, notice to,
or filing with, any governmental authority or other Person, is required for
the execution, delivery or performance by Borrower of this First Amendment or
the acknowledgement of this First Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be
effective as of June 16, 1998, subject to the following:
(a) Administrative Lender shall have received counterparts of this
First Amendment executed by Determining Lenders;
(b) Administrative Lender shall have received counterparts of this
First Amendment executed by Borrower and acknowledged by each Guarantor;
-3-
<PAGE>
(c) Administrative Lender shall have received from Borrower, for the
account of each Lender executing this First Amendment, an amount equal to the
product of (i) 0.05% multiplied by (ii) each such Lender's pro rata part of
the Commitment; and
(d) Administrative Lender shall have received, in form and substance
satisfactory to Administrative Lender and its counsel, such other documents,
certificates and instruments as Administrative Lender shall require.
4. GUARANTOR ACKNOWLEDGEMENT. By signing below, each of the
Guarantors (i) acknowledges, consents and agrees to the execution and
delivery of this First Amendment, (ii) acknowledges and agrees that its
obligations in respect of its Subsidiary Guaranty are not released,
diminished, waived, modified, impaired or affected in any manner by this
First Amendment or any of the provisions contemplated herein, (iii) ratifies
and confirms its obligations under its Subsidiary Guaranty, and (iv)
acknowledges and agrees that it has no claims or offsets against, or defenses
or counterclaims to, its Subsidiary Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as amended by
this First Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all
costs and expenses of each Lender in connection with the preparation,
reproduction, execution and delivery of this First Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for each Lender with respect
thereto and with respect to advising each Lender as to its rights and
responsibilities under the Credit Agreement, as amended by this First
Amendment).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
and shall be binding upon Borrower and each Lender and their respective
successors and assigns.
-4-
<PAGE>
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of
this First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as the date first above written.
CompUSA Inc.
By: /s/ Robert Gary
---------------------------------------
Name: Robert Gary
----------------------------------
Title: Vice President Finance
---------------------------------
NATIONSBANK, N.A., as Administrative Lender
and as a Lender
By: /s/ Sharon M. Ellis
---------------------------------------
Name: Sharon M. Ellis
----------------------------------
Title: Vice President
---------------------------------
WELLS FARGO BANK (TEXAS), N.A., as a
Co-Agent and as a Lender
By: /s/ Mary Jo Hoch
---------------------------------------
Name: Mary Jo Hoch
----------------------------------
Title: Vice President
---------------------------------
HIBERNIA NATIONAL BANK, as a Co-Agent and as
a Lender
By: /s/ Christopher B. Pitre
---------------------------------------
Name: Christopher B. Pitre
----------------------------------
Title: Vice President
---------------------------------
-6-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a
Co-Agent and as a Lender
By: /s/ Robert Ivosevich
---------------------------------------
Name: Robert Ivosevich
----------------------------------
Title: Senior Vice President
---------------------------------
CREDIT SUISSE FIRST BOSTON, as a Co-Agent
and as a Lender
By: /s/ Robert N. Finney
---------------------------------------
Name: Robert N. Finney
----------------------------------
Title: Managing Director
---------------------------------
By: /s/ Thomas G. Muoio
---------------------------------------
Name: Thomas G. Muoio
----------------------------------
Title: Vice President
---------------------------------
FLEET NATIONAL BANK, as a Co-Agent and as a
Lender
By: /s/ Thomas J. Bullard
---------------------------------------
Name: Thomas J. Bullard
----------------------------------
Title: Vice President
---------------------------------
-7-
<PAGE>
BANK OF AMERICA NT&SA, as a Co-Agent and as
a Lender
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIRST UNION NATIONAL BANK
By: /s/ Mark B. Felker
---------------------------------------
Name: Mark B. Felker
----------------------------------
Title: Senior Vice President
---------------------------------
FIFTH THIRD BANK
By: /s/ Anne Koch
---------------------------------------
Name: Anne Koch
----------------------------------
Title: National Accounts Officer
---------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
---------------------------------------
Name: F.C.H. Ashby
----------------------------------
Title: Senior Manager Loan Operations
---------------------------------
-8-
<PAGE>
CHASE BANK OF TEXAS NATIONAL ASSOCIATION
By: /s/ James E. Perry
---------------------------------------
Name: James E. Perry
----------------------------------
Title: Vice President
---------------------------------
THE BANK OF NEW YORK
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ Rick Rogers
---------------------------------------
Name: Rick Rogers
----------------------------------
Title: Vice President
---------------------------------
ACKNOWLEDGED AND AGREED:
COMPUSA HOLDINGS II INC.
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
-9-
<PAGE>
COMPUSA HOLDINGS I INC.
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
PCs COMPLEAT, INC.
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
COMPTEAM INC.
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
COMPUSA MANAGEMENT COMPANY
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
-10-
<PAGE>
COMPUSA STORES L.P.
By: COMPUSA INC., its general partner
By: /s/ Mark R. Walker
------------------------
Mark R. Walker
Sr. Vice President-Secretary
COMPUSA HOLDINGS COMPANY
By: /s/ Mark R. Walker
-----------------------------
Mark R. Walker
Vice President
-11-
<PAGE>
EXHIBIT 10.3
------------
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Second Amendment"), dated as of August 31, 1998 (but effective as
provided herein), is entered into among CompUSA Inc., a Delaware corporation
(the "Borrower"), the banks listed on the signature pages hereof
(collectively, the "Lenders"), and NationsBank, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative Lender (in said capacity, the
"Administrative Lender").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Lender are parties
to that certain Second Amended and Restated Credit Agreement, dated as of
March 12, 1998, as amended by that certain First Amendment to Second Amended
and Restated Credit Agreement, dated as of June 16, 1998 (said Second Amended
and Restated Credit Agreement, as amended, the "Credit Agreement"; the terms
defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement).
B. The Borrower, the Lenders and the Administrative Lender desire to
make certain amendments to the Credit Agreement, primarily to accommodate the
acquisition by the Borrower of all of the issued and outstanding capital
stock of Computer City, Inc., a Delaware corporation ("Computer City," and
such acquisition being the "Computer City Acquisition").
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
the Borrower, the Lenders and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "APPLICABLE MARGIN" set forth in SECTION 1.1 of
the Credit Agreement is hereby amended to read as follows:
"APPLICABLE MARGIN" means the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
LIBOR
Applicability Basis
------------- -----
<S> <C>
(a) The Leverage Ratio is greater than 3.50 to 1 1.500
<PAGE>
(b) The Leverage Ratio is greater than 3.00 to 1 but 1.250
less than or equal to 3.50 to 1
(c) The Leverage Ratio is less than or equal to 3.00 to 1 and
(i) The Fixed Charge Coverage Ratio is less 1.250
than 2.00 to 1
(ii) The Fixed Charge Coverage Ratio is greater 1.000
than or equal to 2.00 to 1 but less than 2.25 to 1
(iii) The Fixed Charge Coverage Ratio is greater 0.875
than or equal to 2.25 to 1 but less than 3.00 to 1
(iv) The Fixed Charge Coverage Ratio is greater than 0.750
or equal to 3.00 to 1 but less than 3.75 to 1
(v) The Fixed Charge Coverage Ratio is greater than 0.625
or equal to 3.75 to 1 but less than 4.50 to 1
(vi) The Fixed Charge Coverage Ratio is greater than 0.500
or equal to 4.50 to 1
</TABLE>
The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as
set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Leverage Ratio or the
Fixed Charge Coverage Ratio, as applicable, as of the end of the most
recent Fiscal Quarter (calculated for the twelve Fiscal Periods preceding
the date of determination); PROVIDED, that each adjustment in the
Applicable Margin shall be effective with respect to Advances (i) made
following receipt by the Lenders of the financial statements required
pursuant to SECTION 6.1 or 6.2, as applicable, hereof and the Compliance
Certificate required pursuant to SECTION 6.3 hereof, on the date of making
of such Advance and (ii) outstanding on the date of receipt of the
financial statements referred to in clause (i) immediately preceding, on
the date of receipt of such financial statements. If such financial
statements and Compliance Certificate are not received by the Lenders by
the date required, the Applicable Margin shall be determined as if the
Leverage Ratio is greater than 3.50 to 1 until such time as such financial
statements and Compliance Certificate are received. Notwithstanding the
above, until such time as the Lenders have received the financial
statements required for the first Fiscal Quarter of the Borrower's 1999
Fiscal Year and related Compliance Certificate, the Applicable Margin from
and including the date of closing of the Computer City Acquisition shall be
determined as if the Leverage Ratio is greater than 3.50 to 1."
(b) The definition of "EBIT" set forth in SECTION 1.1 of the Credit
Agreement is hereby amended to read as follows:
"'EBIT' means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of
(a) Pretax Net Income (excluding therefrom, to the extent included in
determining Pretax Net Income, any items of extraordinary gain, including
net gains on the sale of assets other than asset sales in the
-2-
<PAGE>
ordinary course of business, and adding thereto, to the extent included in
determining Pretax Net Income, any items of extraordinary loss, including
net losses on the sale of assets other than asset sales in the ordinary
course of business), plus (b) interest expense (including but not limited
to interest expense pursuant to Capitalized Lease Obligations), plus (c)
such amounts in connection with any Securitization as would constitute
interest expense under GAAP if such Securitization were treated as an
on-balance sheet liability.
(c) The definition of "EBITDAR" set forth in SECTION 1.1 of the Credit
Agreement is hereby amended to read as follows:
"'EBITDAR' means, for any period, determined in accordance with GAAP
on a consolidated basis for the Borrower and its Subsidiaries, the sum of
(a) EBIT, plus (b) depreciation, amortization and other non-cash charges,
plus (c) lease expense pursuant to Operating Leases; PROVIDED, that, in the
event that an Acquisition for which the Acquisition Consideration is equal
to or exceeds $150,000,000 is consummated during such period, "EBITDAR"
shall be determined on a PRO FORMA basis (as determined by the Borrower,
such determination to be made in good faith based upon such financial
information as is available to the Borrower and using reasonable
assumptions) as if such Acquisition had occurred on the first day of such
period; PROVIDED, FURTHER, HOWEVER, notwithstanding the above, only the
EBITDAR of the business and assets acquired in the Computer City
Acquisition from and after the date of closing of the Computer City
Acquisition shall be included in the calculation of EBITDAR."
(d) The definition of "FIXED CHARGES" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended to read as follows:
"'FIXED CHARGES' means, for any date of calculation, calculated for
the Borrower and its Subsidiaries on a consolidated basis in accordance
with GAAP, the sum of, without duplication, (a) interest expense (including
but not limited to interest expense pursuant to Capitalized Lease
Obligations), plus (b) lease expense under Operating Leases, plus (c) such
amounts in connection with any Securitization as would constitute interest
expense under GAAP if such Securitization were treated as an on-balance
sheet liability, in each case for the applicable period preceding the date
of calculation; PROVIDED, that, in the event that an Acquisition for which
the Acquisition Consideration is equal to or exceeds $150,000,000 is
consummated during such period, "FIXED CHARGES" shall be determined on a
PRO FORMA basis (as determined by the Borrower, such determination to be
made in good faith based upon such financial information as is available to
the Borrower and using reasonable assumptions) as if such Acquisition had
occurred on the first day of such period; PROVIDED, FURTHER, HOWEVER,
notwithstanding the above, only the Fixed Charges of Computer City and its
Subsidiaries from and after the date of closing of the Computer City
Acquisition shall be included in the calculation of Fixed Charges."
(e) The definition of "SPECIAL REPURCHASE PERIOD" set forth in SECTION
1.1 of the Credit Agreement is hereby amended to read as follows:
-3-
<PAGE>
"'SPECIAL REPURCHASE PERIOD' means a period which begins on the date
when the Borrower elects, by written notice to the Administrative Lender,
to repurchase its shares of common capital stock in public market
transactions as part of a special Treasury Stock Purchase program and ends
on the earliest of the following events: (a) December 26, 1998, (b) the
Borrower consummates Treasury Stock Purchases in the aggregate amount of
$50,000,000, or (c) the Borrower terminates such period pursuant to a
written notice to the Administrative Lender. The Borrower may have only
one Special Repurchase Period election."
(f) The defined term "COMPUTER CITY" is hereby added to SECTION 1.1 of
the Credit Agreement in proper alphabetical order to read as follows:
"'COMPUTER CITY' means Computer City, Inc., a Delaware corporation."
(g) The defined term "COMPUTER CITY ACQUISITION" is hereby added to
SECTION 1.1 of the Credit Agreement in proper alphabetical order to read as
follows:
"'COMPUTER CITY ACQUISITION' means the acquisition by the Borrower of
100% of the issued and outstanding capital stock of Computer City."
(h) SECTION 2.4(a) of the Credit Agreement is hereby amended to read as
follows:
"(a) COMMITMENT FEE. Subject to SECTION 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the ratable account of the
Lenders, a commitment fee on the daily average Unused Portion at the
following per annum percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) The Leverage Ratio is greater than 3.00 to 1 0.350
(b) The Leverage Ratio is less than or equal to
3.00 to 1 and
(i) The Fixed Charge Coverage Ratio is less than
2.00 to 1 0.350
(ii) The Fixed Charge Coverage Ratio is greater than 0.300
or equal to 2.00 to 1 but less than 2.25 to 1
(iii) The Fixed Charge Coverage Ratio is greater than 0.250
or equal to 2.25 to 1 but less than 3.00 to 1
(iv) The Fixed Charge Coverage Ratio is greater than 0.200
or equal to 3.00 to 1 but less than 3.75 to 1
-4-
<PAGE>
(v) The Fixed Charge Coverage Ratio is greater than 0.175
or equal to 3.75 to 1 but less than 4.50 to 1
(vi) the Fixed Charge Coverage Ratio is greater than 0.150
or equal to 4.50 to 1
</TABLE>
Such fee shall accrue beginning on the Agreement Date and shall be
(i) payable in arrears on each Quarterly Date and on the Maturity Date,
fully earned when due and, subject to SECTION 11.9 hereof, nonrefundable
when paid and (ii) subject to SECTION 11.9 hereof, computed on the basis of
a 360-day year, for the actual number of days elapsed. The commitment fee
shall be subject to reduction or increase, as applicable and as set forth
in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Leverage Ratio or the Fixed Charge
Coverage Ratio, as applicable, as of the end of the most recent Fiscal
Quarter (calculated for the twelve Fiscal Periods preceding the date of
determination). Any such increase or reduction in such fee shall be
effective on the date of receipt by the Lenders of the financial statements
required pursuant to SECTION 6.1 or 6.2, as applicable, hereof and the
Compliance Certificate required pursuant to SECTION 6.3 hereof. If such
financial statements and Compliance Certificate are not received by the
Lenders on the date required, the fee payable in respect of the Commitment
shall be determined as if the Leverage Ratio is greater than 3.00 to 1
until such time as such financial statements and Compliance Certificate are
received. Notwithstanding the above, until such time as the Lenders shall
have received the financial statements required for the first Fiscal
Quarter of the Borrower's 1999 Fiscal Year and related Compliance
Certificate, the fee payable in respect of the Commitment from and
including the date of closing of the Computer City Acquisition shall be
determined as if the Leverage Ratio is greater than 3.00 to 1."
(i) SECTION 7.1(i) of the Credit Agreement is hereby amended to read as
follows:
"(i) Indebtedness under the Senior Subordinated Notes and other
Subordinated Debt (whether or not as an immediate refinancing or
replacement of the Senior Subordinated Notes); provided that the aggregate
principal amount of such Indebtedness under this clause (i) shall not
exceed $260,000,000 outstanding at any time; and"
(j) SECTION 7.1(j) of the Credit Agreement is hereby amended to read as
follows:
"(j) Indebtedness not otherwise permitted pursuant to clauses (a)
through (i) above, not to exceed $300,000,000 in aggregate principal amount
outstanding at any time; PROVIDED, HOWEVER, that (A) immediately prior to
and after giving effect to any such Indebtedness which is Senior Debt, the
Leverage Ratio shall be less than or equal to 3.50 to 1, (B) no more than
$100,000,000 in aggregate principal amount of such Indebtedness may be
Senior Debt and (C) no more than $50,000,000 in aggregate principal amount
of such Senior Debt shall have an original maturity date earlier than 180
days after the Maturity Date."
(k) SECTION 7.6 of the Credit Agreement is hereby amended to read as
follows:
-5-
<PAGE>
"Section 7.6 RESTRICTED PAYMENTS. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly declare,
pay or make any Restricted Payments; provided, however, (a) any Restricted
Subsidiary may declare and pay Dividends to the Borrower or another
Restricted Subsidiary, (b) the Borrower may make loans to directors,
officers and employees of Borrower and its Subsidiaries during any Fiscal
Year (calculated net of loan repayments), together with the Guaranty of
Indebtedness of directors, officers and employees permitted pursuant to
SECTION 7.5 hereof during such Fiscal Year, in an aggregate amount not to
exceed $1,000,000, (c) the Borrower may defease, redeem, repurchase or
prepay the Senior Subordinated Notes in part or in full, (d) the Borrower
may make Treasury Stock Purchases of its common capital stock during the
Special Repurchase Period not to exceed $50,000,000 in aggregate amount,
and (e) the Borrower may pay Dividends and make Treasury Stock Purchases
other than during the Special Repurchase Period (net of cash proceeds
received by the Borrower upon the reissuance of any treasury stock) of its
shares of capital stock in an aggregate amount (excluding the amount of any
Treasury Stock Purchases during the Special Repurchase Period) not to
exceed the sum of (i) $50,000,000, plus (ii) 50% of cumulative Net Income
for the period from, but not including, September 27, 1997 through the date
of the proposed payment or purchase (but excluding from the calculation of
such cumulative Net Income the effect, if any, of any Fiscal Quarter (or
portion of a Fiscal Quarter not then ended) of the Borrower for which Net
Income was a negative number); provided, however, the Borrower shall not
pay or make any such Restricted Payments set forth in clause (b), (c), (d)
or (e) above unless there shall exist no Default prior to or after giving
effect to any such proposed Restricted Payment."
(l) SECTION 7.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.9 LEVERAGE RATIO. At the end of each Fiscal Quarter
indicated below, the Borrower shall not permit the Leverage Ratio to be
greater than the ratio set forth below opposite such Fiscal Quarter.
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
First Fiscal Quarter of Fiscal Year 1999 4.50 to 1
Second Fiscal Quarter of Fiscal Year 1999 4.50 to 1
Third Fiscal Quarter of Fiscal Year 1999 4.50 to 1
Fourth Fiscal Quarter of Fiscal Year 1999 4.00 to 1
First Fiscal Quarter of Fiscal Year 2000 3.75 to 1
Each Fiscal Quarter Thereafter 3.50 to 1
</TABLE>
(m) SECTION 7.10 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.10 FIXED CHARGE COVERAGE RATIO. The Borrower shall not
permit the Fixed Charged Coverage Ratio to be less than (a) 1.80 to 1 at
the end of any Fiscal Quarter during Fiscal Year 1999 and (b) 2.00 to 1 at
the end of any Fiscal Quarter thereafter."
-6-
<PAGE>
(n) SECTION 7.11 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.11 NET WORTH. The Borrower shall not permit the Net Worth
(a) during the first Fiscal Quarter of Fiscal Year 1999, to be less than
$410,000,000, (b) during the second Fiscal Quarter of Fiscal Year 1999, to
be less than $435,000,000 and (c) thereafter, to be less than an amount
equal to the sum of (i) $384,800,000, plus (ii) 50% of cumulative Net
Income for the period from, but not including, September 27, 1997 through
the date of calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any Fiscal Quarter (or portion
of a Fiscal Quarter not then ended) of the Borrower for which Net Income
was a negative number), plus (iii) an amount equal to 75% of the net worth
of any Person that becomes a Subsidiary of the Borrower or is merged into
or consolidated with the Borrower or any Subsidiary of the Borrower or
substantially all of the assets of which are acquired by the Borrower or
any Subsidiary of the Borrower to the extent the purchase price paid
therefor if paid in equity securities of the Borrower or any of its
Subsidiaries (including the reissuance of any treasury stock purchased
during the Special Repurchase Period), plus (iv) 75% of the Net Cash
Proceeds (but without duplication) of any offerings of capital stock or
other equity interests of the Borrower or any of its Subsidiaries
(including the reissuance of any treasury stock purchased during the
Special Repurchase Period) or pursuant to the conversion or exchange of any
convertible Subordinated Debt or redeemable preferred stock into capital
stock or other equity interests of the Borrower or any of its Subsidiaries
since September 27, 1997, minus (v) the amount of Treasury Stock Purchases
by the Borrower during the Special Repurchase Period not to exceed
$50,000,000 in aggregate amount."
(o) SECTION 7.15 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.15 ACQUISITIONS. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, make any Acquisition; provided,
however, if immediately prior to and after giving effect to the proposed
Acquisition there shall not exist a Default or Event of Default, the
Borrower or any Restricted Subsidiary may make Acquisitions so long as
(i) such Acquisition shall not be opposed by the board of the directors of
the Person being acquired, (ii) if the Acquisition Consideration for such
Acquisition is equal to or greater than $150,000,000, the Administrative
Lender shall have received written notice of such Acquisition at least 15
calendar days prior to the date of consummation of such Acquisition,
together with a Compliance Certificate setting forth the covenant
calculations after giving effect to the proposed Acquisition (provided that
a Compliance Certificate shall not be required to be submitted in
connection with the Computer City Acquisition), (iii) the assets, property
or business acquired shall be within the description contained in
SECTION 4.1(d) hereof, and (iv) if the Acquisition results in a new
Restricted Subsidiary, (A) such Subsidiary shall execute a Subsidiary
Guaranty and (B) the Administrative Lender receives within five (5)
calendar days after the consummation of such Acquisition such board
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with such
Acquisition."
-7-
<PAGE>
(p) The Compliance Certificate is hereby amended to be in the form of
EXHIBIT C attached to this Second Amendment.
2. APPROVAL OF TANDY SUBORDINATED NOTE. By signing below, each of the
Lenders hereby (a) approves the terms of that certain $150,000,000
subordinated promissory note of the Borrower payable to the order of Tandy
Corporation and issued in connection with the Computer City Acquisition (the
"Tandy Subordinated Note") and (b) agrees that the Tandy Subordinated Note
shall be Subordinated Debt as defined in the Credit Agreement.
3. LETTERS OF CREDIT. The parties hereto agree those certain letters
of credit issued for the account of Computer City pursuant to the Credit
Agreement, dated as of December 19, 1997, among Computer City, the lenders
named therein, and NationsBank, N.A., as Agent, and more specifically
described on Exhibit A to this Second Amendment shall be deemed to (a) have
been issued pursuant to the Credit Agreement and (b) be Letters of Credit
under the Credit Agreement.
4. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as
of the date hereof and after giving effect to the amendments contemplated by
the foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of the
date hereof as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Borrower has full power and authority to execute and deliver this
Second Amendment and the Credit Agreement, as amended hereby, and this Second
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
debtor relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as
rights to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Second
Amendment or the Credit Agreement, as amended hereby, nor the consummation of
any transactions contemplated herein or therein, will conflict with any Law,
the articles of incorporation, bylaws or other governance document of the
Borrower or any of its Subsidiaries, or any indenture, agreement or other
instrument to which the Borrower or any of its Subsidiaries or any of their
respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person, is required for
the execution, delivery or performance by the Borrower of this Second
Amendment or the acknowledgment of this Second Amendment by any Guarantor.
5. CONDITIONS OF EFFECTIVENESS.
-8-
<PAGE>
(a) The amendments to the Credit Agreement set forth in SECTIONS 1(b),
1(c), 1(d) and 1(n) of this Second Amendment shall be effective as of August
31, 1998, subject to the following:
(i) the Administrative Lender shall have received counterparts of
this Second Amendment executed by the Determining Lenders;
(ii) the Administrative Lender shall have received counterparts of
this Second Amendment executed by the Borrower and acknowledged by each
Guarantor; and
(iii) the Administrative Lender shall have received, in form and
substance satisfactory to the Administrative Lender and its counsel, such
other documents, certificates and instruments as the Administrative Lender
shall require.
(b) The amendments to the Credit Agreement set forth in SECTION 1 of
this Second Amendment (other than SECTIONS 1(b), 1(c), 1(d) and 1(n) of this
Second Amendment) shall be effective as of the date of closing of the
Computer City Acquisition, subject to the following:
(i) the conditions of effectiveness to the amendment set forth in
SECTION 5(a) above shall have been satisfied; and
(ii) the Administrative Lender shall have received from the
Borrower, for the account of each Lender executing this Second Amendment,
an amount equal to the product of (A) 0.10% multiplied by (B) each Lender's
pro rata part of the Commitment.
6. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
Second Amendment, (ii) acknowledges and agrees that its obligations in
respect of its Subsidiary Guaranty are not released, diminished, waived,
modified, impaired or affected in any manner by this Second Amendment or any
of the provisions contemplated herein, (iii) ratifies and confirms its
obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees
that it has no claims or offsets against, or defenses or counterclaims to,
its Subsidiary Guaranty.
7. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as amended by
this Second Amendment.
(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
8. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand
all costs and expenses of each Lender in connection with the preparation,
reproduction, execution and delivery of this Second Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for each Lender with
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<PAGE>
respect thereto and with respect to advising each Lender as to its rights and
responsibilities under the Credit Agreement, as amended by this Second
Amendment).
9. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
10. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
and shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
11. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Second Amendment for any other purpose.
12. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as the date first above written.
CompUSA Inc.
By: /s/ Robert Gary
---------------------------------------
Name: Robert Gary
----------------------------------
Title: Vice President-Finance
---------------------------------
NATIONSBANK, N.A., as Administrative Lender
and as a Lender
By: /s/ Sharon Ellis
---------------------------------------
Name: Sharon Ellis
----------------------------------
Title: Vice President
---------------------------------
WELLS FARGO BANK (TEXAS), N.A., as a Co-Agent
and as a Lender
By: /s/ Kyle G. Hranicky
---------------------------------------
Name: Kyle G. Hranicky
----------------------------------
Title: Vice President
---------------------------------
HIBERNIA NATIONAL BANK, as a Co-Agent and as
a Lender
By: /s/ Christopher B. Pitre
---------------------------------------
Name: Christopher B. Pitre
----------------------------------
Title: Vice President
---------------------------------
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<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a
Co-Agent and as a Lender
By: /s/ Alain Papiasse
---------------------------------------
Name: Alain Papiasse
----------------------------------
Title: Executive Vice President
---------------------------------
CREDIT SUISSE FIRST BOSTON, as a Co-Agent and
as a Lender
By: /s/ Robert N. Finney
---------------------------------------
Name: Robert N. Finney
----------------------------------
Title: Managing Director
---------------------------------
By: /s/ Thomas G. Muoio
---------------------------------------
Name: Thomas G. Muoio
----------------------------------
Title: Vice President
---------------------------------
FLEET NATIONAL BANK, as a Co-Agent and as a
Lender
By: /s/ Thomas J. Bullard
---------------------------------------
Name: Thomas J. Bullard
----------------------------------
Title: Vice President
---------------------------------
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<PAGE>
BANK OF AMERICA NT&SA, as a Co-Agent and as a
Lender
By: /s/ J. Casey Cosgrove
---------------------------------------
Name: J. Casey Cosgrove
----------------------------------
Title: Assistant Vice President
---------------------------------
By: /s/ Jody A. Pritchard
---------------------------------------
Name: Jody A. Pritchard
----------------------------------
Title: Vice President
---------------------------------
FIRST UNION NATIONAL BANK
By: /s/ Jorge Gonzales
---------------------------------------
Name: Jorge Gonzales
----------------------------------
Title: SVP
---------------------------------
FIFTH THIRD BANK
By: /s/ David C. Gordley
---------------------------------------
Name: David C. Gordley
----------------------------------
Title: Corporate Accounts Officer
---------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
---------------------------------------
Name: F.C.H. Ashby
----------------------------------
Title: SENIOR MANAGER LOAN OPERATIONS
---------------------------------
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<PAGE>
CHASE BANK OF TEXAS NATIONAL ASSOCIATION
By: /s/ Mae Kantipong
---------------------------------------
Name: Mae Kantipong
----------------------------------
Title: Vice President
---------------------------------
THE BANK OF NEW YORK
By: /s/ Charlotte Sohn
---------------------------------------
Name: Charlotte Sohn
----------------------------------
Title: Vice President
---------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ Rick Rogers
---------------------------------------
Name: Rick Rogers
----------------------------------
Title: Vice President
---------------------------------
ACKNOWLEDGED AND AGREED:
COMPUSA HOLDINGS II INC.
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
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<PAGE>
COMPUSA HOLDINGS I INC.
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
PCs COMPLEAT, INC.
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
COMPTEAM INC.
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
COMPUSA MANAGEMENT COMPANY
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
COMPUSA STORES L.P.
By: COMPUSA INC., its general partner
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Sr. Vice President-Secretary
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<PAGE>
COMPUSA HOLDINGS COMPANY
By: /s/ Mark R. Walker
---------------------------------
Mark R. Walker
Vice President
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<PAGE>
EXHIBIT 10.4
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY, dated as of March 12, 1998 (this "Guaranty"), is
made by CompUSA Holdings II Inc., a Delaware corporation, PCs Compleat, Inc., a
Delaware corporation, CompUSA Holdings I Inc., a Delaware corporation, CompTeam
Inc., a Delaware corporation, CompUSA Management Company, a Delaware business
trust, CompUSA Stores L.P., a Texas limited partnership, and CompUSA Holdings
Company, a Delaware business trust (the "Guarantors"), of the obligations of
CompUSA Inc., a Delaware corporation ("Company"), under the Credit Agreement
(defined below) among the Company, NationsBank of Texas, N.A. as Administrative
Lender ("Administrative Lender"), and the lenders that are parties to the Credit
Agreement (singly, a "Lender" and collectively, the "Lenders").
BACKGROUND
1. The Company, the Administrative Lender, and the Lenders have entered
into a Second Amended and Restated Credit Agreement, dated as of March 12, 1998
(said Credit Agreement, as it may hereafter be amended or otherwise modified
from time to time, being the "Credit Agreement"). The capitalized terms not
otherwise defined herein have the meanings specified in the Credit Agreement.
2. Pursuant to the Credit Agreement, the Company may, subject to the
terms of the Credit Agreement and the other Loan Documents, request that the
Lenders make Advances.
3. It is a requirement of Section 7.3(b) of the Credit Agreement that
each Guarantor guarantee repayment of the Obligations upon the terms and
conditions set forth herein.
4. The Board of Directors or regular trustees of either each Guarantor or
its general partner, as appropriate, has determined that the execution,
delivery, and performance of this Guaranty is necessary and convenient to the
conduct, promotion, and attainment of each such Guarantor's business.
5. The Guarantors desire to induce the Lenders to make such Advances,
which may reasonably be expected to benefit, directly or indirectly, each
Guarantor.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances under the Credit Agreement, the Guarantors hereby agree
as follows:
1. GUARANTY.
(a) Each Guarantor, jointly and severally, hereby unconditionally
guarantees the punctual payment of, and promises to pay, when due, whether
at stated maturity, by mandatory prepayment, by acceleration or otherwise,
all obligations, indebtedness and
<PAGE>
liabilities, and all rearrangements, renewals and extensions of all or
any part thereof, of the Company or any Subsidiary now or hereafter
arising from, by virtue of or pursuant to the Credit Agreement, the
Notes, any other Loan Document, and any and all renewals and extensions
thereof, or any part thereof, or future amendments thereto, whether for
principal, interest (including, without limitation, interest, fees and
other charges that would accrue or become owing both prior to and
subsequent to and but for the commencement of any proceeding against or
with respect to the Company under any chapter of the Bankruptcy Code of
1978, 11 U.S.C. Section 101 ET SEQ. whether or not a claim is allowed
for the same in any such proceeding), premium, fees, commissions,
expenses or otherwise (such obligations being the "Obligation"), and
agrees to pay any and all reasonable expenses (including reasonable
counsel fees and expenses) incurred in enforcement or collection of all
or any part thereof, whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or
joint and several, and any rights under this Guaranty.
(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that
would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the
United States Code or any applicable provisions of comparable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving
effect to all other liabilities of such Guarantor, contingent or otherwise,
that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of such Guarantor in respect of
intercompany indebtedness to the Company or other Affiliates of the Company
to the extent that such indebtedness would be discharged in an amount equal
to the amount paid by such Guarantor hereunder) and after giving effect as
assets to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation or contribution of
such Guarantor pursuant to (i) Applicable Law or (ii) any agreement
providing for an equitable allocation among such Guarantor and other
Affiliates of the Company of obligations arising under guaranties by such
parties (such limitation being the "Cap").
2. GUARANTY ABSOLUTE. The Guarantors guarantee that the Obligation will
be paid strictly in accordance with the terms of the Credit Agreement, the
Notes, and the other Loan Documents, regardless of any Applicable Law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Lender with respect thereto; provided,
however, nothing contained in this Guaranty shall require the Guarantors to make
any payment under this Guaranty in violation of any Applicable Law, regulation
or order now or hereafter in effect. The obligations and liabilities of each
Guarantor hereunder are independent of the obligations of the Company under the
Credit Agreement and any Applicable Law. The liability of each Guarantor under
this Guaranty shall be absolute and unconditional irrespective of:
(a) the taking or accepting of any other security or guaranty for any
or all of the Obligations, including any reduction or termination of any
Commitment;
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<PAGE>
(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation;
(c) any lack of validity or enforceability of the Credit Agreement,
the Notes, or any other Loan Document or other agreement or instrument
relating thereto, including but not limited by the unenforceability of all
or any part of the Obligation by reason of the fact that (i) the
Obligation, and/or the interest paid or payable with respect thereto,
exceeds the amount permitted by Applicable Law, (ii) the act of creating
the Obligation, or any part thereof, is ULTRA VIRES, (iii) the officers
creating same acted in excess of their authority, or (iv) for any other
reason;
(d) any lack of corporate power of the Company or any other Person at
any time liable for the payment of any or all of the Obligation;
(e) any insolvency, bankruptcy, reorganization, receivership or other
proceeding under any applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization, or
similar laws from time to time in effect affecting the rights of creditors
generally (collectively, "Debtor Relief Laws") involving the Company, any
Guarantor or any other Person obligated on any of the Obligation;
(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or the Administrative
Lender to the Company, any Guarantor, or any Person at any time liable for
the payment of any or all of the Obligation; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Document and other agreement or
instrument relating thereto without notification of any Guarantor (the
right to such notification being herein specifically waived by Guarantors);
(g) any exchange, release, sale, subordination, or non-perfection of
any collateral or Lien therein or any lack of validity or enforceability or
change in priority, destruction, reduction, or loss or impairment of value
of any collateral or Lien therein;
(h) any release or amendment or waiver of or consent to departure
from any other guaranty for all or any of the Obligation;
(i) the failure by any Lender or the Administrative Lender to make
any demand upon or to bring any legal, equitable, or other action against
the Company or any other Person (including without limitation any other
Guarantor), or the failure or delay by any Lender or the Administrative
Lender to, or the manner in which any Lender or the Administrative Lender
shall, proceed to exhaust rights against any direct or indirect security
for the Obligation;
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<PAGE>
(j) the existence of any claim, defense, set-off, or other rights
which the Company or any Guarantor may have at any time against the
Company, the Lenders, or any Guarantor, or any other Person, whether in
connection with this Guaranty, the Loan Documents, the transactions
contemplated thereby, or any other transaction;
(k) any failure of any Lender or the Administrative Lender to notify
any Guarantor of any renewal, extension, or assignment of the Obligation or
any part thereof, or the release of any security, or of any other action
taken or refrained from being taken by any Lender or the Administrative
Lender, it being understood that the Lenders and the Administrative Lender
shall not be required to give any Guarantor any notice of any kind under
any circumstances whatsoever with respect to or in connection with the
Obligation;
(l) any payment by the Company to the Lenders or the Administrative
Lender is held to constitute a preference under any Debtor Relief Law or if
for any other reason the Lenders or the Administrative Lender is required
to refund such payment or pay the amount thereof to another Person; or
(m) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company, any Guarantor, any other
guarantor or other Person liable on the Obligation, including without
limitation any defense by reason of any disability or other defense of the
Company, or the cessation from any cause whatsoever of the liability of the
Company, or any claim that the Guarantors' obligations hereunder exceed or
are more burdensome than those of the Company.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of the Company, any Guarantor or otherwise, all as
though such payment had not been made.
3. WAIVER. To the extent not prohibited by Applicable Law, each
Guarantor hereby waives: (a) promptness, protests, diligence, presentments,
acceptance, performance, demands for performance, notices of nonperformance,
notices of protests, notices of dishonor, notices of acceptance of this Guaranty
and of the existence, creation or incurrence of new or additional indebtedness,
and any of the events described in SECTION 2 and of any other occurrence or
matter with respect to any of the Obligation, this Guaranty or any of the other
Loan Documents; (b) any requirement that the Administrative Lender or any Lender
protect, secure, perfect, or insure any Lien or security interest or any
property subject thereto or exhaust any right or take any action against the
Company or any other Person or any collateral or pursue any other remedy in the
Administrative Lender's or any Lender's power whatsoever; (c) any right to
assert against the Administrative Lender or any Lender as a counterclaim,
set-off or cross-claim, any counterclaim, set-off or claim which it may now
or hereafter have against the Company or other Person liable on the
Obligation; (d) any right to seek or enforce any remedy or right that the
Administrative Lender or any Lender now has or may hereafter have against the
Company (to the extent permitted by Applicable Law); (e) any right to
participate in any collateral or any right benefiting the Administrative
Lender or the Lenders in respect of the Obligation; and (f) any right by
which it
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<PAGE>
might be entitled to require suit on an accrued right of action in respect of
any of the Obligation or require suit against the Company or any other
Person, whether arising pursuant to Section 34.02 of the Texas Business and
Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and
Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as
amended, or otherwise.
4. SUBROGATION AND SUBORDINATION.
(a) SUBROGATION. Notwithstanding any reference to subrogation contained
herein to the contrary, each Guarantor hereby irrevocably waives any claim or
other rights which it may have or hereafter acquire against the Company that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution, indemnification,
any right to participate in any claim or remedy of any Lender against the
Company or any collateral which any Lender now has or hereafter acquires,
whether or not such claim, remedy or right arises in equity, or under contract,
statutes or common law, including without limitation, the right to take or
receive from the Company, directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to any Guarantor in violation of
the preceding sentence and the Obligations shall not have been paid in full,
such amount shall be deemed to have been paid to such Guarantor for the benefit
of, and held in trust for the benefit of, the Lenders, and shall forthwith be
paid to the Administrative Lender to be credited and applied upon the
Obligations, whether matured or unmatured, in accordance with the terms of the
Credit Agreement. Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by the Credit
Agreement and that the waiver set forth in this Paragraph 4 is knowingly made in
contemplation of such benefits.
(b) SUBORDINATION. All debt and other liabilities of the Borrower and
each Restricted Subsidiary to any Guarantor ("INTERCOMPANY DEBT") are expressly
subordinate and junior to the Obligation to the extent provided below:
(i) Until the Release Date, each Guarantor agrees that it will not
request, demand, accept, or receive (by set-off or other manner) any
payment amount, credit or reduction of all or any part of the amounts owing
under any Intercompany Debt, except as specifically allowed pursuant to
clause (ii) below;
(ii) Notwithstanding the provisions of clause (i) above, the
Borrower and each Restricted Subsidiary may pay to the Guarantors and the
Guarantors may receive and retain from the Borrower and each Restricted
Subsidiary regularly scheduled payments due and owing under the terms of
any Intercompany Debt, provided that the Borrower's and each Restricted
Subsidiary's right to pay and the Guarantors' right to receive any such
regularly scheduled amount shall automatically and be immediately suspended
and cease (A) upon the occurrence of a Default (as defined in the Credit
Agreement) or (B) if, after taking into account the effect of such payment,
a Default would occur and be continuing. The Guarantors' right to receive
amounts under this clause (ii) (including any amounts which
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<PAGE>
theretofore may have been suspended) shall automatically be reinstated
in such time as the Default which was the basis of such suspension has
been cured to the Lenders' satisfaction (provided that no subsequent
Default has occurred) or such earlier date, if any, and the
Administrative Lender gives notice to the Guarantors of reinstatement by
the Determining Lenders, in the Determining Lenders' sole discretion;
(iii) If any Guarantor receives any payment on any Intercompany Debt
in violation of this Guaranty, such Guarantor will hold such payment in
trust for the Lenders and will immediately deliver such payment to the
Administrative Lender;
(iv) Until the Release Date, no Guarantor will demand or accelerate
the maturity of all or any part of any Intercompany Debt, nor collect or
enforce, or attempt to collect or enforce, from the Borrower or any
Restricted Subsidiary all or any part of any Intercompany Debt, whether
through the commencement or joinder of a suit, action or proceeding of any
type (judicial or otherwise) or proceeding under any Debtor Relief Laws
(the "INSOLVENCY PROCEEDING"), the enforcement of any rights against any
property of the Borrower or any Restricted Subsidiary, or otherwise, except
where any Lender shall request such Guarantor to file a claim in connection
with any such proceeding and except as set forth in clause (v); and
(v) In the event of any Insolvency Proceeding, the Obligation
shall first be paid, discharged and performed in full before any payment or
performance is made upon any Intercompany Debt notwithstanding any other
provisions which may be made in such Insolvency Proceeding. In the event
of any Insolvency Proceeding, each Guarantor will at any time prior to the
Release Date (A) file, at the request of any Lender, any claim, proof of
claim or similar instrument necessary to enforce the Borrower's or any
Restricted Subsidiary's obligation to pay any Intercompany Debt, and
(B) hold in trust for and pay to the Lenders any and all monies,
obligations, property, stock dividends or other assets received in any such
proceeding on account of any Intercompany Debt in order that the Lenders
may apply such monies or the cash proceeds of such other assets to the
Obligation. In the event that any Guarantor fails to take such action upon
any Lender's request, such Lender shall be deemed to have been appointed
the attorney-in-fact for such Guarantor with respect to any Intercompany
Debt, and such Lender may in that capacity (i) demand, sue for, collect and
receive any and all such monies, dividends or other assets, (ii) file any
claim, proof of claim or similar instrument, and (iii) institute such other
proceedings which such Lender, may deem reasonably necessary for the
collection of the Obligation and the enforcement of the terms of this
Guaranty. Upon request of any Lender, each Guarantor will execute and
deliver to such Lender such other and further powers of attorney or other
instruments as such Lender may reasonably request to effect the purposes of
this Guaranty. If in any proceeding to enforce the payment of the
Obligation it becomes necessary that any Guarantor itself prove such
claims, such Guarantor shall do so upon reasonable request by such Lender.
In proving these claims, however, such Guarantor shall act as the
collection agent of such Lender and shall promptly pay any funds so
received to such Lender.
-6-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and
warrants that all representations and warranties as they apply to such Guarantor
only set forth in Article 4 of the Credit Agreement (each of which is hereby
incorporated by reference) is true and correct.
6. COVENANTS. Each Guarantor hereby expressly assumes, confirms, and
agrees to perform, observe, and be bound by all conditions and covenants set
forth in the Credit Agreement, to the extent applicable to it, as if it were a
signatory thereto. Each Guarantor further covenants and agrees (a) punctually
and properly to perform all of such Guarantor's covenants and duties under any
other Loan Documents; (b) from time to time promptly to furnish the
Administrative Lender with any information or writings which the Administrative
Lender may request concerning this Guaranty; and (c) promptly to notify the
Administrative Lender of any claim, action, or proceeding affecting this
Guaranty.
7. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by any Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by the
Lenders, the Administrative Lender, or the Determining Lenders and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
8. ADDRESSES FOR NOTICES. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telecopy to the respective
addresses specified herein, or, as to any party, to such other addresses as may
be designated by it in written notice to all other parties. All notices,
requests, consents and demands hereunder shall be deemed to have been given on
the date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or if mailed, effective on the earlier of actual receipt or three (3)
days after being mailed by certified mail, return receipt requested, postage
prepaid, addressed as aforesaid.
9. NO WAIVER; REMEDIES. No failure on the part of the Administrative
Lender or any Lender to exercise, and no delay in exercising, any right
hereunder or under any of the Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder or under any of
the Loan Documents preclude any other or further exercise thereof or the
exercise of any other right. Neither the Administrative Lender nor any Lender
shall be required to (a) prosecute collection or seek to enforce or resort to
any remedies against the Company or any other Person liable on any of the
Obligation, (b) join the Company or any other Person liable on any of the
Obligation in any action in which Lender prosecutes collection or seeks to
enforce or resort to any remedies against the Company or other Person liable on
any of the Obligation, or (c) seek to enforce or resort to any remedies with
respect to any Liens granted to (or benefiting, directly or indirectly) the
Administrative Lender or any Lender by the Company or any other Person liable on
any of the Obligation. Neither the Administrative Lender nor any Lender shall
have any obligation to protect, secure or insure any of the Liens or the
properties or interests in properties subject thereto. The remedies herein
provided are cumulative and not exclusive of any remedies provided by Applicable
Law.
-7-
<PAGE>
10. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of
any Event of Default, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by Law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Lender to or for the
credit or the account of any Guarantor against any and all of the obligations of
any Guarantor now or hereafter existing under this Guaranty, irrespective of
whether or not such Lender shall have made any demand under this Guaranty. Each
Lender agrees promptly to notify such Guarantor after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
SECTION 10 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Lender may have.
11. LIENS. To the extent not prohibited by Applicable Law, each Guarantor
agrees that the Administrative Lender or any Lender, in its discretion, without
notice or demand and without affecting either the liability of such Guarantor,
the Company or any other Person liable on any of the Obligation under, or the
Liens and security interests created by, this Guaranty, or any security interest
or other Lien, may foreclose any deed of trust or mortgage or similar Lien
covering interests in real or personal property, and the interests in real or
personal property secured thereby, by nonjudicial sale; and such Guarantor
hereby waives any defense to the recovery by the Administrative Lender or any
Lender hereunder against the Company, such Guarantor or any collateral of any
deficiency after a nonjudicial sale and such Guarantor expressly waives any
defense or benefits that may be derived from Chapter 34 of the Texas Business
and Commerce Code, Section 51.003 of the Texas Property Code, or any similar
statute in effect in any other jurisdiction. Without limiting the foregoing,
each Guarantor waives, to the extent not prohibited by Applicable Law, any
defense arising out of any such nonjudicial sale even though such sale operates
to impair or extinguish any right of reimbursement or subrogation or any other
right or remedy of such Guarantor against the Company or any other Person or any
Collateral or any other collateral. Each Guarantor hereby agrees that such
Guarantor shall be liable, subject to the limitations of SECTION 1 hereof, for
any part of the Obligation remaining unpaid after any foreclosure.
12. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is an
irrevocable continuing guaranty of payment and shall (a) subject to the last
sentence of SECTION 2, remain in full force and effect until final payment in
full after termination of the Commitments of the Obligation and all other
amounts payable under this Guaranty, (b) be binding upon each Guarantor, its
successors and assigns, and (c) inure to the benefit of and be enforceable by
each Lender and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), to the extent permitted by the Credit
Agreement, each Lender may assign or otherwise transfer its rights under the
Credit Agreement, the Notes or any of the Loan Documents or any interest therein
to any other Person, and such other Person shall thereupon become vested with
all the rights or any interest therein, as appropriate, in respect thereof
granted to the Lender herein or otherwise.
13. INFORMATION. Each Guarantor acknowledges and agrees that it shall
have the sole responsibility for obtaining from the Company such information
concerning the Company's
-8-
<PAGE>
financial condition or business operations as such Guarantor may require, and
that neither the Administrative Lender nor any Lender has any duty at any
time to disclose to any Guarantor any information relating to the business
operations or financial condition of the Company.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE
AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION
OVER PROCEEDINGS IN CONNECTION HEREWITH.
15. WAIVER OF JURY TRIAL. EACH GUARANTOR, THE ADMINISTRATIVE LENDER, AND
THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION
IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT.
16. RATABLE BENEFIT. This Guaranty is for the ratable benefit of the
Lenders, each of which shall share any proceeds of this Guaranty pursuant to the
terms of the Credit Agreement.
17. GUARANTOR INSOLVENCY. Should any Guarantor become insolvent, fail to
pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender granted hereunder, then, the obligations of such
Guarantor under this Guaranty shall be, as between such Guarantor and such
Lender, a fully-matured, due, and payable obligation of such Guarantor to such
Lender (without regard to whether the Company is then in default under the
Credit Agreement or whether any part of the Obligation is then due and owing by
the Company to such Lender), payable in full by such Guarantor to such Lender
upon demand, which shall be the estimated amount owing in respect of the
contingent claim created hereunder.
18. SEVERABILITY. Any provision of this Guaranty which is for any reason
prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
19. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES
-9-
<PAGE>
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-10-
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
COMPUSA HOLDINGS II INC.
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
Address for all Guarantors:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: Mark R. Walker
Senior Vice President and General Counsel
COMPUSA HOLDINGS I INC.
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
PCs COMPLEAT, INC.
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
COMPTEAM INC.
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
-11-
<PAGE>
COMPUSA MANAGEMENT COMPANY
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
COMPUSA STORES L.P.
By: COMPUSA INC., its general partner
By: /s/ Mark R. Walker
-----------------------------------
Name: Mark R. Walker
Title: Sr. Vice President-Secretary
COMPUSA HOLDINGS COMPANY
By: /s/ Mark R. Walker
-------------------------------------
Name: Mark R. Walker
Title: Vice President
-12-
<PAGE>
EXHIBIT 10.5
AGREEMENT AND ADOPTION OF SUBSIDIARY GUARANTY
THIS AGREEMENT AND ADOPTION OF SUBSIDIARY GUARANTY (this "Agreement"),
dated as of August 31, 1998, is executed by Computer City, Inc., a Delaware
corporation ("Computer City"), in favor of the Administrative Lender and the
Lenders (each as defined in the Credit Agreement referred to below).
BACKGROUND
1. CompUSA, Inc., a Delaware corporation (the "Borrower"), the
Administrative Lender and the Lenders have entered into a Second Amended and
Restated Credit Agreement, dated as of March 12, 1998, amended by a First
Amendment to Second Amended and Restated Credit Agreement, dated as of June 16,
1998 and a Second Amendment to Amended and Restated Credit Agreement, dated as
of August 31, 1998 (said credit agreement, as amended or otherwise modified from
time to time, being the "Credit Agreement"). The capitalized terms not
otherwise defined herein shall have the meanings specified in the Credit
Agreement.
2. CompUSA Holdings II Inc., a Delaware corporation, PCs Compleat, Inc.,
a Delaware corporation, CompUSA Holdings I Inc., a Delaware corporation,
CompTeam Inc., a Delaware corporation, CompUSA Management Company, a Delaware
business trust, CompUSA Stores L.P., a Texas limited partnership, and CompUSA
Holdings Company, a Delaware business trust, entered into that certain
Subsidiary Guaranty, dated as of March 12, 1998 (the "Subsidiary Guaranty", such
entities being collectively the "Existing Guarantors").
3. On August 31, 1998, Computer City became a Subsidiary of the Borrower.
4. Sections 7.3(b) and 7.4(b) of the Credit Agreement require that
Computer City immediately become a party to the Subsidiary Guaranty.
5. The Board of Directors of Computer City has determined that the
execution, delivery and performance of this Agreement is necessary and
convenient to the conduct, promotion and attainment of Computer City's business.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained hereinafter and contained in the Credit Agreement and the other Loan
Documents, Computer City agrees as follows:
1. AGREEMENT. Computer City hereby unconditionally agrees to be a
Guarantor (as defined in the Subsidiary Guaranty) and agrees to be bound by the
Subsidiary Guaranty and to
<PAGE>
undertake the duties, liabilities and obligations of a Guarantor to the same
extent as if originally named as a Guarantor in the Subsidiary Guaranty.
2. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
Computer City represents and warrants to the Lenders as follows:
(a) The execution, delivery and performance by Computer City of this
Agreement and each other document and instrument to be delivered hereunder:
(i) are within Computer City's power as a corporation;
(ii) have been duly authorized by all necessary action by the
board of directors;
(iii) will not (A) contravene its articles of incorporation or
bylaws, or (B) conflict with or result in a breach of, or constitute a
default under, or result in or permit the termination or acceleration
of, any agreement or other contractual obligation of Computer City;
and
(iv) do not require the consent, authorization by, or approval
of, or notice to, or filing or registration with, any governmental
authority or any other Person, other than those which have been
obtained and copies of which have been delivered to the Administrative
Lender, each of which is in full force and effect.
(b) This Agreement has been duly executed and delivered by Computer
City.
(c) This Agreement is the legal, valid and binding obligation of
Computer City, enforceable against Computer City in accordance with its
terms, except as enforceability may be limited by applicable Debtor Relief
Laws and general principles of equity.
3. CONDITIONS OF EFFECTIVENESS. This Agreement shall be effective as of
the date first above written, subject to the following:
(a) The Administrative Lender shall have received counterparts of
this Agreement executed by Computer City and acknowledged by the Existing
Guarantors;
(b) The Administrative Lender shall have received an Officer's
Certificate of Computer City, containing (i) a copy of the certified
articles of incorporation of Computer City, (ii) a copy of the bylaws of
Computer City, (iii) a copy of resolutions of the board of directors of
Computer City authorizing Computer City to enter into this Agreement and
the documents, transactions and matters contemplated hereby, and (iv) the
names and true signatures of the officers of Computer City authorized to
execute and deliver this Agreement on behalf of Computer City.
-2-
<PAGE>
4. REFERENCE TO THE SUBSIDIARY GUARANTY.
(a) Upon the effectiveness of this Agreement, each reference in the
Subsidiary Guaranty to this "Guaranty", "hereunder", or words of like
import shall mean and be a reference to the Subsidiary Guaranty, as
affected hereby.
(b) The Subsidiary Guaranty, as affected hereby, shall remain in full
force and effect and is hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. Computer City agrees to pay on demand all
reasonable costs and expenses of Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Agreement and the
other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto).
6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
instrument.
7. GOVERNING LAW; BINDING EFFECT. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and shall be
binding upon Computer City and each Lender and their respective successors and
assigns.
8. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-3-
<PAGE>
IN WITNESS WHEREOF, Computer City has caused this Agreement to be duly
executed and delivered by its duly authorized officer on the date first above
written.
COMPUTER CITY, INC.
By: /s/ Robert Gary
------------------------------
J. Robert Gary
Vice President-Finance
Address for Computer City, Inc..:
c/o CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: General Counsel
The undersigned Existing Guarantors hereby
acknowledge this Agreement and confirm that
their obligations in respect of the Subsidiary
Guaranty remain in full force and effect:
COMPUSA HOLDINGS II INC.
By: /s/ Robert Gary
-------------------------------------------
J. Robert Gary
Vice President-Finance
COMPUSA HOLDINGS I INC.
By: /s/ Robert Gary
-------------------------------------------
J. Robert Gary
Vice President-Finance
-4-
<PAGE>
PCs COMPLEAT, INC.
By: /s/ Robert Gary
-------------------------------------
J. Robert Gary
Vice President-Finance
COMPTEAM INC.
By: /s/ Robert Gary
-------------------------------------
J. Robert Gary
Vice President-Finance
COMPUSA MANAGEMENT COMPANY
By: /s/ Robert Gary
-------------------------------------
J. Robert Gary
Vice President-Finance
COMPUSA STORES L.P.
By: COMPUSA, INC., its general partner
By: /s/ Robert Gary
--------------------------------
J. Robert Gary
Vice President-Finance
-5-
<PAGE>
COMPUSA HOLDINGS COMPANY
By: /s/ Robert Gary
-------------------------------------
J. Robert Gary
Vice President-Finance
-6-
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
Dallas, Texas $35,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of THIRTY-FIVE
MILLION AND NO/100 DOLLARS ($35,000,000.00), or such lesser sum as shall be
due and payable from time to time hereunder, as hereinafter provided. All
terms used but not defined herein shall have the meanings set forth in the
Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of BANK ONE, TEXAS, N.A. ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.8
PROMISSORY NOTE
Dallas, Texas $29,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of CREDIT LYONNAIS NEW YORK BRANCH
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of TWENTY-NINE
MILLION AND NO/100 DOLLARS ($29,000,000.00), or such lesser sum as shall be
due and payable from time to time hereunder, as hereinafter provided. All
terms used but not defined herein shall have the meanings set forth in the
Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
Dallas, Texas $30,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of WELLS FARGO BANK (TEXAS), N.A.
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of THIRTY MILLION
AND NO/100 DOLLARS ($30,000,000.00), or such lesser sum as shall be due and
payable from time to time hereunder, as hereinafter provided. All terms used
but not defined herein shall have the meanings set forth in the Credit
Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of THE BANK OF NEW YORK ("Lender"), at
the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of THE BANK OF NOVA SCOTIA ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
Dallas, Texas $29,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of FLEET NATIONAL BANK ("Lender"), at
the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of TWENTY-NINE MILLION AND NO/100
DOLLARS ($29,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
---------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of FIFTH THIRD BANK ("Lender"), at the
principal office of NationsBank of Texas, N.A., in lawful money of the United
States of America, the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS
($15,000,000.00), or such lesser sum as shall be due and payable from time to
time hereunder, as hereinafter provided. All terms used but not defined
herein shall have the meanings set forth in the Credit Agreement described
below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
---------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.14
PROMISSORY NOTE
Dallas, Texas $29,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of HIBERNIA NATIONAL BANK ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of TWENTY-NINE MILLION AND NO/100
DOLLARS ($29,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
Dallas, Texas $29,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of CREDIT SUISSE FIRST BOSTON
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of TWENTY-NINE
MILLION AND NO/100 DOLLARS ($29,000,000.00), or such lesser sum as shall be
due and payable from time to time hereunder, as hereinafter provided. All
terms used but not defined herein shall have the meanings set forth in the
Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
--------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.16
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of CHASE BANK OF TEXAS NATIONAL
ASSOCIATION ("Lender"), at the principal office of NationsBank of Texas,
N.A., in lawful money of the United States of America, the principal sum of
FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or such lesser sum as
shall be due and payable from time to time hereunder, as hereinafter
provided. All terms used but not defined herein shall have the meanings set
forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
----------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
Dallas, Texas $15,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of FIRST UNION NATIONAL BANK
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of FIFTEEN MILLION
AND NO/100 DOLLARS ($15,000,000.00), or such lesser sum as shall be due and
payable from time to time hereunder, as hereinafter provided. All terms used
but not defined herein shall have the meanings set forth in the Credit
Agreement described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-------------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.18
PROMISSORY NOTE
Dallas, Texas $29,000,000.00 March 12, 1998
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of BANK OF AMERICA NT&SA ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of TWENTY-NINE MILLION AND NO/100
DOLLARS ($29,000,000.00), or such lesser sum as shall be due and payable from
time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Advances
under this Note from time to time outstanding shall be due and payable as set
forth in the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Second
Amended and Restated Credit Agreement, dated as of March 12, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, certain
Co-Agents and the lenders parties thereto (as amended, restated,
supplemented, renewed, extended or otherwise modified from time to time,
"Credit Agreement"), to which reference is made for a statement of the rights
and obligations of the Lender and the duties and obligations of the Borrower
in relation thereto; but neither this reference to the Credit Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal sum of and interest on this
Note when due.
The Borrower and all endorsers, sureties and guarantors of this Note
(without waiving any notice that any Lender is specifically required to give
pursuant to SECTION 8.1 of the Credit Agreement) hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
intention to accelerate the maturity of this Note, notice of acceleration of
this Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE>
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
CompUSA Inc.
By: /s/ Robert Gary
-------------------------------------
Name: Robert Gary
Title: Vice President-Finance
-2-
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of ______________,
1998 is between CompUSA Inc., a Delaware corporation, and [Name of employee]
("Employee").
R E C I T A L S:
A. Employee has been employed by Employer, and Employer and Employee
have entered into a written agreement dated as of ______________, 199__ and
an amendment thereto dated as of ______________, 199__ (collectively, the
"Prior Agreement"), to specify the terms and conditions of Employee's
employment with Employer.
B. Employer and Employee desire to replace the Prior Agreement with
this Agreement.
C. Employer considers the maintenance of a sound management team,
including Employee, essential to protecting and enhancing its best interests
and those of its stockholders.
D. Employer recognizes that the possibility of a change in control of
Employer may result in the departure or distraction of management to the
detriment of Employer and its stockholders.
E. Employee is a key executive of Employer and an integral member of
its management team.
F. Employer has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of selected
members of Employer's management team to their assigned duties without the
distraction arising from the possibility of a change in control of Employer.
NOW, THEREFORE, in consideration of Employee's past and future
employment with Employer and other good and valuable consideration including
the mutual release of Employer and Employee of their respective obligations
under the Prior Agreement, the parties agree as follows:
SECTION 1. EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
SECTION 2. DUTIES. Employee shall be employed as __________________ of
the Company, or such other position to which he may be appointed by the Board
of Directors. Employee agrees to devote his full time and best efforts to
the performance of the duties attendant to his executive position with
Employer.
<PAGE>
SECTION 3. TERM. The term of employment of Employee hereunder shall
commence on the date of this Agreement (the "Commencement Date") and continue
until May 1, 2000, unless earlier terminated pursuant to Section 6 or Section
10.
SECTION 4. COMPENSATION AND BENEFITS. In consideration for the
services of Employee hereunder, Employer shall compensate Employee as follows:
(a) BASE SALARY. Until the termination of Employee's employment
hereunder, Employer shall pay Employee, bi-weekly in arrears, a base salary
at an annual rate of not less than $__________ (as it may be increased from
time to time, the "Base Salary"). The Base Salary as then in effect may not
be decreased at any time during the term of Employee's employment hereunder
and shall be reviewed by Employer each October. Any increase in the Base
Salary shall be in the sole discretion of the Compensation Committee of the
Board of Directors of the Company.
(b) MANAGEMENT INCENTIVE BONUS. Employee shall be eligible to receive
from Employer such annual management incentive bonuses as may be provided in
management incentive bonus plans adopted from time to time by Employer.
(c) VACATION. Employee shall be entitled to 120 hours of paid vacation
per year at the reasonable and mutual convenience of Employer and Employee.
Unless otherwise approved by the Compensation Committee of the Board of
Directors of the Company, accrued vacation not taken in any applicable period
shall not be carried forward or used in any subsequent period.
(d) INSURANCE BENEFITS. Employer shall provide accident, health,
dental, disability and life insurance for Employee under the group accident,
health, dental, disability and life insurance plans maintained by Employer
for its full-time, salaried employees.
(e) CAR ALLOWANCE. As a condition of Employee's employment, Employee
shall from time to time be required to travel by automobile on Employer's
business. Accordingly, during the term of Employee's employment hereunder,
Employer shall provide Employee with an annual car allowance of $12,000,
payable in equal bi-weekly installments, to cover Employee's costs of
obtaining, maintaining and insuring a suitable automobile. Such amount shall
be payable to Employee whether his actual costs in any particular month are
less than, equal to or greater than $12,000.
(f) HEALTH CLUB MEMBERSHIP. For the duration of Employee's employment
with Employer hereunder, Employer shall pay up to $250 per month for a health
club membership in a health club selected by Employee.
SECTION 5. EXPENSES. The parties anticipate that in connection with
the services to be performed by Employee pursuant to the terms of this
Agreement, Employee will be required to make payments for travel,
entertainment of business associates and similar expenses. Employer shall
reimburse Employee for all reasonable expenses of types authorized by
Employer and
2
<PAGE>
incurred by Employee in the performance of his duties hereunder. Employee
shall comply with such budget limitations and approval and reporting
requirements with respect to expenses as Employer may establish from time to
time.
SECTION 6. TERMINATION.
(a) GENERAL. Employee's employment hereunder shall commence on the
Commencement Date and continue until the end of the term specified in Section
3, except that the employment of Employee hereunder shall terminate prior to
such time in accordance with the following:
(i) DEATH OR DISABILITY. Upon the death of Employee during the
term of his employment hereunder or, at the option of Employer, in the
event of Employee's Disability, upon 30 days' notice to Employee.
(ii) FOR CAUSE. For "Cause" immediately upon written notice by
Employer to Employee. A termination shall be for Cause if
(1) Employee commits a criminal act involving moral
turpitude; or
(2) Employee commits a material breach of any of the
covenants, terms and provisions hereof or fails to obey lawful and
proper written directions delivered to Employee by the Company's
Chairman of the Board, President, Chief Executive Officer or its
Board of Directors.
(iii) WITHOUT CAUSE. Without Cause upon notice by Employer to
Employee. Without limiting the foregoing, for purposes of Section
6(b)(ii) the termination of Employee's employment hereunder upon the
expiration of the term of his employment specified in Section 3 shall be
treated as a termination by Employer without Cause pursuant to this
Section 6(a)(iii).
(b) SEVERANCE PAY AND BONUSES.
(i) TERMINATION UPON DEATH OR DISABILITY. Employee shall not be
entitled to Separation Payments or any other severance pay or other
compensation upon termination of his employment hereunder pursuant to
Section 6(a)(i) except for the following (which shall be paid promptly
after termination, except as specified in subsection (4) below):
(1) This Base Salary accrued but unpaid as of the date of
termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination;
3
<PAGE>
(3) compensation for accrued, unused vacation as of the
date of termination, determined in accordance with Employer's
policies and procedures then in effect; and
(4) any bonus to which Employee would have been entitled
for the Bonus Period if he were still employed hereunder on the
last day of the Bonus Period. Any such bonus shall be paid to
Employee at the same time bonuses are paid in respect of the Bonus
Period to other employees of Employer entitled to receive bonuses
for the Bonus Period. In the event the determination of Employee's
bonus in respect of the Bonus Period involves any subjective
assessment, such assessment shall be made in a manner most
favorable to Employee. For purposes of this Section 6(b)(i)(4),
the term "Bonus Period" means the full fiscal year or other
applicable bonus period during which Employee's employment
hereunder was terminated (or during which Employee became Disabled,
in the event of a termination for Disability).
(ii) TERMINATION WITHOUT CAUSE; SEPARATION PAYMENTS. In the
event Employee's employment hereunder is terminated pursuant to Section
6(a)(iii), Employer shall pay Employee Separation Payments as Employee's
sole remedy in connection with such termination. "Separation Payments"
are payments made at the bi-weekly rate of Employee's Base Salary in
effect immediately preceding the date of termination. Separation
Payments shall be made for ______ months after the date of termination
(the "Separation Payment Period") and shall be paid by Employer in equal
bi-weekly payments in arrears. Separation Payments shall be reduced by
the amount of any personal services income earned by Employee during the
Separation Payment Period. Separation Payments shall be made for the
number of months specified above without regard to the number of months
remaining in the term of this Agreement. Notwithstanding the foregoing,
Employer's obligation to make, and Employee's right to receive,
Separation Payments shall terminate immediately upon any violation by
Employee of any covenant contained in Section 8 or 9 hereof. Employer
shall also promptly pay Employee the following:
(1) his Base Salary accrued but unpaid as of the date of
termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination; and
(3) compensation for accrued, unused vacation as of the
date of termination, determined in accordance with Employer's
policies and procedures then in effect.
This Section 6(b)(ii) is subject to the provisions of Section 10(k)
dealing with the coordination of payments in the event of a Change In
Control.
(iii) TERMINATION FOR CAUSE; VOLUNTARY TERMINATION. Employee
shall not be entitled to Separation Payments or any other severance pay
or other compensation upon
4
<PAGE>
termination of his employment hereunder pursuant to Section 6(a)(ii), or
upon Employee's voluntary termination of his employment hereunder,
except for the following (which shall be paid promptly after
termination):
(1) his Base Salary accrued but unpaid as of the date of
termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination; and
(3) compensation for accrued, unused vacation as of the
date of termination, determined in accordance with Employer's
policies and procedures then in effect.
(c) TRANSFERS OF EMPLOYMENT. Employee's employment hereunder shall
continue until the earlier of the following:
(i) Employee's employment with all Employers terminates; or
(ii) the last Employer (other than the Company) by which Employee
is employed under this Agreement ceases to be a subsidiary or affiliate
of the Company. For purposes of Section 6(b)(ii), the termination of
Employee's employment hereunder pursuant to this Section 6(c)(ii) shall
be treated as a termination by Employer without Cause pursuant to
Section 6(a)(iii).
SECTION 7. INVENTIONS; ASSIGNMENT.
(a) INVENTIONS DEFINED. All rights to discoveries, inventions,
improvements, designs, work product and innovations (including without
limitation all data and records pertaining thereto) that relate to the
business of Employer, whether or not specifically within Employee's duties or
responsibilities and whether or not patentable, copyrightable or reduced to
writing, that Employee may discover, invent, create or originate during the
term of his employment hereunder or otherwise, and for a period of six months
thereafter, either alone or with others and whether or not during working
hours or by the use of the facilities of Employer ("Inventions"), shall be
the exclusive property of Employer. Employee shall promptly disclose all
Inventions to Employer, shall execute at the request of Employer any
assignments or other documents Employer may deem necessary to protect or
perfect its rights therein, and shall assist Employer, at Employer's expense,
in obtaining, defending and enforcing Employer's rights therein. Employee
hereby appoints Employer as his attorney-in-fact to execute on his behalf any
assignments or other documents deemed necessary by Employer to protect or
perfect its rights to any Inventions.
(b) COVENANT TO ASSIGN AND COOPERATE. Without limiting the generality
of the foregoing, Employee shall assign and transfer, and does hereby assign
and transfer, to Employer the world-wide right, title and interest of
Employee in the Inventions. Employee agrees that Employer may file copyright
registrations and apply for and receive patents (including without limitation
Letters Patent in the United States) for the Inventions in Employer's name in
such
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countries as may be determined solely by Employer. Employee shall
communicate to Employer all facts known to Employee relating to the
Inventions and shall cooperate with Employer's reasonable requests in
connection with vesting title to the Inventions and related copyrights and
patents exclusively in Employer and in connection with obtaining,
maintaining, protecting and enforcing Employer's exclusive copyrights and
patent rights in the Inventions.
(c) SUCCESSORS AND ASSIGNS. Employee's obligations under this Section
7 shall inure to the benefit of Employer and its successors and assigns and
shall survive the expiration of the term of this Agreement for such time as
may be necessary to protect the proprietary rights of Employer in the
Inventions.
(d) CONSIDERATION AND EXPENSES. Employee shall perform his obligations
under this Section 7 at Employer's expense, but without any additional or
special compensation therefor.
SECTION 8. CONFIDENTIAL INFORMATION.
(a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST. Employee acknowledges that
all Confidential Information is a valuable, special and unique asset of
Employer's business, access to and knowledge of which are essential to the
performance of Employee's duties hereunder. Employee acknowledges the
proprietary interest of Employer in all Confidential Information. Employee
agrees that all Confidential Information learned by Employee during his
employment with Employer or otherwise, whether developed by Employee alone or
in conjunction with others or otherwise, is and shall remain the exclusive
property of Employer. Employee further acknowledges and agrees that his
disclosure of any Confidential Information will result in irreparable injury
and damage to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, written, oral or
computerized, as it may exist from time to time, including without limitation
(i) information derived from reports, investigations, experiments, research
and work in progress, (ii) methods of operation, (iii) market data, (iv)
proprietary computer programs and codes, (v) drawings, designs, plans and
proposals, (vi) marketing and sales programs, (vii) client and supplier lists
and any other information about Employer's relationships with others, (viii)
historical financial information and financial projections, (ix) pricing,
product rotation, product return and similar formulae and policies, (x) all
other concepts, ideas, materials and information prepared or performed for or
by Employer and (xi) all information related to the business, products,
purchases or sales of Employer or any of its suppliers and customers, other
than information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a portion
of the consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during the
term of his employment hereunder and thereafter to hold in strict confidence
and not to disclose or allow to be disclosed to any person, firm or
corporation, other than to persons engaged by Employer to further the
business of Employer, and not to use except in the pursuit of the business of
Employer, the Confidential Information, without the prior written
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consent of Employer. This Section 8 shall survive and continue in full force
and effect in accordance with its terms after, and will not be deemed to be
terminated by, any termination of this Agreement or of Employee's employment
with Employer for any reason.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any
termination or cessation of his employment with Employer for any reason,
Employee shall promptly deliver to Employer all property of Employer,
including without limitation all documents, data and other information
containing, derived from or otherwise pertaining to Confidential Information.
Employee shall not take or retain any property of Employer, including
without limitation any documents, data or other information, or any
reproduction or excerpt thereof, containing, derived from or pertaining to
any Confidential Information. The obligation of confidentiality set forth in
this Section 8 shall continue notwithstanding Employee's delivery of such
documents, data and information to Employer.
SECTION 9. NONCOMPETITION.
(a) COVENANT NOT TO COMPETE. Employee acknowledges that during the
term of his employment Employer has agreed to provide to him, and he shall
receive from Employer, special training and knowledge, including without
limitation the Confidential Information. Employee acknowledges that the
Confidential Information is valuable to Employer and, therefore, its
protection and maintenance constitutes a legitimate interest to be protected
by Employer by the enforcement of the covenant not to compete contained in
this Section 9. Employee also acknowledges that such covenant not to compete
is ancillary to other enforceable agreements of the parties, including
without limitation the agreements regarding Confidential Information in
Section 8 and the agreements regarding the payment of Separation Payments and
other severance pay and of the Termination Payment in Section 6 and Section
10, respectively. Therefore, for a period of two years after termination of
Employee's employment hereunder (unless extended pursuant to the terms of
this Section 9), Employee shall not directly or indirectly
(i) engage, alone or as a shareholder, partner, member, manager,
director, officer, employee of or consultant to any other business
organization that engages or is planning to engage, anywhere in North
America or in any other geographic area in or with respect to which
Employee has any duties or responsibilities during the term of his
employment with Employer, in any business activities that
(1) relate to the wholesale, direct or retail sale of
computer hardware, software, peripherals, training or other
computer related services (the "Designated Industry"); or
(2) were either conducted by Employer prior to the
termination of Employee's employment hereunder or proposed to be
conducted by Employer at any time prior to the time of such
termination;
(ii) divert to any competitor of Employer any customer of
Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to
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Employer to end his relationship with Employer or commence any such
relationship with any competitor of Employer.
Notwithstanding the foregoing, (i) the entities listed on Exhibit A
shall be deemed to be engaged in the Designated Industry and to be
competitors of Employer and (ii) Employee's noncompetition obligations
hereunder shall not preclude Employee from owning less than five percent of
the voting power or economic interest in any publicly traded corporation
conducting business activities in the Designated Industry.
(b) NO OFFSET. The representations and covenants contained in this
Section 9 on the part of Employee shall be construed as ancillary to and
independent of any other provision of this Agreement, and the existence of
any claim (monetary or otherwise) or cause of action of Employee against
Employer or any officer, director or shareholder of Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Employer of the covenants of Employee contained in this
Section 9.
(c) EXTENSION OF DURATION; SURVIVAL. If Employee violates any covenant
contained in this Section 9, Employer shall not, as a result of such
violation or the time involved in obtaining legal or equitable relief
therefor, be deprived of the benefit of the full period of any such covenant.
Accordingly, the covenants of Employee contained in this Section 9 shall be
deemed to have the duration specified in Section 9(a), which period shall be
extended by a number of days equal to the sum of (i) the total number of days
Employee is in violation of any of the covenants contained in this Section 9
prior to the commencement of any litigation relating thereto and (ii) the
total number of days the parties are involved in such litigation, through the
date of entry by a court of competent jurisdiction of a final judgment
enforcing the covenants of Employee in this Section 9. This Section 9 shall
survive and continue in full force and effect in accordance with its terms
after, and will not be deemed to be terminated by, any termination of this
Agreement or of Employee's employment with Employer for any reason.
(d) SEVERABILITY. If at any time the provisions of this Section 9 are
determined to be invalid or unenforceable by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 9 shall
be considered divisible and shall be immediately amended to only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter,
and Employee agrees that this Section 9 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been
included herein.
SECTION 10. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN
CONTROL.
(a) APPLICABILITY. The provisions of this Section 10 shall apply in
lieu of all conflicting provisions in this Agreement in the event Employee's
employment with Employer is terminated in a Triggering Termination. Each of
the following events constitutes a "Triggering Termination" when Employee's
employment with Employer is:
(i) terminated by Employer or Employee for any reason other than
death, or
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for no reason, or terminated upon the expiration of Employee's term of
employment specified in Section 3, within the 12-month period following
a Change In Control;
(ii) terminated by Employer for any reason other than the
commission of a felony by Employee, or terminated upon the expiration of
Employee's term of employment specified in Section 3, during an
Applicable Period;
(iii) Constructively Terminated by Employer during an Applicable
Period;
(iv) terminated pursuant to Section 6(c)(ii) during an Applicable
Period or within 12 months following a Change In Control; or
(v) terminated in an Agreement Termination pursuant to this
Section 10(a)(v).
(1) An "Agreement Termination" shall occur when Employee's
employment hereunder is terminated by Employee in anticipation of a
Change In Control to the extent that his continued employment with
Employer is not pursuant to the terms of this Agreement (other than
as provided herein with respect to an Agreement Termination) and
thereafter is only on an at-will basis. Employee's determination
to effect an Agreement Termination must be based on a good faith
judgment of Employee and any two or more Concurring Persons, in
light of the circumstances as then known or understood by them,
that a Change In Control is going to occur within 24 hours, but it
is not required as a condition to such good faith judgment that
(I) Employee or any Concurring Person conduct any
investigation or consult with any other person or group
(except only for Employee's requirement to obtain the
concurrence or approval of Concurring Persons);
(II) no condition remains to be satisfied before the
Change In Control can occur; or
(III) the Board of Directors of Employer has taken any
action to approve or facilitate the Change In Control.
(2) The concurrence or approval of the Concurring Persons
is limited to the occurrence and timing of the Change In Control
and is not made regarding the propriety of Employee's effecting an
Agreement Termination.
(3) In consideration of the right to effect an Agreement
Termination and receive a Termination Payment and Gross Up Payment
prior to a Change In Control, Employee agrees that, upon (and
notwithstanding) his exercise of such right and the payment to him
of the Termination Payment and Gross Up Payment, he shall continue,
without interruption until such Change In Control occurs (unless
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his at-will employment with Employer is sooner terminated or
Constructively Terminated by Employer, as described in Sections
10(a)(ii), (iii) and (iv), or Employee dies or his employment with
Employer is terminated due to Disability), to devote his full time
and best efforts as an at-will employee of Employer to the
performance of the same duties that he performed for Employer,
holding the same office or position with Employer as he held
before the Agreement Termination, but without the right to any
compensation from Employer for such continued performance (except
as provided below in Section 10(a)(v)(4)(I)). Employee's
obligation set forth in the preceding sentence is referred to
herein as the "Continued Performance Obligation."
(4) Employee shall have no obligation to comply with Section
8(d) until he has no further Continued Performance Obligation. If
the anticipated Change In Control does not occur within five
business days after Employee's receipt of a Termination Payment
and Gross Up Payment following the exercise of his right to effect
an Agreement Termination, then
(I) such Agreement Termination shall be void and
ineffective, and Employee's employment under all the terms of
this Agreement (including without limitation his compensation
and benefits, duties, position and rights regarding any other
actual or expected Change In Control) shall be deemed to have
continued without interruption; and
(II) Employee shall, and Employee hereby agrees to,
repay to Employer within two business days the full
Termination Payment and Gross Up Payment received by Employee
(together with interest, if any, actually earned on the funds
while in Employee's control).
(5) If Employee fails to satisfy his Continued Performance
Obligation, and such failure continues for more than one business day
after receipt by Employee of written notice from Employer of such
failure, then
(I) such Agreement Termination shall be void and
ineffective, and Employee shall be deemed to have voluntarily
terminated his employment hereunder before a Change In
Control; and
(II) Employee shall repay to Employer within one
business day after his receipt of such notice the full
Termination Payment and Gross Up Payment received by Employee
(together with interest, if any, actually earned on the funds
while in Employee's control).
(b) TERMINATION PAYMENT.
(i) AMOUNT.
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(1) Upon the occurrence of a Triggering Termination, Employer
shall pay Employee a lump sum payment in cash equal to 2.99 times
the sum of the following items:
(I) Employee's annualized base compensation determined
by using the highest annual base compensation rate in effect
at any time during Employee's employment with Employer;
(II) two times the Target Bonus that would be payable
to Employee by Employer for the bonus period in which the
Change In Control occurred; provided that the amount
determined under this Section 10(b)(i)(1)(II) shall not be
less than 60% of the amount determined under Section
10(b)(i)(1)(I); and
(III) Employee's annualized car allowance determined by
using the highest car allowance rate in effect at any time
during Employee's employment with Employer.
(2) The term "Termination Payment" shall include the amounts
described above in Section 10(b)(i)(1) plus the following amounts
described in this Section 10(b)(i)(2):
(I) Employee's Base Salary accrued but unpaid as of
the date of the Triggering Termination;
(II) reimbursement under Section 5 for unpaid expenses
incurred in the performance of his duties hereunder prior to
the date of the Triggering Termination;
(III) any other benefit accrued but unpaid as of the
date of the Triggering Termination; and
(IV) $18,000, which represents the estimated cost to
Employee of obtaining accident, health, dental, disability
and life insurance coverage for the 18 month period following
the expiration of his continuation (COBRA) rights; provided
that this Section 10(b)(i)(2)(IV) shall be applied without
regard to, and the amount payable under this Section
10(b)(i)(2)(IV) is in addition to, any continuation (COBRA)
rights or conversion rights under any plan provided by
Employer, which rights are not affected by any provision
hereof.
(ii) TIME FOR PAYMENT; INTEREST. Employer shall pay the
Termination Payment to Employee concurrently with the Triggering
Termination or, if the Triggering Termination occurs before the Change
In Control, concurrently with the Change In Control. Employer's
obligation to pay to Employee any amounts under this Section 10,
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including without limitation the Termination Payment and any Gross Up
Payment due under Section 10(d), shall bear interest at the rate of 18%
per annum or, if different, the maximum rate allowed by law until paid
by Employer, and all accrued and unpaid interest shall bear interest at
the same rate, all of which interest shall be compounded daily.
(iii) PAYMENT AUTHORITY. Any officer of Employer (other than
Employee) is authorized to issue and execute a check, initiate a wire
transfer or otherwise effect payment on behalf of Employer to satisfy
Employer's obligations to pay all amounts due to Employee under this
Section 10.
(iv) TERMINATION. Employer's obligation to pay the Termination
Payment shall not be affected by the manner in which Employee's
employment hereunder is terminated. Without limiting the generality of
the foregoing, Employer shall be obligated to pay the Termination
Payment and any Gross Up Payment regardless of whether Employee's
termination of employment is voluntary, involuntary, for cause, without
cause, in violation of any employment agreement or other agreement in
effect at the time of the Change In Control (except as provided in
Section 10(a)(v)(5)(I) with respect to Employee's failure to satisfy his
Continued Performance Obligation in the event of an Agreement
Termination) or due to Employee's retirement or Disability. Employee's
notice of his termination of employment hereunder in connection with a
Change In Control may be made by any means and to any officer of
Employer (other than Employee).
(c) CHANGE IN CONTROL. A Change In Control shall be deemed to have
occurred for purposes hereof when any Person meets the requirements for
becoming an Acquiring Person, whether or not a Distribution Date occurs or
the Rights are redeemed by Employer, as those terms are defined in the Rights
Agreement between the Company and Bank One, Texas, N.A. as Rights Agent
(American Stock Transfer & Trust Company became successor Rights Agent as of
August 19, 1996), dated as of April 29, 1994 (the "Rights Agreement");
provided that a Change In Control shall not be deemed to have occurred for
purposes hereof with respect to any Person meeting the requirements of
clauses (i) and (ii) of Rule 13d-1(b)(1) promulgated under the Securities
Exchange Act of 1934, as amended.
(d) GROSS UP PAYMENT.
(i) EXCESS PARACHUTE PAYMENT. If Employee incurs the tax
(the "Excise Tax") imposed by Section 4999 of the Code on "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code
as the result of any payments or distributions by Employer to or for the
benefit of Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) or
as a result of the acceleration of vesting of Options, Restricted Stock
or other rights (collectively, the "Payments"), or if Employee would
incur the Excise Tax if the Change In Control satisfied the requirements
of Section 280G(b)(2)(A)(i) of the Code, then without regard to whether
the Change In Control in fact satisfies the requirements of Section
280G(b)(2)(A)(i) of the Code, Employer shall pay to Employee an amount
(the "Gross Up Payment") such that the net amount retained by Employee,
after deduction of (1) any
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Excise Tax owed, or that would be owed if the Change In Control
satisfied the requirements of Section 280G(b)(2)(A)(i) of the Code, upon
any Payments (other than payments provided by this Section 10(d)(i)) and
(2) any federal, state and local income and employment taxes owed
(together with penalties and interest) and Excise Tax owed, or that
would be owed if the Change In Control satisfied the requirements of
Section 280G(b)(2)(A)(i) of the Code, upon the payments provided by this
Section 10(d)(i), shall be equal to the amount of the Payments (other
than payments provided by this Section 10(d)(i)).
(ii) APPLICABLE RATES. For purposes of determining the Gross Up
Payment amount, Employee shall be deemed:
(1) to pay federal income taxes at the highest marginal rate
of federal income taxation applicable to individual taxpayers in
the calendar year in which the Gross Up Payment is made (which rate
shall be adjusted as necessary to take into account the effect of
any reduction in deductions, exemptions or credits otherwise
available to Employee had the Gross Up Payment not been received);
(2) to pay additional employment taxes as a result of the
receipt of the Gross Up Payment in an amount equal to the highest
marginal rate of employment taxes applicable to wages; provided
that if any employment tax is applied only up to a specified
maximum amount of wages, such limit shall be taken into account for
purposes of such calculation; and
(3) to pay state and local income taxes at the highest
marginal rates of taxation in the state and locality of Employee's
residence on the date of the Triggering Termination, net of the
maximum reduction in federal income taxes that could be obtained
from deduction of such state and local taxes.
(iii) DETERMINATION OF GROSS UP PAYMENT AMOUNT. The determination
of the Gross Up Payment amount shall be made, at Employer's expense, by
Ernst & Young LLP or another nationally recognized public accounting
firm selected by Employee (in either case, the "Accountants"). If the
Excise Tax amount payable by Employee, based upon a "Determination," is
different from the Excise Tax amount computed by the Accountants for
purposes of determining the Gross Up Payment amount, then appropriate
adjustments to the Gross Up Payment amount shall be made in the manner
provided in Section 10(d)(iv). For purposes of determining the Gross Up
Payment amount prior to any Determination of the Excise Tax amount, the
following assumptions shall be utilized:
(1) that portion of the Termination Payment that is attributable
to the items described in Sections 10(b)(i)(1)(I), (II), (III) and
Section 10(b)(i)(2)(IV), and the Gross Up Payment, shall be treated as
Parachute Payments;
(2) no portion of any payment made pursuant to Sections
10(b)(i)(2)(I), (II) or (III) or Section 11(c) shall be treated as a
Parachute Payment;
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(3) the amount payable to Employee pursuant to Section 10(l)
shall be
(I) deemed to be equal to 15% of the amount determined
under Section 10(b)(i)(1)(I);
(II) deemed to have been paid immediately following the
Change In Control;
(III) deemed to include the additional amount payable
under Section 10(l), if any, for additional taxes payable by
Employee as a result of the receipt of the payment described
in Section 10(l); and
(IV) treated 100% as a Parachute Payment;
(4) it shall be assumed that all of the payments that could
potentially be made to Employee pursuant to the Consulting
Agreement shall be made, and all of such payments shall be treated
as Parachute Payments; provided that nothing in this Section
10(d)(iii)(4) shall limit or reduce the payment of any amount
similar to the Gross Up Payment under the Consulting Agreement;
(5) the "ascertainable fair market value" (as set forth in
Prop. Treas. Reg. Section 1.280G-1, Q&A 13) of the Options, the
vesting of which was accelerated by the Change In Control as
provided in the Incentive Plan and as further provided in Section
10(j), shall be equal to the product of (I) and (II) as set forth
below:
(I) the number of shares covered by such Options; and
(II) the difference between:
a. the fair market value per share of the underlying
common stock as of the date of the Change In Control; and
b. the exercise price per share of stock subject to
such Options; and
(6) for purposes of applying the rules set forth in Prop.
Treas. Reg. Section 1.280G-1, Q&A 24(c) to a payment described in
Prop. Treas. Reg. Section 1.280G-1, Q&A 24(b), the amount
reflecting the lapse of the obligation to continue performing
services shall be equal to the minimum amount allowed for such
payment as set forth in Prop. Treas. Reg. Section 1.280G-1, Q&A
24(c)(2) (or if Prop. Treas. Reg. Section 1.280G-1 has been
superseded by temporary or final regulations, the minimum amount
provided for in any temporary or final regulations that supersede
Prop. Treas. Reg. Section 1.280G-1 and that are applicable to the
Termination Payment, Gross Up Payment, or both).
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(iv) TIME FOR PAYMENT. Employer shall pay the estimated Gross Up
Payment amount in cash to Employee concurrent with the payment of the
Termination Payment. Employee and Employer agree to reasonably
cooperate in the determination of the actual Gross Up Payment amount.
Further, Employee and Employer agree to make such adjustments to the
estimated Gross Up Payment amount as may be necessary to equal the
actual Gross Up Payment amount based upon a Determination, which in the
case of Employee shall refer to refunds of prior overpayments and in the
case of Employer shall refer to makeup of prior underpayments.
(e) TERM. Notwithstanding the provisions of Section 3, if a Change In
Control occurs prior to April 30, 2000, Sections 10, 11 and 12 shall continue
in effect for a period of 12 months after the date of the Change In Control.
(f) CONSULTING AGREEMENT. To preserve a sound and vital management
team for the Company during the period immediately following a Change In
Control, Employee agrees that, in the event of a Triggering Termination,
Employee shall enter into a Consulting Agreement (the "Consulting Agreement")
in the form attached hereto if requested by the Board of Directors of the
Company within 30 days after the Change In Control. If Employee breaches his
obligation under the preceding sentence by declining to enter into a
Consulting Agreement, as liquidated damages for such breach and not as a
penalty, Employee shall pay to Employer the amount that Employee otherwise
would have received as compensation from Employer under the Consulting
Agreement assuming Employee fully performed his obligations thereunder.
(g) NO DUTY TO MITIGATE DAMAGES. Employee's rights and privileges
under this Section 10 shall be considered severance pay in consideration of
his past service and his continued service to Employer from the Commencement
Date, and his entitlement thereto shall neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation that he may receive from future employment.
(h) ARBITRATION. Except as provided in Section 10(j), and in Section
11(d) with respect to Section 10(m), any controversy or claim arising out of
or relating to this Section 10, or the breach thereof, shall be settled
exclusively by arbitration in Dallas, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment upon the award rendered by the arbitrator may be entered
in, and enforced by, any court having jurisdiction thereof.
(i) NO RIGHT TO CONTINUED EMPLOYMENT. This Section 10 shall not give
Employee any right of continued employment or any right to compensation or
benefits from Employer except the rights specifically stated herein.
(j) RESTRICTED STOCK AND EXERCISE OF STOCK OPTIONS. Employee may hold
options ("Options") issued under the Incentive Plan that become immediately
exercisable upon a Change In Control. In addition, Employee may hold
restricted stock ("Restricted Stock") issued under the Incentive Plan
pursuant to which applicable restrictions will lapse upon a Change In
Control. Employer shall take no action to facilitate a transaction involving
a Change In Control, including
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without limitation redemption of the Rights issued pursuant to the Rights
Agreement, unless it has taken such action as may be necessary to ensure that
Employee has the opportunity to exercise all Options he may then hold, and
obtain certificates containing no restrictive legends in respect of any
Restricted Stock he may then hold, at a time and in a manner that shall give
Employee the opportunity to sell or exchange the securities of Employer
acquired upon exercise of his Options and upon receipt of unrestricted
certificates for shares of Common Stock in respect of his Restricted Stock,
if any (collectively, the "Acquired Securities"), at the earliest time and in
the most advantageous manner any holder of the same class of securities as
the Acquired Securities is able to sell or exchange such securities in
connection with such Change In Control. Employer acknowledges that its
covenants in the preceding sentence (the "Covenants") are reasonable and
necessary in order to protect the legitimate interests of Employer in
maintaining Employee as one of its employees and that any violation of the
Covenants by Employer would result in irreparable injuries to Employee, and
Employer therefore acknowledges that in the event of any violation of the
Covenants by Employer or its directors, officers or employees, or any of
their respective agents, Employee shall be entitled to obtain from any court
of competent jurisdiction temporary, preliminary and permanent injunctive
relief in order to (i) obtain specific performance of the Covenants, (ii)
obtain specific performance of the exercise of his Options, delivery of
certificates containing no restrictive legends in respect of his Restricted
Stock and the sale or exchange of the Acquired Securities in the advantageous
manner contemplated above or (iii) prevent violation of the Covenants;
provided that nothing in this Agreement shall be deemed to prejudice
Employee's rights to damages for violation of the Covenants.
(k) COORDINATION WITH OTHER PAYMENTS.
(i) After the termination of Employee's employment hereunder:
(1) if Employee is entitled to receive Separation Payments; and
(2) Employee subsequently becomes entitled to receive a
Termination Payment, Gross Up Payment or both, then
(ii) prior to the disbursement of the Termination Payment and Gross
Up Payment:
(1) the payment date of all unpaid Separation Payments shall
be accelerated to the payment date of the Termination Payment and
such Separation Payments shall be made (in this event, Employer
waives any requirement that Employee reduce the Separation Payments
by the amount of any income earned by Employee thereafter); and
(2) the Termination Payment shall be reduced by the amount of
the Separation Payments so accelerated and made.
(l) OUTPLACEMENT SERVICES. If Employee becomes entitled to receive a
Termination Payment under this Section 10, Employer agrees to reimburse
Employee for any outplacement
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consulting fees and expenses incurred by Employee during any Applicable
Period and during the two-year period following the Change In Control;
provided that the aggregate amount reimbursed by Employer shall not exceed
15% of Employee's Base Salary in effect immediately prior to the Triggering
Termination. In addition and as to each reimbursement payment, to the extent
that any reimbursement under this Section 10(l) is subject to federal, state
or local income taxes, Employer shall pay Employee an additional amount such
that the net amount retained by Employee, after deduction of any federal,
state and local income tax on the reimbursement and such additional amount,
shall be equal to the reimbursement payment. All amounts under this Section
10(l) shall be paid by Employer within 15 days after Employee's presentation
to Employer of any statements of such amounts and thereafter shall bear
interest at the rate of 18% per annum or, if different, the maximum rate
allowed by law until paid by Employer, and all accrued and unpaid interest
shall bear interest at the same rate, all of which interest shall be
compounded daily.
(m) NONCOMPETITION.
(i) Employee acknowledges that during the term of his employment
Employer has agreed to provide to him, and he shall receive from
Employer, special training and knowledge, including without limitation
the Confidential Information. Employee acknowledges that the
Confidential Information is valuable to Employer and, therefore, its
protection and maintenance constitutes a legitimate interest to be
protected by Employer by the enforcement of the covenant not to compete
contained in this Section 10(m). Employee also acknowledges that such
covenant not to compete is ancillary to other enforceable agreements of
the parties, including without limitation the agreements regarding
Confidential Information in Section 8 and the agreements regarding the
payment of the Termination Payment in this Section 10. Therefore,
following the occurrence of a Triggering Termination, Employee shall
not directly or indirectly
(1) for a period of two years following the date of the
Triggering Termination (unless extended pursuant to the terms of
this Section 10(m)) engage, alone or as a shareholder, partner,
member, manager, director, officer, employee of or consultant to,
any entity other than Employer that is in existence on the date of
the Triggering Termination and is at that time engaged directly, or
indirectly through any subsidiary, division or other business unit
(individually, an "Entity"), anywhere in North America or in any
other geographic area in or with respect to which Employee has any
duties or responsibilities during the term of his employment with
Employer, in retail or direct sales of computer hardware, software,
peripherals, training or other computer related services to end
users (the "Change In Control Designated Industry"); or
(2) for a period of one year following the date of the
Triggering Termination (unless extended pursuant to the terms of
this Section 10(m)) solicit or encourage any director, officer,
employee of or consultant to Employer to end his relationship with
Employer and commence any such relationship with any competitor of
Employer in the Change In Control Designated Industry.
17
<PAGE>
(ii) Notwithstanding the foregoing, an Entity shall not be deemed
to be engaged in the Change In Control Designated Industry if retail and
direct sales of computer hardware, software, peripherals, training or
other computer related services to end users are incidental to such
Entity's business. Retail and direct sales of computer hardware,
software, peripherals, training or other computer related services shall
be deemed incidental to an Entity's business so long as
(1) the aggregate of such sales by such Entity is 40% or less of
the total sales of such Entity for the full fiscal quarter of such
Entity immediately preceding the date of the Triggering Termination
or any of the eight immediately subsequent fiscal quarters of such
Entity; and
(2) such Entity is not a member of a group of Entities under
common control that includes one or more Computer Sales Entities;
provided that the foregoing restriction shall be deemed not to have
been violated if Employee terminates his employment or other
prohibited relationship with an Entity promptly after his discovery
that the Entity first became a Computer Sales Entity (during the
term of his relationship) during the preceding fiscal quarter of
such Entity. A "Computer Sales Entity" is defined as an Entity
whose retail and direct sales of computer hardware, software,
peripherals, training and other computer related services to end
users, in the aggregate, are more than 40% of the total sales of
such Entity, measured over any fiscal quarter.
(iii) The representations and covenants contained in this Section
10(m) on the part of Employee shall be construed as ancillary to and
independent of any other provision of this Agreement, and the existence
of any claim (monetary or otherwise) or cause of action of Employee
against Employer or any officer, director or shareholder of Employer,
whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer of the covenants of Employee
contained in this Section 10(m).
(iv) If Employee violates any covenant contained in this Section
10(m), Employer shall not, as a result of such violation or the time
involved in obtaining legal or equitable relief therefor, be deprived of
the benefit of the full period of any such covenant. Accordingly, the
covenants of Employee contained in this Section 10(m) shall be deemed to
have durations as specified in Section 10(m)(i)(1) and (2), which
periods shall be extended by a number of days equal to the sum of (i)
the total number of days Employee is in violation of any of the
covenants contained in this Section 10(m) prior to the commencement of
any litigation relating thereto and (ii) the total number of days the
parties are involved in such litigation, through the date of entry by a
court of competent jurisdiction of a final judgment enforcing the
covenants of Employee in this Section 10(m). This Section 10(m) shall
survive and continue in full force and effect in accordance with its
terms after, and will not be deemed to be terminated by, any termination
of this Agreement.
(v) If at any time the provisions of this Section 10(m) are
determined to be
18
<PAGE>
invalid or unenforceable by reason of being vague or unreasonable
as to area, duration or scope of activity, this Section 10(m) shall
be considered divisible and shall be immediately amended to only
such area, duration or scope of activity as shall be determined to
be reasonable and enforceable by the court or other body having
jurisdiction over the matter; and Employee agrees that this Section
10(m) as so amended shall be valid and binding as though any
invalid or unenforceable provision had not been included herein.
Notwithstanding the foregoing, Employee's noncompetition
obligations hereunder shall not preclude Employee from owning stock
with less than five percent of the voting power or economic
interest in any publicly traded corporation conducting business
activities in the Change In Control Designated Industry.
SECTION 11. GENERAL.
(a) NOTICES. Except as provided in Section 10(b)(iv), all notices and
other communications hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given if delivered
personally or if mailed by certified mail, return receipt requested or by
written telecommunication, to the relevant address set forth below, or to
such other address as the recipient of such notice or communication shall
have specified to the other party in accordance with this Section 11(a):
If to Employer, to: with a copy to:
CompUSA Inc. Thompson & Knight, P.C.
14951 North Dallas Parkway 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75240 Dallas, Texas 75201
Attention: Chairman of the Board Attention: Fred W. Fulton
Facsimile Number: (972) 982-4813 Facsimile Number: (214) 969-1751
If to Employee, to:
_____________________________
_____________________________
(b) WITHHOLDING; NO OFFSET. All payments required to be made to
Employee by Employer shall be subject to the withholding of such amounts, if
any, relating to federal, state and local taxes as may be required by law.
No payments under Section 10 shall be subject to offset or reduction
attributable to any amount Employee may owe to Employer or any other person.
(c) LEGAL AND ACCOUNTING COSTS. Employer shall pay all attorneys' and
accountants' fees and costs incurred by Employee as a result of any breach by
Employer of its obligations under this Agreement, including without
limitation all such costs incurred in contesting or disputing any
determination made by Employer under Section 10 or in connection with any tax
audit or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment under Section 10. Reimbursements of such
costs shall be made by Employer within 15 days after
19
<PAGE>
Employee's presentation to Employer of any statements of such costs and
thereafter shall bear interest at the rate of 18% per annum or, if different,
the maximum rate allowed by law until paid by Employer, and all accrued and
unpaid interest shall bear interest at the same rate, all of which interest
shall be compounded daily.
(d) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and
agrees that upon any breach by Employee of his obligations under any of
Sections 7, 8, 9 and 10(m), Employer shall have no adequate remedy at law and
accordingly shall be entitled to specific performance and other appropriate
injunctive and equitable relief.
(e) SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable,
and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part hereof, and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
(f) WAIVERS. No delay or omission by either party in exercising any
right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power
or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(g) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(i) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof,"
"hereto," "hereunder" and the like in this Agreement refer to this Agreement
only as a whole and not to any particular section or subsection of this
Agreement, unless otherwise noted.
(j) BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties and shall be enforceable by the personal
representatives and heirs of Employee and the successors and assigns of
Employer. This Agreement may be assigned by the Company or any Employer to
any Employer; provided that in the event of any such assignment, the Company
shall remain liable for all of its obligations hereunder and shall be liable
for all obligations of all such assignees hereunder. If Employee dies while
any amounts would still be payable to him hereunder, such amounts shall be
paid to Employee's estate. This Agreement is not otherwise assignable by
Employee.
(k) ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENT. This Agreement
contains the entire
20
<PAGE>
understanding of the parties, supersedes all prior agreements and
understandings relating to the subject matter hereof (including without
limitation the Prior Agreement, which is hereby terminated) and may not be
amended except by a written instrument hereafter signed by each of the
parties hereto. Employee and the Company hereby agree that, if any other
employment agreement between Employee and the Company (or any other Employer)
is in existence on the Commencement Date, then this Agreement shall supersede
such other employment agreement in its entirety, and such other employment
agreement shall no longer be of any force and effect after the date hereof.
(l) GOVERNING LAW. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
(m) GENDER AND NUMBER. The masculine gender shall be deemed to denote
the feminine or neuter genders, the singular to denote the plural, and the
plural to denote the singular, where the context so permits.
(n) ASSISTANCE IN LITIGATION. During the term of this Agreement and
for a period of two years thereafter, Employee shall, upon reasonable notice,
furnish such information and proper assistance to Employer as may reasonably
be required by Employer in connection with any litigation in which Employer
is, or may become, a party and with respect to which Employee's particular
knowledge or experience would be useful. Employer shall reimburse Employee
for all reasonable out-of-pocket expenses incurred by Employee in rendering
such assistance. The provisions of this Section 11(n) shall continue in
effect notwithstanding termination of Employee's employment hereunder for any
reason.
SECTION 12. DEFINITIONS. As used in this Agreement, the following terms
will have the following meanings:
(a) ACCOUNTANTS has the meaning ascribed to it in Section 10(d)(iii).
(b) ACQUIRED SECURITIES has the meaning ascribed to it in Section 10(j).
(c) AGREEMENT has the meaning ascribed to it in the heading of this
document.
(d) AGREEMENT TERMINATION has the meaning ascribed to it in Section
10(a)(v)(1). References in this Agreement to termination of Employee's
employment with Employer, in any form, shall be deemed to include (whether or
not so expressed) an Agreement Termination.
(e) APPLICABLE PERIOD means, with respect to any Change In Control, the
period of 90 days immediately preceding the Change In Control.
(f) BASE SALARY has the meaning ascribed to it in Section 4(a).
(g) CAUSE has the meaning ascribed to it in Section 6(a)(ii).
21
<PAGE>
(h) CHANGE IN CONTROL has the meaning ascribed to it in Section 10(c).
(i) CHANGE IN CONTROL DESIGNATED INDUSTRY has the meaning ascribed to
it in Section 10(m)(i)(1).
(j) CODE means the Internal Revenue Code of 1986, as amended.
(k) COMMENCEMENT DATE has the meaning ascribed to it in Section 3.
(l) COMPANY means CompUSA Inc., a Delaware corporation.
(m) COMPUTER SALES ENTITY has the meaning ascribed to it in Section
10(m)(ii)(2).
(n) A CONCURRING PERSON is an individual who is the Chairman of the
Board of Directors of the Company or a member of the Compensation Committee
of the Board of Directors of the Company (or, if no Compensation Committee
exists, or there are fewer than two members of the Compensation Committee, a
nonemployee member of the Board of Directors of the Company) at the time in
question.
(o) CONFIDENTIAL INFORMATION has the meaning ascribed to it in Section
8(b).
(p) CONSTRUCTIVELY TERMINATED with respect to an Employee's employment
with Employer will be deemed to have occurred if Employer
(i) demotes Employee to a lesser position, either in title or
responsibility, than the highest position held by Employee with Employer at
any time during Employee's employment with Employer;
(ii) decreases Employee's compensation below the highest level in
effect at any time during Employee's employment with Employer or reduces
Employee's benefits and perquisites below the highest levels in effect at
any time during Employee's employment with Employer (other than as a result
of any amendment or termination of any employee or group or other executive
benefit plan, which amendment or termination is applicable to all
executives of Employer); or
(iii) requires Employee to relocate to a principal place of business
more than 25 miles from the principal place of business occupied by
Employer on the first day of an Applicable Period.
(q) CONSULTING AGREEMENT has the meaning ascribed to it in Section
10(f).
(r) CONTINUED PERFORMANCE OBLIGATION has the meaning ascribed to it in
Section 10(a)(v)(3).
(s) COVENANTS has the meaning ascribed to it in Section 10(j).
22
<PAGE>
(t) DESIGNATED INDUSTRY has the meaning ascribed to it in Section
9(a)(i)(1).
(u) DETERMINATION has the meaning ascribed to such term in Section
1313(a) of the Code.
(v) DISABILITY with respect to Employee shall be deemed to have
occurred whenever Employee is rendered unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can
be expected to last for a continuing period of not less than 12 months. In
the case of any dispute, the determination of Disability will be made by a
licensed physician selected by Employer, which physician's decision will be
final and binding.
(w) EMPLOYEE has the meaning ascribed to it in the heading of this
Agreement.
(x) EMPLOYER refers collectively to the Company and its subsidiaries
and other affiliates. In Section 10, the term "Employer" shall be deemed to
refer to the Company, and for purposes of Section 10, Employee shall be
deemed to be employed by the Company and all compensation and benefits paid
or provided to Employee by any Employer under this Agreement at any time
shall be deemed to have been paid or provided to Employee by the Company.
(y) ENTITY has the meaning ascribed to it in Section 10(m)(i)(1).
(z) EXCISE TAX has the meaning ascribed to it in Section 10(d)(i).
(aa) GROSS UP PAYMENT has the meaning ascribed to it in Section 10(d)(i).
(bb) INCENTIVE PLAN means the CompUSA Inc. Long-Term Incentive Plan, as
amended from time to time.
(cc) INVENTIONS has the meaning ascribed to it in Section 7(a).
(dd) OPTIONS has the meaning ascribed to it in Section 10(j).
(ee) PARACHUTE PAYMENTS has the meaning ascribed to it in Section
280G(b)(2) of the Code.
(ff) PAYMENTS has the meaning ascribed to it in Section 10(d)(i).
(gg) PRIOR AGREEMENT has the meaning ascribed to it in the opening
recital of this Agreement.
(hh) RESTRICTED STOCK has the meaning ascribed to it in Section 10(j).
(ii) RIGHTS AGREEMENT has the meaning ascribed to it in Section 10(c).
23
<PAGE>
(jj) SEPARATION PAYMENT PERIOD has the meaning ascribed to it in Section
6(b)(ii).
(kk) SEPARATION PAYMENTS has the meaning ascribed to it in Section
6(b)(ii).
(ll) TARGET BONUS means, with respect to each Employee, the dollar
amount that is equal to the established percentage of such Employee's Base
Salary that would be paid to Employee under the management incentive bonus
plan of Employer assuming the measurement criteria contained in such plan
with respect to Employee were achieved for the bonus period in which the
Change In Control occurred.
(mm) TERMINATION PAYMENT has the meaning ascribed to it in Section
10(b)(i)(2).
(nn) TRIGGERING TERMINATION has the meaning ascribed to it in Section
10(a).
EXECUTED as of the date and year first above written.
CompUSA Inc.
By___________________________________________
James F. Halpin, President and
Chief Executive Officer
_____________________________________________
[Name of Employee]
24
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement"), dated as of_________________, 19__
("Effective Date"), is between CompUSA Inc., a Delaware corporation ("Company"),
and [Name of Employee] ("Consultant").
R E C I T A L S:
A. Consultant was formerly employed by the Company (or one of its
subsidiaries or affiliates) as an executive officer.
B. Consultant and the Company previously entered into an Employment
Agreement, dated as of ______________, 1998 ("Employment Agreement"), under
which Consultant is obligated to enter into this Agreement at the request of
the Board of Directors of the Company under certain circumstances.
C. The Board of Directors of the Company has requested that Consultant
enter into this Agreement and Consultant is willing to do so.
NOW, THEREFORE, for and in consideration of the mutual promises
contained in this Agreement, and on the terms and subject to the conditions
set forth in this Agreement, the parties agree as follows:
SECTION 1. DUTIES. The Company retains Consultant to provide, and
Consultant agrees to render, such consulting and advisory services as may be
requested from time to time by the Company's Board of Directors. Consultant
agrees to devote his attention, skills and best efforts to the performance of
his duties under this Agreement. Consultant shall not be obligated, however,
to devote more than 30 hours per month to the discharge of his
responsibilities under this Agreement. Consultant shall be an independent
contractor, not an employee of the Company, during the term of this Agreement.
SECTION 2. TERM. The term for providing consulting services under this
Agreement commences on the Effective Date and continues, unless earlier
terminated pursuant to Section 5, until 180 days after the date of the Change
In Control, as defined in the Employment Agreement.
SECTION 3. COMPENSATION. In consideration for the services provided by
Consultant, the Company shall pay to Consultant an amount equal to one-half
of his annual base compensation considered for purposes of Section
10(b)(i)(1)(I) of the Employment Agreement, which amount shall be paid in six
equal monthly installments, with the first installment due and payable on the
Effective Date.
SECTION 4. EXPENSES. The parties anticipate that Consultant, in
connection with the services to be performed by him under this Agreement,
will incur expenses for travel, lodging and
<PAGE>
similar items. The Company shall advance the estimated amount of such
expenses to Consultant and shall, within 15 days after Consultant's
presentation to the Company of reasonable documentation of the actual
expenses, reimburse Consultant for all expenses incurred by Consultant in the
performance of his duties under this Agreement that have not been so advanced.
SECTION 5. EARLY TERMINATION.
(a) EVENTS OF EARLY TERMINATION. This Agreement may terminate prior to
the expiration of the term specified in Section 2 as follows:
(i) DEATH. Upon the death of Consultant during the term hereof.
(ii) FOR CAUSE. For "Cause" immediately upon written notice by the
Company to Consultant. For purposes of this Agreement, a termination
shall be for Cause if:
(I) Consultant commits an unlawful or criminal act involving
moral turpitude; or
(II) Consultant (A) fails to obey lawful and proper written
directions delivered to Consultant by the Company's Board of
Directors; or (B) commits a material breach of any of the
covenants, terms and provisions of this Agreement and such
failure or breach continues uncured for more than 30 days
after receipt by Consultant of written notice from the Company
of such failure or breach.
(b) PAYMENTS UPON EARLY TERMINATION. Consultant shall not be entitled
to any compensation upon termination of this Agreement pursuant to this
Section 5 except for his compensation accrued but unpaid as of the date of
such termination and unpaid expense reimbursements under Section 4 for
expenses incurred in accordance with the terms hereof prior to such
termination.
SECTION 6. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be
in writing or by written telecommunication and shall be deemed to have been
duly given if delivered personally or if mailed by certified mail, return
receipt requested or by written telecommunication, to the relevant address
set forth below, or to such other address as the recipient of such notice or
communication shall have specified to the other party hereto in accordance
with this Section 6(a):
If to the Company, to: with a copy to:
CompUSA Inc. Thompson & Knight, P.C.
14951 North Dallas Parkway 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75240 Dallas, Texas 75201
Attention: Chairman of the Board Attention: Fred W. Fulton
Facsimile Number: (972) 982-4813 Facsimile Number: (214) 969-1751
2
<PAGE>
If to Consultant, to:
___________________________
___________________________
(b) SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable,
and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part hereof, and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
(c) WAIVERS. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power
or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(e) CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(f) REFERENCE TO AGREEMENT. Use of the words "hereof," "hereto,"
"hereunder" and the like in this Agreement refer to this Agreement as a whole
and not to any particular section or subsection of this Agreement, unless
otherwise noted.
(g) BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties and shall be enforceable by the personal
representatives and heirs of Consultant and the successors of the Company.
If Consultant dies while any amounts would still be payable to him hereunder,
such amounts shall be paid to Consultant's estate. This Agreement is not
otherwise assignable by Consultant or by the Company.
(h) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating
to the subject matter hereof and may not be amended except by a written
instrument hereafter signed by each of the parties hereto.
(i) GOVERNING LAW. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
3
<PAGE>
(j) GENDER AND NUMBER. The masculine gender shall be deemed to denote
the feminine or neuter genders, the singular to denote the plural, and the
plural to denote the singular, where the context so permits.
EXECUTED as of the date and year first above written.
If to Consultant, to:
CompUSA Inc.
By___________________________________________
_____________________________________________
[Name of Employee]
4
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of ______________,
1998 is between CompUSA Inc., a Delaware corporation, and [Name of Employee]
("Employee").
R E C I T A L S:
A. Employee has been employed by Employer, and Employer and Employee
have entered into a written agreement dated as of ______________, 199__ and
an amendment thereto dated as of __________________ (collectively, the "Prior
Agreement"), to specify the terms and conditions of Employee's continued
employment with Employer.
B. Employer and Employee desire to replace the Prior Agreement with
this Agreement.
C. Employer considers the maintenance of a sound management team,
including Employee, essential to protecting and enhancing its best interests
and those of its stockholders.
D. Employer recognizes that the possibility of a change in control of
Employer may result in the departure or distraction of management to the
detriment of Employer and its stockholders.
E. Employee is a vice president of Employer and an integral member of
its management team.
F. Employer has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of selected
members of Employer's management team to their assigned duties without the
distraction arising from the possibility of a change in control of Employer.
NOW, THEREFORE, in consideration of Employee's past and future
employment with Employer and other good and valuable consideration including
the mutual release of Employer and Employee of their respective obligations
under the Prior Agreement, the parties agree as follows:
SECTION 1. EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment, upon the terms and subject to the
conditions hereinafter set forth.
SECTION 2. DUTIES. Employee shall be employed as Vice President
- -____________ of the Company, or such other position to which he may be
appointed by the Board of Directors. Employee agrees to devote his full time
and best efforts to the performance of the duties attendant to his executive
position with Employer.
<PAGE>
SECTION 3. TERM. The term of employment of Employee hereunder shall
commence on the date of this Agreement (the "Commencement Date") and continue
until May 1, 2000 unless earlier terminated pursuant to Section 6 or Section
10.
SECTION 4. COMPENSATION AND BENEFITS. In consideration for the
services of Employee hereunder, Employer shall compensate Employee as follows:
(a) BASE SALARY. Until the termination of Employee's employment
hereunder, Employer shall pay Employee, bi-weekly in arrears, a base salary
at an annual rate of not less than $__________ (as it may be increased from
time to time, the "Base Salary"). The Base Salary as then in effect may not
be decreased at any time during the term of Employee's employment hereunder
and shall be reviewed by Employer each October. Any increase in the Base
Salary shall be in the sole discretion of the Compensation Committee of the
Board of Directors of the Company.
(b) MANAGEMENT INCENTIVE BONUS. Employee shall be eligible to receive
from Employer such annual management incentive bonuses as may be provided in
management incentive bonus plans adopted from time to time by Employer.
(c) VACATION. Employee shall be entitled to 120 hours of paid vacation
per year at the reasonable and mutual convenience of Employer and Employee.
Unless otherwise approved by the Compensation Committee of the Board of
Directors of the Company, accrued vacation not taken in any applicable period
shall not be carried forward or used in any subsequent period.
(d) INSURANCE BENEFITS. Employer shall provide accident, health,
dental, disability and life insurance for Employee under the group accident,
health, dental, disability and life insurance plans maintained by Employer
for its full-time, salaried employees.
(e) CAR ALLOWANCE. As a condition of Employee's employment, Employee
shall from time to time be required to travel by automobile on Employer's
business. Accordingly, during the term of Employee's employment hereunder,
Employer shall provide Employee with an annual car allowance of $7,200,
payable in equal bi-weekly installments, to cover Employee's costs of
obtaining, maintaining and insuring a suitable automobile. Such amount shall
be payable to Employee whether his actual costs in any particular period are
less than, equal to or greater than $7,200.
SECTION 5. EXPENSES. The parties anticipate that in connection with
the services to be performed by Employee pursuant to the terms of this
Agreement, Employee will be required to make payments for travel,
entertainment of business associates and similar expenses. Employer shall
reimburse Employee for all reasonable expenses of types authorized by
Employer and incurred by Employee in the performance of his duties hereunder.
Employee shall comply with such budget limitations and approval and
reporting requirements with respect to expenses as Employer may establish
from time to time.
-2-
<PAGE>
SECTION 6. TERMINATION.
(a) GENERAL. Employee's employment hereunder shall commence on the
Commencement Date and continue until the end of the term specified in Section
3, except that the employment of Employee hereunder shall terminate prior to
such time in accordance with the following:
(i) DEATH OR DISABILITY. Upon the death of Employee during the
term of his employment hereunder or, at the option of Employer, in the
event of Employee's Disability, upon 30 days' notice to Employee.
(ii) FOR CAUSE. For "Cause" immediately upon written notice by
Employer to Employee. A termination shall be for Cause if:
(1) Employee commits a criminal act involving
moral turpitude; or
(2) Employee commits a material breach of any of the
covenants, terms and provisions hereof or fails to obey lawful and
proper written directions delivered to Employee by the Company's
Chairman of the Board, President, Chief Executive Officer or its
Board of Directors or by any of the Company's Executive Vice
Presidents or Senior Vice Presidents.
(iii) WITHOUT CAUSE. Without Cause upon notice by Employer to
Employee. Without limiting the foregoing, for purposes of Section
6(b)(ii) the termination of Employee's employment hereunder upon the
expiration of the term of his employment specified in Section 3 shall be
treated as a termination by Employer without Cause pursuant to this
Section 6(a)(iii).
(b) SEVERANCE PAY AND BONUSES.
(i) TERMINATION UPON DEATH OR DISABILITY. Employee shall not be
entitled to any Separation Payments or any other severance pay or other
compensation upon termination of his employment hereunder pursuant to
Section 6(a)(i) except for the following (which shall be paid promptly
after termination, except as specified in subsection (4) below):
(1) his Base Salary accrued but unpaid as of the date of
termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination;
-3-
<PAGE>
(3) compensation for accrued, unused vacation as of the date
of termination, determined in accordance with Employer's policies and
procedures then in effect; and
(4) any bonus to which Employee would have been entitled for
the Bonus Period if he were still employed hereunder on the last day
of the Bonus Period. Any such bonus shall be paid to Employee at the
same time bonuses are paid in respect of the Bonus Period to other
employees of Employer entitled to receive bonuses for the Bonus
Period. In the event the determination of Employee's bonus in
respect of the Bonus Period involves any subjective assessment, such
assessment shall be made in a manner most favorable to Employee. For
purposes of this Section 6(b)(i)(4), the term "Bonus Period" means
the full fiscal year or other applicable bonus period during which
Employee's employment hereunder was terminated (or during which
Employee became Disabled, in the event of a termination for
Disability).
(ii) TERMINATION WITHOUT CAUSE; SEPARATION PAYMENTS. In the
event Employee's employment hereunder is terminated pursuant to Section
6(a)(iii), Employer shall pay Employee Separation Payments as Employee's
sole remedy in connection with such termination. "Separation Payments"
are payments made at the bi-weekly rate of Employee's Base Salary in
effect immediately preceding the date of termination. Separation
Payments shall be made for six months after the date of termination (the
"Separation Payment Period") and shall be paid by Employer in equal
bi-weekly payments in arrears. Separation Payments shall be reduced by
the amount of any personal services income earned by Employee during the
Separation Payment Period. Separation Payments shall be made for the
number of months specified above without regard to the number of months
remaining in the term of this Agreement. Notwithstanding the foregoing,
Employer's obligation to make, and Employee's right to receive,
Separation Payments shall terminate immediately upon any violation by
Employee of any covenant contained in Section 8 or 9 hereof. Employer
shall also promptly pay Employee the following:
(1) his Base Salary accrued but unpaid as of the date of
termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination; and
(3) compensation for accrued, unused vacation as of the date
of termination, determined in accordance with Employer's policies and
procedures then in effect.
This Section 6(b)(ii) is subject to the provisions of Section 10(j)
dealing with the coordination of payments in the event of a Change In Control.
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(iii) TERMINATION FOR CAUSE; VOLUNTARY TERMINATION. Employee shall
not be entitled to any Separation Payments or any other severance pay or
other compensation upon termination of his employment hereunder pursuant
to Section 6(a)(ii), or upon Employee's voluntary termination of his
employment hereunder, except for the following (which shall be paid
promptly after termination):
(1) his Base Salary accrued but unpaid as of the date
of termination;
(2) unpaid expense reimbursements under Section 5 for
expenses incurred in accordance with the terms hereof prior to
termination; and
(3) compensation for accrued, unused vacation as of the
date of termination, determined in accordance with Employer's
policies and procedures then in effect.
(c) TRANSFERS OF EMPLOYMENT. Employee's employment hereunder shall
continue until the earlier of the following:
(i) Employee's employment with all Employers terminates; or
(ii) the last Employer (other than the Company) by which Employee
is employed under this Agreement ceases to be a subsidiary or affiliate
of the Company. For purposes of Section 6(b)(ii), the termination of
Employee's employment hereunder pursuant to this Section 6(c)(ii) shall
be treated as a termination by Employer without Cause pursuant to
Section 6(a)(iii).
SECTION 7. INVENTIONS; ASSIGNMENT.
(a) INVENTIONS DEFINED. All rights to discoveries, inventions,
improvements, designs, work product and innovations (including without
limitation all data and records pertaining thereto) that relate to the
business of Employer, whether or not specifically within Employee's duties or
responsibilities and whether or not patentable, copyrightable or reduced to
writing, that Employee may discover, invent, create or originate during the
term of his employment hereunder or otherwise, and for a period of six months
thereafter, either alone or with others and whether or not during working
hours or by the use of the facilities of Employer ("Inventions"), shall be
the exclusive property of Employer. Employee shall promptly disclose all
Inventions to Employer, shall execute at the request of Employer any
assignments or other documents Employer may deem necessary to protect or
perfect its rights therein, and shall assist Employer, at Employer's expense,
in obtaining, defending and enforcing Employer's rights therein. Employee
hereby appoints Employer as his attorney-in-fact to execute on his behalf any
assignments or other documents deemed necessary by Employer to protect or
perfect its rights to any Inventions.
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(b) COVENANT TO ASSIGN AND COOPERATE. Without limiting the generality
of the foregoing, Employee shall assign and transfer, and does hereby assign
and transfer, to Employer the world-wide right, title and interest of
Employee in the Inventions. Employee agrees that Employer may file copyright
registrations and apply for and receive patents (including without limitation
Letters Patent in the United States) for the Inventions in Employer's name in
such countries as may be determined solely by Employer. Employee shall
communicate to Employer all facts known to Employee relating to the
Inventions and shall cooperate with Employer's reasonable requests in
connection with vesting title to the Inventions and related copyrights and
patents exclusively in Employer and in connection with obtaining,
maintaining, protecting and enforcing Employer's exclusive copyrights and
patent rights in the Inventions.
(c) SUCCESSORS AND ASSIGNS. Employee's obligations under this Section
7 shall inure to the benefit of Employer and its successors and assigns and
shall survive the expiration of the term of this Agreement for such time as
may be necessary to protect the proprietary rights of Employer in the
Inventions.
(d) CONSIDERATION AND EXPENSES. Employee shall perform his obligations
under this Section 7 at Employer's expense, but without any additional or
special compensation therefor.
SECTION 8. CONFIDENTIAL INFORMATION.
(a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST. Employee acknowledges that
all Confidential Information is a valuable, special and unique asset of
Employer's business, access to and knowledge of which are essential to the
performance of Employee's duties hereunder. Employee acknowledges the
proprietary interest of Employer in all Confidential Information. Employee
agrees that all Confidential Information learned by Employee during his
employment with Employer or otherwise, whether developed by Employee alone or
in conjunction with others or otherwise, is and shall remain the exclusive
property of Employer. Employee further acknowledges and agrees that his
disclosure of any Confidential Information will result in irreparable injury
and damage to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, written, oral or
computerized, as it may exist from time to time, including without limitation
(i) information derived from reports, investigations, experiments, research
and work in progress, (ii) methods of operation, (iii) market data, (iv)
proprietary computer programs and codes, (v) drawings, designs, plans and
proposals, (vi) marketing and sales programs, (vii) client and supplier lists
and any other information about Employer's relationships with others, (viii)
historical financial information and financial projections, (ix) pricing,
product rotation, product return and similar formulae and policies, (x) all
other concepts, ideas, materials and information prepared or performed for or
by Employer and (xi) all information related to the business, products,
purchases or sales of Employer or any of its suppliers and customers, other
than information that is publicly available.
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(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a portion
of the consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during the
term of his employment hereunder and thereafter to hold in strict confidence
and not to disclose or allow to be disclosed to any person, firm or
corporation, other than to persons engaged by Employer to further the
business of Employer, and not to use except in the pursuit of the business of
Employer, the Confidential Information, without the prior written consent of
Employer. This Section 8 shall survive and continue in full force and effect
in accordance with its terms after, and will not be deemed to be terminated
by, any termination of this Agreement or of Employee's employment with
Employer for any reason.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any
termination or cessation of his employment with Employer for any reason,
Employee shall promptly deliver to Employer all property of Employer,
including without limitation all documents, data and other information
containing, derived from or otherwise pertaining to Confidential Information.
Employee shall not take or retain any property of Employer, including
without limitation any documents, data or other information, or any
reproduction or excerpt thereof, containing, derived from or pertaining to
any Confidential Information. The obligation of confidentiality set forth in
this Section 8 shall continue notwithstanding Employee's delivery of such
documents, data and information to Employer.
SECTION 9. NONCOMPETITION.
(a) COVENANT NOT TO COMPETE. Employee acknowledges that during the
term of his employment Employer has agreed to provide to him, and he shall
receive from Employer, special training and knowledge, including without
limitation the Confidential Information. Employee acknowledges that the
Confidential Information is valuable to Employer and, therefore, its
protection and maintenance constitutes a legitimate interest to be protected
by Employer by the enforcement of the covenant not to compete contained in
this Section 9. Employee also acknowledges that such covenant not to compete
is ancillary to other enforceable agreements of the parties, including
without limitation the agreements regarding Confidential Information in
Section 8 and the agreements regarding the payment of Separation Payments and
other severance pay and of the Termination Payment in Section 6 and Section
10, respectively. Therefore, for a period of one year after termination of
Employee's employment hereunder (unless extended pursuant to the terms of
this Section 9), Employee shall not directly or indirectly
(i) engage, alone or as a shareholder, partner, member, manager,
director, officer, employee of or consultant to any other business
organization that engages or is planning to engage, anywhere in North
America or in any other geographic area in or with respect to which
Employee has any duties or responsibilities during the term of his
employment with Employer, in any business activities that
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(1) relate to the wholesale, direct or retail sale of
computer hardware, software, peripherals, training or other computer
related services (the "Designated Industry"); or
(2) were either conducted by Employer prior to the
termination of Employee's employment hereunder or proposed to be
conducted by Employer at any time prior to the time of such
termination;
(ii) divert to any competitor of Employer any customer of
Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer or commence
any such relationship with any competitor of Employer.
Notwithstanding the foregoing, (i) the entities listed on Exhibit A
shall be deemed to be engaged in the Designated Industry and to be
competitors of Employer and (ii) Employee's noncompetition obligations
hereunder shall not preclude Employee from owning less than five percent of
the voting power or economic interest in any publicly traded corporation
conducting business activities in the Designated Industry.
(b) NO OFFSET. The representations and covenants contained in this
Section 9 on the part of Employee shall be construed as ancillary to and
independent of any other provision of this Agreement, and the existence of
any claim (monetary or otherwise) or cause of action of Employee against
Employer or any officer, director or shareholder of Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Employer of the covenants of Employee contained in this
Section 9.
(c) EXTENSION OF DURATION; SURVIVAL. If Employee violates any covenant
contained in this Section 9, Employer shall not, as a result of such
violation or the time involved in obtaining legal or equitable relief
therefor, be deprived of the benefit of the full period of any such covenant.
Accordingly, the covenants of Employee contained in this Section 9 shall be
deemed to have the duration specified in Section 9(a), which period shall be
extended by a number of days equal to the sum of (i) the total number of days
Employee is in violation of any of the covenants contained in this Section 9
prior to the commencement of any litigation relating thereto and (ii) the
total number of days the parties are involved in such litigation, through the
date of entry by a court of competent jurisdiction of a final judgment
enforcing the covenants of Employee in this Section 9. This Section 9 shall
survive and continue in full force and effect in accordance with its terms
after, and will not be deemed to be terminated by, any termination of this
Agreement or of Employee's employment with Employer for any reason.
(d) SEVERABILITY. If at any time the provisions of this Section 9 are
determined to be invalid or unenforceable by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 9 shall
be considered divisible and shall be immediately amended to only
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such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee agrees that this Section 9 as so amended shall
be valid and binding as though any invalid or unenforceable provision had not
been included herein.
SECTION 10. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN
CONTROL.
(a) APPLICABILITY. The provisions of this Section 10 shall apply in
lieu of all conflicting provisions in this Agreement in the event Employee's
employment with Employer is terminated in a Triggering Termination. Each of
the following events constitutes a "Triggering Termination" when Employee's
employment with Employer is:
(i) actually terminated by Employer during an Applicable Period
for any reason other than for Good Reason;
(ii) Constructively Terminated by Employer during an Applicable
Period for any reason other than for Good Reason;
(iii) terminated by Employee for any reason other than death, or
for no reason, in the period commencing 180 days after the Change In
Control and ending 210 days after the Change In Control; or
(iv) terminated pursuant to Section 6(c)(ii) during an Applicable
Period.
(b) TERMINATION PAYMENT.
(i) AMOUNT. Upon the occurrence of a Triggering Termination,
Employer shall pay Employee a lump sum payment in cash (the "Termination
Payment") equal to one times the sum of the following items:
(1) Employee's annualized base compensation determined by
using the highest annual base compensation rate in effect at any time
during Employee's employment with Employer;
(2) two times the Target Bonus that would be payable to
Employee by Employer for the bonus period in which the Change In
Control occurred; provided that the amount determined under this
Section 10(b)(i)(2) shall not be less than 60% of the amount
determined under Section 10(b)(i)(1);
(3) Employee's annualized car allowance determined using the
highest car allowance rate in effect at any time during Employee's
employment with Employer;
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(4) the amount of Employee's Base Salary accrued but unpaid
as of the date of the Triggering Termination;
(5) reimbursement under Section 5 for unpaid expenses
incurred in the performance of his duties hereunder prior to the date
of the Triggering Termination;
(6) any other benefit accrued but unpaid as of the date of
the Triggering Termination; and
(7) an amount that represents the estimated cost to Employee
of obtaining accident, health, dental, disability and life insurance
coverage for the 12 month period following the expiration of his
continuation (COBRA) rights; provided that this Section 10(b)(i)(7)
shall be applied without regard to, and the amount payable under this
Section 10(b)(i)(7) is in addition to, any continuation (COBRA)
rights or conversion rights under any plan provided by Employer,
which rights are not affected by any provision hereof.
(ii) TIME FOR PAYMENT; INTEREST. Employer shall pay the
Termination Payment to Employee concurrently with the Triggering
Termination or, if the Triggering Termination occurs before the Change
In Control, concurrently with the Change In Control. Employer's
obligation to pay to Employee any amounts under this Section 10,
including without limitation the Termination Payment and any Gross Up
Payment due under Section 10(d), shall bear interest at the rate of 18%
per annum or, if different, the maximum rate allowed by law until paid
by Employer, and all accrued and unpaid interest shall bear interest at
the same rate, all of which interest shall be compounded daily.
(c) CHANGE IN CONTROL. A Change In Control shall be deemed to have
occurred for purposes hereof when any Person meets the requirements for
becoming an Acquiring Person, whether or not a Distribution Date occurs or
the Rights are redeemed by Employer, as those terms are defined in the Rights
Agreement between the Company and Bank One, Texas, N.A. as Rights Agent
(American Stock Transfer & Trust Company became successor Rights Agent as of
August 19, 1996), dated as of April 29, 1994 (the "Rights Agreement");
provided that a Change In Control shall not be deemed to have occurred for
purposes hereof with respect to any Person meeting the requirements of
clauses (i) and (ii) of Rule 13d-1(b)(1) promulgated under the Securities
Exchange Act of 1934, as amended.
(d) GROSS UP PAYMENT.
(i) EXCESS PARACHUTE PAYMENT. If Employee incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Code on "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code as the
result of any payments or distributions by Employer to or for the
benefit of Employee (whether paid or payable or distributed or
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distributable pursuant to the terms of this Agreement or otherwise) or
as a result of the acceleration of vesting of Options, Restricted Stock
or other rights (collectively, the "Payments"), or if Employee would
incur the Excise Tax if the Change In Control satisfied the requirements
of Section 280G(b)(2)(A)(i) of the Code, then without regard to whether
the Change In Control in fact satisfies the requirements of Section
280G(b)(2)(A)(i) of the Code, Employer shall pay to Employee an amount
(the "Gross Up Payment") such that the net amount retained by Employee,
after deduction of (1) any Excise Tax owed, or that would be owed if the
Change In Control satisfied the requirements of Section 280G(b)(2)(A)(i)
of the Code, upon any Payments (other than payments provided by this
Section 10(d)(i)) and (2) any federal, state and local income and
employment taxes owed (together with penalties and interest) and Excise
Tax owed, or that would be owed if the Change In Control satisfied the
requirements of Section 280G(b)(2)(A)(i) of the Code, upon the payments
provided by this Section 10(d)(i), shall be equal to the amount of the
Payments (other than payments provided by this Section 10(d)(i)).
(ii) APPLICABLE RATES. For purposes of determining the Gross Up
Payment amount, Employee shall be deemed:
(1) to pay federal income taxes at the highest marginal rate
of federal income taxation applicable to individual taxpayers in the
calendar year in which the Gross Up Payment is made (which rate shall
be adjusted as necessary to take into account the effect of any
reduction in deductions, exemptions or credits otherwise available to
Employee had the Gross Up Payment not been received);
(2) to pay additional employment taxes as a result of the
receipt of the Gross Up Payment in an amount equal to the highest
marginal rate of employment taxes applicable to wages; provided that
if any employment tax is applied only up to a specified maximum
amount of wages, such limit shall be taken into account for purposes
of such calculation; and
(3) to pay state and local income taxes at the highest
marginal rates of taxation in the state and locality of Employee's
residence on the date of the Triggering Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) DETERMINATION OF GROSS UP PAYMENT AMOUNT. The determination
of the Gross Up Payment amount shall be made, at Employer's expense, by
Ernst & Young LLP or another nationally recognized public accounting
firm selected by Employee (in either case, the "Accountants"). If the
Excise Tax amount payable by Employee, based upon a "Determination," is
different from the Excise Tax amount computed by the Accountants for
purposes of determining the Gross Up Payment amount, then appropriate
adjustments to the Gross Up Payment amount shall be made in the manner
provided in Section
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10(d)(iv). For purposes of determining the Gross Up Payment amount prior
to any Determination of the Excise Tax amount, the following assumptions
shall be utilized:
(1) that portion of the Termination Payment that is
attributable to the items described in Sections 10(b)(i)(1), (2), (3)
and (7), and the Gross Up Payment, shall be treated as Parachute
Payments;
(2) no portion of any payment made pursuant to Sections
10(b)(i)(4), (5) or (6) or Section 11(c) shall be treated as a
Parachute Payment;
(3) the amount payable to Employee pursuant to Section 10(k)
shall be:
(I) deemed to be equal to 15% of the amount
determined under Section 10(b)(i)(1);
(II) deemed to have been paid immediately following
the Change In Control;
(III) deemed to include the additional amount payable
under Section 10(k), if any, for additional taxes payable by
Employee as a result of the receipt of the payment described in
Section 10(k); and
(IV) treated 100% as a Parachute Payment;
(4) the "ascertainable fair market value" (as set forth in
Prop. Treas. Reg. Section 1.280G-1, Q&A 13) of the Options, the
vesting of which was accelerated by the Change In Control as provided
in the Incentive Plan and as further provided in Section 10(i), shall
be equal to the product of (I) and (II) as set forth below:
(I) the number of shares covered by such Options; and
(II) the difference between:
a. the fair market value per share of the underlying
common stock as of the date of the Change In Control; and
b. the exercise price per share of stock subject to
such Options; and
(5) for purposes of applying the rules set forth in Prop.
Treas. Reg. Section 1.280G-1, Q&A 24(c) to a payment described in
Prop. Treas. Reg. Section 1.280G-1, Q&A 24(b), the amount reflecting
the lapse of the obligation to continue performing services shall be
equal to the minimum amount allowed for such
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payment as set forth in Prop. Treas. Reg. Section 1.280G-1, Q&A
24(c)(2) (or if Prop. Treas. Reg. Section 1.280G-1 has been
superseded by temporary or final regulations, the minimum amount
provided for in any temporary or final regulations that supersede
Prop. Treas. Reg. Section 1.280G-1 and that are applicable to the
Termination Payment, Gross Up Payment, or both).
(iv) TIME FOR PAYMENT. Employer shall pay the estimated Gross Up
Payment amount in cash to Employee concurrent with the payment of the
Termination Payment. Employee and Employer agree to reasonably cooperate
in the determination of the actual Gross Up Payment amount. Further,
Employee and Employer agree to make such adjustments to the estimated
Gross Up Payment amount as may be necessary to equal the actual Gross Up
Payment amount based upon a Determination, which in the case of Employee
shall refer to refunds of prior overpayments and in the case of Employer
shall refer to makeup of prior underpayments.
(e) TERM. Notwithstanding the provisions of Section 3, if a Change In
Control occurs prior to April 30, 2000, Sections 10, 11 and 12 shall continue
in effect for a period of 24 months after the date of the Change In Control.
(f) NO DUTY TO MITIGATE DAMAGES. Employee's rights and privileges
under this Section 10 shall be considered severance pay in consideration of
his past service and his continued service to Employer from the Commencement
Date, and his entitlement thereto shall neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation that he may receive from future employment.
(g) ARBITRATION. Except as provided in Section 10(i) and in Section
11(d) with respect to Section 10(l), any controversy or claim arising out of
or relating to this Section 10, or the breach thereof, shall be settled
exclusively by arbitration in Dallas, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment upon the award rendered by the arbitrator may be entered
in, and enforced by, any court having jurisdiction thereof.
(h) NO RIGHT TO CONTINUED EMPLOYMENT. This Section 10 shall not give
Employee any right of continued employment or any right to compensation or
benefits from Employer except the rights specifically stated herein.
(i) RESTRICTED STOCK AND EXERCISE OF STOCK OPTIONS. Employee may hold
options ("Options") issued under the Incentive Plan that become immediately
exercisable upon a Change In Control. In addition, Employee may hold
restricted stock ("Restricted Stock") issued under the Incentive Plan
pursuant to which applicable restrictions will lapse upon a Change In
Control. Employer shall take no action to facilitate a transaction involving
a Change In Control, including without limitation redemption of the Rights
issued pursuant to the Rights Agreement, unless it has taken such action as
may be necessary to ensure that Employee has the opportunity to exercise all
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Options he may then hold, and obtain certificates containing no restrictive
legends in respect of any Restricted Stock he may then hold, at a time and in
a manner that shall give Employee the opportunity to sell or exchange the
securities of Employer acquired upon exercise of his Options and upon receipt
of unrestricted certificates for shares of Common Stock in respect of his
Restricted Stock, if any (collectively, the "Acquired Securities"), at the
earliest time and in the most advantageous manner any holder of the same
class of securities as the Acquired Securities is able to sell or exchange
such securities in connection with such Change In Control. Employer
acknowledges that its covenants in the preceding sentence (the "Covenants")
are reasonable and necessary in order to protect the legitimate interests of
Employer in maintaining Employee as one of its employees and that any
violation of the Covenants by Employer would result in irreparable injuries
to Employee, and Employer therefore acknowledges that in the event of any
violation of the Covenants by Employer or its directors, officers or
employees, or any of their respective agents, Employee shall be entitled to
obtain from any court of competent jurisdiction temporary, preliminary and
permanent injunctive relief in order to (i) obtain specific performance of
the Covenants, (ii) obtain specific performance of the exercise of his
Options, delivery of certificates containing no restrictive legends in
respect of his Restricted Stock and the sale or exchange of the Acquired
Securities in the advantageous manner contemplated above or (iii) prevent
violation of the Covenants; provided nothing in this Agreement shall be
deemed to prejudice Employee's rights to damages for violation of the
Covenants.
(j) COORDINATION WITH OTHER PAYMENTS.
(i) After the termination of Employee's employment hereunder:
(1) if Employee is entitled to receive Separation Payments;
and
(2) Employee subsequently becomes entitled to receive a
Termination Payment, Gross Up Payment or both, then,
(ii) prior to the disbursement of the Termination Payment and
Gross Up Payment:
(1) the payment date of all unpaid Separation Payments shall
be accelerated to the payment date of the Termination Payment and
such Separation Payments shall be made (in this event, Employer
waives any requirement that Employee reduce the Separation Payments
by the amount of any income earned by Employee thereafter); and
(2) the Termination Payment shall be reduced by the amount
of the Separation Payments so accelerated and made.
(k) OUTPLACEMENT SERVICES. If Employee becomes entitled to receive a
Termination Payment under this Section 10, Employer agrees to reimburse
Employee for the amount of any
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outplacement consulting fees and expenses incurred by Employee during any
Applicable Period and during the two-year period following the Change In
Control; provided that the aggregate amount reimbursed by Employer shall not
exceed 15% of the amount determined pursuant to Section 10(b)(i)(1). In
addition and as to each reimbursement payment, to the extent that any
reimbursement under this Section 10(k) is subject to federal, state or local
income taxes, Employer shall pay Employee an additional amount such that the
net amount retained by Employee, after deduction of any federal, state and
local income tax on the reimbursement and such additional amount, shall be
equal to the reimbursement payment. All amounts under this Section 10(k)
shall be paid by Employer within 15 days after Employee's presentation to
Employer of any statements of such amounts and thereafter shall bear interest
at the rate of 18% per annum or, if different, the maximum rate allowed by
law until paid by Employer, and all accrued and unpaid interest shall bear
interest at the same rate, all of which interest shall be compounded daily.
(l) NONCOMPETITION.
(i) Employee acknowledges that during the term of his employment
Employer has agreed to provide to him, and he shall receive from
Employer, special training and knowledge, including without limitation
the Confidential Information. Employee acknowledges that the
Confidential Information is valuable to Employer and, therefore, its
protection and maintenance constitutes a legitimate interest to be
protected by Employer by the enforcement of the covenant not to compete
contained in this Section 10(l). Employee also acknowledges that such
covenant not to compete is ancillary to other enforceable agreements of
the parties, including without limitation the agreements regarding
Confidential Information in Section 8 and the agreements regarding the
payment of the Termination Payment in this Section 10. Therefore,
following the occurrence of a Triggering Termination, Employee shall not
directly or indirectly
(1) for a period of one year following the date of the
Triggering Termination (unless extended pursuant to the terms of this
Section 10(l)) engage, alone or as a shareholder, partner, member,
manager, director, officer, employee of or consultant to, any entity
other than Employer that is in existence on the date of the
Triggering Termination and is at that time engaged directly, or
indirectly through any subsidiary, division or other business unit
(individually, an "Entity"), anywhere in North America or in any
other geographic area in or with respect to which Employee has any
duties or responsibilities during the term of his employment with
Employer, in retail or direct sales of computer hardware, software,
peripherals, training or other computer related services to end users
(the "Change In Control Designated Industry"); or
(2) for a period of one year following the date of the
Triggering Termination (unless extended pursuant to the terms of this
Section 10(l)) solicit or encourage any director, officer, employee
of or consultant to Employer to end his
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relationship with Employer and commence any such relationship with
any competitor of Employer in the Change In Control Designated
Industry.
(ii) Notwithstanding the foregoing, an Entity shall not be deemed
to be engaged in the Change In Control Designated Industry if retail and
direct sales of computer hardware, software, peripherals, training or
other computer related services to end users are incidental to such
Entity's business. Retail and direct sales of computer hardware,
software, peripherals, training or other computer related services shall
be deemed incidental to an Entity's business so long as
(1) the aggregate of such sales by such Entity is 40% or
less of the total sales of such Entity for the full fiscal quarter of
such Entity immediately preceding the date of the Triggering
Termination or any of the eight immediately subsequent fiscal
quarters of such Entity; and
(2) such Entity is not a member of a group of Entities under
common control that includes one or more Computer Sales Entities;
provided that the foregoing restriction shall be deemed not to have
been violated if Employee terminates his employment or other
prohibited relationship with an Entity promptly after his discovery
that the Entity first became a Computer Sales Entity (during the term
of his relationship) during the preceding fiscal quarter of such
Entity. A "Computer Sales Entity" is defined as an Entity whose
retail and direct sales of computer hardware, software, peripherals,
training and other computer related services to end users, in the
aggregate, are more than 40% of the total sales of such Entity,
measured over any fiscal quarter.
(iii) The representations and covenants contained in this Section
10(l) on the part of Employee shall be construed as ancillary to and
independent of any other provision of this Agreement, and the existence
of any claim (monetary or otherwise) or cause of action of Employee
against Employer or any officer, director or shareholder of Employer,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Employer of the covenants of Employee
contained in this Section 10(l).
(iv) If Employee violates any covenant contained in this Section
10(l), Employer shall not, as a result of such violation or the time
involved in obtaining legal or equitable relief therefor, be deprived of
the benefit of the full period of any such covenant. Accordingly, the
covenants of Employee contained in this Section 10(l) shall be deemed to
have durations as specified in Section 10(l)(i)(1) and (2), which periods
shall be extended by a number of days equal to the sum of (i) the total
number of days Employee is in violation of any of the covenants contained
in this Section 10(m) prior to the commencement of any litigation
relating thereto and (ii) the total number of days the parties are
involved in such litigation, through the date of entry by a court of
competent jurisdiction of a final judgment enforcing the covenants of
Employee in this Section 10(l).
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This Section 10(l) shall survive and continue in full force and effect in
accordance with its terms after, and will not be deemed to be terminated
by, any termination of this Agreement.
(v) If at any time the provisions of this Section 10(l) are
determined to be invalid or unenforceable by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 10(l)
shall be considered divisible and shall be immediately amended to only such
area, duration or scope of activity as shall be determined to be reasonable
and enforceable by the court or other body having jurisdiction over the
matter; and Employee agrees that this Section 10(l) as so amended shall be
valid and binding as though any invalid or unenforceable provision had not
been included herein. Notwithstanding the foregoing, Employee's
noncompetition obligations hereunder shall not preclude Employee from
owning stock with less than five percent of the voting power or economic
interest in any publicly traded corporation conducting business activities
in the Change In Control Designated Industry.
SECTION 11. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be
in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally or if mailed by certified mail, return
receipt requested or by written telecommunication, to the relevant address
set forth below, or to such other address as the recipient of such notice or
communication shall have specified to the other party in accordance with this
Section 11(a):
If to Employer, to: with a copy to:
CompUSA Inc. Thompson & Knight, P.C.
14951 North Dallas Parkway 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75240 Dallas, Texas 75201
Attention: Chairman of the Board Attention: Fred W. Fulton
Facsimile Number: (972) 982-4813 Facsimile Number: (214) 969-1751
If to Employee, to:
_____________________________
_____________________________
(b) WITHHOLDING; NO OFFSET. All payments required to be made to
Employee by Employer under this Agreement shall be subject to the withholding
of such amounts, if any, relating to federal, state and local taxes as may be
required by law. No payments under Section 10 shall be subject to offset or
reduction attributable to any amount Employee may owe to Employer or any
other person.
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(c) LEGAL AND ACCOUNTING COSTS. Employer shall pay all attorneys' and
accountants' fees and costs incurred by Employee as a result of any breach by
Employer of its obligations under this Agreement, including without
limitation all such costs incurred in contesting or disputing any
determination made by Employer under Section 10 or in connection with any tax
audit or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment under Section 10. Reimbursements of such
costs shall be made by Employer within 15 days after Employee's presentation
to Employer of any statements of such costs and thereafter shall bear
interest at the rate of 18% per annum or, if different, the maximum rate
allowed by law until paid by Employer, and all accrued and unpaid interest
shall bear interest at the same rate, all of which interest shall be
compounded daily.
(d) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and
agrees that upon any breach by Employee of his obligations under any of
Sections 7, 8, 9 and 10(l), Employer shall have no adequate remedy at law and
accordingly shall be entitled to specific performance and other appropriate
injunctive and equitable relief.
(e) SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable,
and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part hereof, and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
(f) WAIVERS. No delay or omission by either party in exercising any
right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power
or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(g) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(i) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof,"
"hereto," "hereunder" and the like in this Agreement refer to this Agreement
only as a whole and not to any particular section or subsection of this
Agreement, unless otherwise noted.
(j) BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties and shall be enforceable by the personal
representatives and heirs of Employee and
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the successors and assigns of Employer. This Agreement may be assigned by
the Company or any Employer to any Employer; provided that in the event of
any such assignment, the Company shall remain liable for all of its
obligations hereunder and shall be liable for all obligations of all such
assignees hereunder. If Employee dies while any amounts would still be
payable to him hereunder, such amounts shall be paid to Employee's estate.
This Agreement is not otherwise assignable by Employee.
(k) ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENT. This Agreement
contains the entire understanding of the parties, supersedes all prior
agreements and understandings relating to the subject matter hereof
(including without limitation the Prior Agreement, which is hereby
terminated) and may not be amended except by a written instrument hereafter
signed by each of the parties hereto. Employee and the Company hereby agree
that, if any other employment agreement between Employee and the Company (or
any other Employer) is in existence on the Commencement Date, then this
Agreement shall supersede such other employment agreement in its entirety,
and such other employment agreement shall no longer be of any force and
effect after the date hereof.
(l) GOVERNING LAW. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
(m) GENDER AND NUMBER. The masculine gender shall be deemed to denote
the feminine or neuter genders, the singular to denote the plural, and the
plural to denote the singular, where the context so permits.
(n) ASSISTANCE IN LITIGATION. During the term of this Agreement and
for a period of two years thereafter, Employee shall, upon reasonable notice,
furnish such information and proper assistance to Employer as may reasonably
be required by Employer in connection with any litigation in which Employer
is, or may become, a party and with respect to which Employee's particular
knowledge or experience would be useful. Employer shall reimburse Employee
for all reasonable out-of-pocket expenses incurred by Employee in rendering
such assistance. The provisions of this Section 11(n) shall continue in
effect notwithstanding termination of Employee's employment hereunder for any
reason.
SECTION 12. DEFINITIONS. As used in this Agreement, the following terms
will have the following meanings:
(a) ACCOUNTANTS has the meaning ascribed to it in Section 10(d)(iii).
(b) ACQUIRED SECURITIES has the meaning ascribed to it in Section 10(i).
(c) AGREEMENT has the meaning ascribed to it in the heading of this
document.
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(d) APPLICABLE PERIOD means, with respect to any Change In Control, the
period of 27 months commencing 3 months before the Change In Control and
ending 24 months after the Change In Control.
(e) BASE SALARY has the meaning ascribed to it in Section 4(a).
(f) CAUSE has the meaning ascribed to it in Section 6(a)(ii).
(g) CHANGE IN CONTROL has the meaning ascribed to it in Section 10(c).
(h) CHANGE IN CONTROL DESIGNATED INDUSTRY has the meaning ascribed to
it in Section 10(l)(i)(1).
(i) CODE means the Internal Revenue Code of 1986, as amended.
(j) COMMENCEMENT DATE has the meaning ascribed to it in Section 3.
(k) COMPANY means CompUSA Inc., a Delaware corporation.
(l) COMPUTER SALES ENTITY has the meaning ascribed to it in Section
10(l)(ii)(2).
(m) CONFIDENTIAL INFORMATION has the meaning ascribed to it in Section
8(b).
(n) CONSTRUCTIVELY TERMINATED with respect to an Employee's employment
with Employer will be deemed to have occurred if Employer:
(i) demotes Employee to a lesser position, either in title or
responsibility, than the highest position held by Employee with Employer at
any time during Employee's employment with Employer;
(ii) decreases Employee's compensation below the highest level
in effect at any time during Employee's employment with Employer or reduces
Employee's benefits and perquisites below the highest levels in effect at
any time during Employee's employment with Employer (other than as a result
of any amendment or termination of any employee or group or other executive
benefit plan, which amendment or termination is applicable to all
executives of Employer); or
(iii) requires Employee to relocate to a principal place of business
more than 25 miles from the principal place of business occupied by
Employer on the first day of an Applicable Period.
(o) COVENANTS has the meaning ascribed to it in Section 10(i).
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(p) DESIGNATED INDUSTRY has the meaning ascribed to it in Section
9(a)(i)(1).
(q) DETERMINATION has the meaning ascribed to such term in Section
1313(a) of the Code.
(r) DISABILITY with respect to Employee shall be deemed to have
occurred whenever Employee is rendered unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can
be expected to last for a continuing period of not less than 12 months. In
the case of any dispute, the determination of Disability will be made by a
licensed physician selected by Employer, which physician's decision will be
final and binding.
(s) EMPLOYEE has the meaning ascribed to it in the heading of this
Agreement.
(t) EMPLOYER refers collectively to the Company and its subsidiaries
and other affiliates. In Section 10, the term "Employer" shall be deemed to
refer to the Company, and for purposes of Section 10, Employee shall be
deemed to be employed by the Company and all compensation and benefits paid
or provided to Employee by any Employer under this Agreement at any time
shall be deemed to have been paid or provided to Employee by the Company.
(u) ENTITY has the meaning ascribed to it in Section 10(l)(i)(1).
(v) EXCISE TAX has the meaning ascribed to it in Section 10(d)(i).
(w) GOOD REASON means the termination of Employee's employment with
Employer as a result of Employee's commission of a felony or failure to obey
written directions delivered to Employee by Employer's Chairman of the Board,
President, Chief Executive Officer or its Board of Directors or by any of
Employer's Executive Vice Presidents or Senior Vice Presidents.
(x) GROSS UP PAYMENT has the meaning ascribed to it in Section 10(d)(i).
(y) INCENTIVE PLAN means the CompUSA Inc. Long-Term Incentive Plan, as
amended from time to time.
(z) INVENTIONS has the meaning ascribed to it in Section 7(a).
(aa) OPTIONS has the meaning ascribed to it in Section 10(i).
(bb) PARACHUTE PAYMENTS has the meaning ascribed to such term in Section
280G(b)(2) of the Code.
(cc) PAYMENTS has the meaning ascribed to it in Section 10(d)(i).
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(dd) PRIOR AGREEMENT has the meaning ascribed to it in the opening
recital of this Agreement.
(ee) RESTRICTED STOCK has the meaning ascribed to it in Section 10(i).
(ff) RIGHTS AGREEMENT has the meaning ascribed to it in Section 10(c).
(gg) SEPARATION PAYMENT PERIOD has the meaning ascribed to it in Section
6(b)(ii).
(hh) SEPARATION PAYMENTS has the meaning ascribed to it in Section
6(b)(ii).
(ii) TARGET BONUS means, with respect to each Employee, the dollar
amount that is equal to the established percentage of such Employee's Base
Salary that would be paid to Employee under the management incentive bonus
plan of Employer assuming the measurement criteria contained in such plan
with respect to Employee were achieved for the bonus period in which the
Change In Control occurred.
(jj) TERMINATION PAYMENT has the meaning ascribed to it in Section
10(b)(i).
(kk) TRIGGERING TERMINATION has the meaning ascribed to it in Section
10(a).
EXECUTED as of the date and year first above written.
CompUSA Inc.
By ______________________________________
James F. Halpin, President and
Chief Executive Officer
_________________________________________
[Name of Employee]
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EXHIBIT 10.24
CompSavings Plan for Employees of CompUSA Inc.
Plan and Trust Agreement
As Amended and Restated Effective January 1, 1998
CompUSA Inc. (the "Company") previously established the CompSavings Plan for
Employees of CompUSA Inc. (the "Plan") effective January 1, 1995, for the
exclusive benefit of eligible employees of the Company and its participating
affiliates. The Plan is intended to constitute a qualified profit sharing
plan, as described in Code section 401(a), which includes a qualified cash or
deferred arrangement, as described in Code section 401(k). Effective
February 26, 1998, the PCs Compleat 401(k) Plan was merged into the Plan.
The provisions of the Plan and Trust relating to the Trustee constitute the
trust agreement which is entered into by and between CompUSA Inc. and Merrill
Lynch Trust Company, FSB. The Trust is intended to be tax exempt, as
described in Code section 501(a).
The Plan is intended to comply with the qualification requirements of the
Small Business Job Protection Act of 1996 (the "SBJPA") and is intended to
comply in operation therewith. To the extent that the Plan, as set forth
below, is subsequently determined to be insufficient to comply with such
requirements and any regulations issued under the SBJPA, the Plan shall later
be amended to so comply.
The Plan constitutes an amendment and restatement of the CompSavings Plan for
Employees of CompUSA Inc. which was originally established effective as of
January 1, 1995 and amended three times thereafter, and its related trust
agreement.
The CompSavings Plan for Employees of CompUSA Inc. and trust agreement, as
set forth in this document, is hereby amended and restated effective as of
January 1, 1998. The Plan and Trust were last restated effective January 1,
1996 and amended three times thereafter including a change in trustee
amendment.
Date: April 28, 1998 CompUSA Inc.
By: /s/ Mel McCall
---------------------------------------------
Title: Senior Vice President Human Resources
The trust agreement set forth in those provisions of the Plan and Trust which
relate to the Trustee is hereby executed.
Date: May 20, 1998 Merrill Lynch Trust Company, FSB
By: /s/ Roger T. Meyer
---------------------------------------------
Title: Vice President
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Ineligible Employees. . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Ineligible, Terminated or Former Participants . . . . . . . . . . 12
3 PARTICIPANT CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Pre-Tax Contribution Election . . . . . . . . . . . . . . . . . . 13
3.2 Changing a Contribution Election. . . . . . . . . . . . . . . . . 13
3.3 Revoking and Resuming a Contribution Election . . . . . . . . . . 13
3.4 Contribution Percentage Limits. . . . . . . . . . . . . . . . . . 13
3.5 Refunds When Contribution Dollar Limit Exceeded . . . . . . . . . 14
3.6 Timing, Posting and Tax Considerations. . . . . . . . . . . . . . 14
4 ROLLOVER CONTRIBUTIONS AND TRANSFERS FROM AND TO OTHER
QUALIFIED PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Rollover Contributions. . . . . . . . . . . . . . . . . . . . . . 15
4.2 Transfers From and To Other Qualified Plans . . . . . . . . . . . 15
5 EMPLOYER CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Company Match Contributions . . . . . . . . . . . . . . . . . . . 16
6 ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Individual Participant Accounting . . . . . . . . . . . . . . . . 18
6.2 Sweep Account is Transaction Account. . . . . . . . . . . . . . . 18
6.3 Trade Date Accounting and Investment Cycle. . . . . . . . . . . . 18
6.4 Accounting for Investment Funds . . . . . . . . . . . . . . . . . 18
6.5 Payment of Fees and Expenses. . . . . . . . . . . . . . . . . . . 18
6.6 Accounting for Participant Loans. . . . . . . . . . . . . . . . . 19
6.7 Error Correction. . . . . . . . . . . . . . . . . . . . . . . . . 19
6.8 Participant Statements. . . . . . . . . . . . . . . . . . . . . . 20
6.9 Special Accounting During Conversion Period . . . . . . . . . . . 20
6.10 Accounts for Alternate Payees . . . . . . . . . . . . . . . . . . 20
7 INVESTMENT FUNDS AND ELECTIONS. . . . . . . . . . . . . . . . . . . . . 21
7.1 Investment Funds. . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Responsibility for Investment Choice. . . . . . . . . . . . . . . 21
7.3 Investment Fund Elections . . . . . . . . . . . . . . . . . . . . 21
7.4 Default if No Valid Investment Election . . . . . . . . . . . . . 22
7.5 Investment Fund Election Change Fees. . . . . . . . . . . . . . . 22
8 VESTING & FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Fully Vested Accounts . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
8.2 Full Vesting Upon Certain Events. . . . . . . . . . . . . . . . . 23
8.3 Vesting Schedule. . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4 Forfeitures of Non-Vested Account Balances. . . . . . . . . . . . 23
8.5 Use of Forfeiture Account Amounts . . . . . . . . . . . . . . . . 23
8.6 Rehired Employees . . . . . . . . . . . . . . . . . . . . . . . . 24
9 PARTICIPANT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Participant Loans Permitted . . . . . . . . . . . . . . . . . . . 25
9.2 Loan Application, Note and Security . . . . . . . . . . . . . . . 25
9.3 Spousal Consent . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Loan Approval . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Loan Funding Limits, Account Sources and Funding Order. . . . . . 25
9.6 Maximum Number of Loans . . . . . . . . . . . . . . . . . . . . . 26
9.7 Source and Timing of Loan Funding . . . . . . . . . . . . . . . . 26
9.8 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.9 Loan Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.10 Loan Payment Hierarchy. . . . . . . . . . . . . . . . . . . . . . 26
9.11 Repayment Suspension. . . . . . . . . . . . . . . . . . . . . . . 27
9.12 Loan Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.13 Call Feature. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10 IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 In-Service Withdrawals Permitted. . . . . . . . . . . . . . . . . 28
10.2 In-Service Withdrawal Application and Notice. . . . . . . . . . . 28
10.3 Spousal Consent . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 In-Service Withdrawal Approval. . . . . . . . . . . . . . . . . . 28
10.5 Payment Form and Medium . . . . . . . . . . . . . . . . . . . . . 28
10.6 Source and Timing of In-Service Withdrawal Funding. . . . . . . . 29
10.7 Hardship Withdrawals. . . . . . . . . . . . . . . . . . . . . . . 29
10.8 Rollover Account Withdrawals. . . . . . . . . . . . . . . . . . . 31
10.9 Over Age 59 1/2 Withdrawals . . . . . . . . . . . . . . . . . . . 31
11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR BY REASON OF A
PARTICIPANT'S REQUIRED BEGINNING DATE . . . . . . . . . . . . . . . . . 32
11.1 Benefit Information, Notices and Election . . . . . . . . . . . . 32
11.2 Spousal Consent . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.3 Payment Form and Medium . . . . . . . . . . . . . . . . . . . . . 33
11.4 Distribution of Small Amounts . . . . . . . . . . . . . . . . . . 33
11.5 Source and Timing of Distribution Funding . . . . . . . . . . . . 34
11.6 Deemed Distribution . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Latest Commencement Permitted . . . . . . . . . . . . . . . . . . 34
11.8 Payment Within Life Expectancy. . . . . . . . . . . . . . . . . . 35
11.9 Incidental Benefit Rule . . . . . . . . . . . . . . . . . . . . . 35
11.10 Payment to Beneficiary. . . . . . . . . . . . . . . . . . . . . . 35
11.11 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . 36
11.12 QJSA and QPSA Definitions, Information and Elections . . . . . . 36
</TABLE>
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<CAPTION>
<S> <C>
12 ADP AND ACP TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1 Contribution Limitation Definitions . . . . . . . . . . . . . . . 39
12.2 ADP and ACP Tests . . . . . . . . . . . . . . . . . . . . . . . . 41
12.3 Correction of ADP and ACP Tests . . . . . . . . . . . . . . . . . 42
12.4 Multiple Use Test . . . . . . . . . . . . . . . . . . . . . . . . 43
12.5 Correction of Multiple Use Test . . . . . . . . . . . . . . . . . 44
12.6 Adjustment for Investment Gain or Loss. . . . . . . . . . . . . . 44
12.7 Testing Responsibilities and Required Records . . . . . . . . . . 44
12.8 Separate Testing. . . . . . . . . . . . . . . . . . . . . . . . . 44
13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS. . . . . . . . . . . . . . 45
13.1 "Annual Addition" Defined . . . . . . . . . . . . . . . . . . . . 45
13.2 Maximum Annual Addition . . . . . . . . . . . . . . . . . . . . . 45
13.3 Avoiding an Excess Annual Addition. . . . . . . . . . . . . . . . 45
13.4 Correcting an Excess Annual Addition. . . . . . . . . . . . . . . 45
13.5 Correcting a Multiple Plan Excess . . . . . . . . . . . . . . . . 46
13.6 "Defined Benefit Fraction" Defined. . . . . . . . . . . . . . . . 46
13.7 "Defined Contribution Fraction" Defined . . . . . . . . . . . . . 46
13.8 Combined Plan Limits and Correction . . . . . . . . . . . . . . . 47
14 TOP HEAVY RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.1 Top Heavy Definitions . . . . . . . . . . . . . . . . . . . . . . 48
14.2 Special Contributions . . . . . . . . . . . . . . . . . . . . . . 49
14.3 Adjustment to Combined Limits for Different Plans . . . . . . . . 50
15 PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.1 Plan Delineates Authority and Responsibility. . . . . . . . . . . 51
15.2 Fiduciary Standards . . . . . . . . . . . . . . . . . . . . . . . 51
15.3 Company is ERISA Plan Administrator . . . . . . . . . . . . . . . 51
15.4 Administrator Duties. . . . . . . . . . . . . . . . . . . . . . . 51
15.5 Advisors May be Retained. . . . . . . . . . . . . . . . . . . . . 52
15.6 Delegation of Administrator Duties. . . . . . . . . . . . . . . . 52
15.7 Committee Operating Rules . . . . . . . . . . . . . . . . . . . . 53
16 MANAGEMENT OF INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 54
16.1 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 54
16.2 Investment Funds. . . . . . . . . . . . . . . . . . . . . . . . . 54
16.3 Authority to Hold Cash. . . . . . . . . . . . . . . . . . . . . . 55
16.4 Trustee to Act Upon Instructions. . . . . . . . . . . . . . . . . 55
16.5 Administrator Has Right to Vote Registered Investment
Company Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 55
16.6 Custom Fund Investment Management . . . . . . . . . . . . . . . . 55
16.7 Master Custom Fund. . . . . . . . . . . . . . . . . . . . . . . . 56
16.8 Authority to Segregate Assets . . . . . . . . . . . . . . . . . . 56
16.9 Maximum Permitted Investment in Company Stock . . . . . . . . . . 56
16.10 Participants Have Right to Vote and Tender Company Stock. . . . . 57
16.11 Registration and Disclosure for Company Stock . . . . . . . . . . 57
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
17 TRUST ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.1 Trustee to Construe Trust . . . . . . . . . . . . . . . . . . . . 58
17.2 Trustee To Act As Owner of Trust Assets . . . . . . . . . . . . . 58
17.3 United States Indicia of Ownership. . . . . . . . . . . . . . . . 58
17.4 Tax Withholding and Payment . . . . . . . . . . . . . . . . . . . 59
17.5 Trust Accounting. . . . . . . . . . . . . . . . . . . . . . . . . 59
17.6 Valuation of Certain Assets . . . . . . . . . . . . . . . . . . . 59
17.7 Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 60
17.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 60
17.9 Trustee Duties and Limitations. . . . . . . . . . . . . . . . . . 60
18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION . . . . . . . . . . . 61
18.1 Plan Does Not Affect Employment Rights. . . . . . . . . . . . . . 61
18.2 Compliance With USERRA. . . . . . . . . . . . . . . . . . . . . . 61
18.3 Limited Return of Contributions . . . . . . . . . . . . . . . . . 61
18.4 Assignment and Alienation . . . . . . . . . . . . . . . . . . . . 62
18.5 Facility of Payment . . . . . . . . . . . . . . . . . . . . . . . 62
18.6 Reallocation of Lost Participant's Accounts . . . . . . . . . . . 62
18.7 Suspension of Certain Plan Provisions During Conversion Period. . 62
18.8 Suspension of Certain Plan Provisions During Other Periods. . . . 63
18.9 Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . . . 63
18.10 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
18.11 Jurisdiction and Severability . . . . . . . . . . . . . . . . . . 64
18.12 Indemnification by Employer . . . . . . . . . . . . . . . . . . . 64
19 AMENDMENT, MERGER, DIVESTITURES AND TERMINATION . . . . . . . . . . . . 65
19.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.2 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.3 Divestitures. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.4 Plan Termination and Complete Discontinuance of Contributions . . 66
19.5 Amendment and Termination Procedures. . . . . . . . . . . . . . . 66
19.6 Termination of Employer's Participation . . . . . . . . . . . . . 67
19.7 Replacement of the Trustee. . . . . . . . . . . . . . . . . . . . 67
19.8 Final Settlement and Accounting of Trustee. . . . . . . . . . . . 67
APPENDIX A - INVESTMENT FUNDS. . . . . . . . . . . . . . . . . . . . . . . . 69
APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES . . . . . . . . . . . . . . . 70
APPENDIX C - LOAN INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
iv
<PAGE>
1 DEFINITIONS
When capitalized, the words and phrases below have the following meanings
unless different meanings are clearly required by the context:
1.1 "Account". The records maintained by the Administrator for
purposes of accounting for a Participant's interest in the Plan.
"Account" may refer to one or all of the following accounts which
have been created on behalf of a Participant to hold amounts
attributable to specific types of Contributions under the Plan and
amounts transferred from the PCs Compleat Plan in accordance with
Section 4.2:
(a) "Pre-Tax Account". An account created to hold amounts
attributable to Pre-Tax Contributions.
(b) "Pre-Tax (Prior Employer) Account". An account created to hold
amounts transferred from the PCs Compleat Plan designated as
"Salary Deferral Contribution Account" amounts thereunder.
(c) "Rollover Account". An account created to hold amounts
attributable to Rollover Contributions and amounts transferred
from the PCs Compleat Plan designated as "Rollover Contribution
Account" amounts thereunder.
(d) "Company Match Cash Account". An account created to hold amounts
attributable to Company Match Contributions.
(e) "Company Match Stock Account". An account created to hold
amounts attributable to Company Match Contributions.
1.2 "ACP" or "Average Contribution Percentage". The percentage
calculated in accordance with Section 12.1.
1.3 "Administrator". The Company, which may delegate all or a portion of
the duties of the Administrator under the Plan to a Committee in
accordance with Section 15.6.
1.4 "ADP" or "Average Deferral Percentage". The percentage calculated in
accordance with Section 12.1.
1.5 "Alternate Payee". Any spouse, former spouse, child or other
dependent (as defined in Code section 152) of a Participant who is
recognized by a domestic relations order as having a right to receive
all, or a portion, of the Participant's Account under the Plan.
1.6 "Annuity Eligible Balance". The sum of the vested balance of a
Participant's Pre-Tax (Prior Employer) Account and the portion of
his or her Rollover Account
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representing amounts transferred from the PCs Compleat Plan.
1.7 "Beneficiary". The person or persons who is to receive benefits
under the Plan after the death of the Participant pursuant to the
"Beneficiary Designation" paragraph in Section 11.
1.8 "Break in Service". The fifth anniversary (or sixth anniversary if
absence from employment was due to a Parental Leave) of the date on
which a Participant's employment ends.
1.9 "Code". The Internal Revenue Code of 1986, as amended. Reference
to any specific Code section shall include such section, any
Treasury Regulation promulgated thereunder from time to time, and
any comparable provision of any future legislation amending,
supplementing or superseding such section.
1.10 "Committee". The CompSavings Plan Committee which has been
appointed by the Administrator to administer the Plan in accordance
with Section 15.6.
1.11 "Company". CompUSA Inc. or any successor by merger, purchase or
otherwise.
1.12 "Company Stock". Shares of common stock of the Company, its
predecessor(s), or its successors or assigns, or any corporation
with or into which said corporation may be merged, consolidated or
reorganized, or to which a majority of its assets may be sold.
1.13 "Compensation". The sum of a Participant's Taxable Income and
salary reductions, if any, pursuant to Code section 125, 402(e)(3),
402(h)(1)(B), 403(b), 457 or, for Plan Years commencing after
December 31, 1996, 408(p)(2)(A)(i).
For purposes of determining benefits under the Plan, Compensation
is limited to $150,000 per Plan Year (as adjusted for cost of
living increases pursuant to Code sections 401(a)(17) and 415(d)).
For Plan Years commencing before January 1, 1997, for purposes of
the preceding sentence, in the case of an HCE who is a 5% Owner or
one of the 10 most highly compensated Employees, (i) such HCE and
such HCE's family group (as defined below) shall be treated as a
single employee and the Compensation of each family group member
shall be aggregated with the Compensation of such HCE, and (ii) the
limitation on Compensation shall be allocated among such HCE and
his or her family group members in proportion to each individual's
Compensation before the application of this sentence. For purposes
of this Section, the term "family group" shall mean an Employee's
spouse and lineal descendants who have not attained age 19 before
the close of the year in question.
For purposes of determining HCEs and key employees and for Plan
Years commencing after December 31, 1997, for purposes of
Section 13.2,
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Compensation for the entire Plan Year shall be used. For purposes
of determining ADP and ACP, Compensation shall be limited to
amounts paid to an Eligible Employee while a Participant.
1.14 "Contribution". An amount contributed to the Plan by the Employer
or an Eligible Employee, and allocated by contribution type to
Participants' Accounts, as described in Section 1.1. Specific
types of contribution include:
(a) "Pre-Tax Contribution". An amount contributed by an eligible
Participant in conjunction with his or her Code section 401(k)
salary deferral election which shall be treated as made by the
Employer on the eligible Participant's behalf.
(b) "Rollover Contribution". An amount contributed by an Eligible
Employee which originated from another employer's or an
Employer's qualified plan.
(c) "Company Match Contribution". An amount contributed by the
Employer on an eligible Participant's behalf based upon the
amount contributed by the eligible Participant.
1.15 "Contribution Dollar Limit". The annual limit placed on each
Participant's Pre-Tax Contributions, which shall be $7,000 per
calendar year (as adjusted for cost of living increases pursuant to
Code sections 402(g)(5) and 415(d)). For purposes of this Section,
a Participant's Pre-Tax Contributions shall include (i) any
employer contribution under a qualified cash or deferred
arrangement (as defined in Code section 401(k)) to the extent not
includible in gross income for the taxable year under Code
section 402(e)(3) (determined without regard to Code section 402(g)),
(ii) any employer contribution to the extent not includible in gross
income for the taxable year under Code section 402(h)(1)(B)
(determined without regard to Code section 402(g)), (iii) any
employer contribution to purchase an annuity contract under Code
section 403(b) under a salary reduction agreement (within the
meaning of Code section 3121(a)(5)(D)) and (iv) for calendar years
commencing after December 31, 1996, any elective employer
contribution under Code section 408(p)(2)(A)(i).
1.16 "Conversion Period". The period of converting the prior accounting
system of any plan and trust which is merged, in whole or in part,
into the Plan and Trust, to the accounting system described in
Section 6.
1.17 "Direct Rollover". An Eligible Rollover Distribution that is paid
by the Plan directly to an Eligible Retirement Plan for the benefit
of a Distributee.
1.18 "Distributee". A Participant, a Beneficiary (if he or she is the
surviving spouse of a Participant) or an Alternate Payee under a
QDRO (if he or she is the spouse or former spouse of a Participant).
1.19 "Effective Date". The date upon which the provisions of this
document become effective. This date is January 1, 1998, unless
stated otherwise. In general, the provisions of this document only
apply to Participants who are
3
<PAGE>
Employees on or after the Effective Date. However, investment and
distribution provisions apply to all Participants with Account
balances to be invested or distributed after the Effective Date.
1.20 "Eligible Employee". An Employee of an Employer who is actually
recorded as an Employee on the Employer's customary and usual
payroll records at the time services are performed by the Employee,
except any Employee:
(a) whose compensation and conditions of employment are covered by
a collective bargaining agreement to which the Employer is a
party unless the agreement calls for the Employee's
participation in the Plan;
(b) who is treated as an Employee because he or she is a Leased
Employee; or
(c) who is a nonresident alien and who either (i) receives no
earned income (within the meaning of Code section 911(d)(2))
from any Related Company which constitutes income from sources
within the United States under Code section 861(a)(3); or
(ii) receives such earned income from such sources within the
United States but such income is exempt from United States
income tax under an applicable income tax convention.
If a person who has performed services for an Employer but has not
been classified as an Employee or as an Eligible Employee is
reclassified as an Employee as a result of a determination made by
the Employer, a court or governmental agency, such reclassified
person shall not be an Eligible Employee with respect to any period
before the date the reclassification determination is made.
1.21 "Eligible Retirement Plan". An individual retirement account
described in Code section 408(a), an individual retirement annuity
described in Code section 408(b), an annuity plan described in Code
section 403(a), or a qualified trust described in Code section 401(a),
that accepts a Distributee's Eligible Rollover Distribution, except
that, if the Distributee is the surviving spouse of a Participant, an
Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
1.22 "Eligible Rollover Distribution". A distribution of all or any
portion of the balance to the credit of a Distributee, excluding
(i) a distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's
designated Beneficiary, or for a specified period of ten years or
more; (ii) a distribution to the extent such distribution is
required under Code section 401(a)(9); and (iii) the portion of a
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to Employer securities).
1.23 "Employee". An individual who is:
4
<PAGE>
(a) a common-law employee of any Related Company, or
(b) a Leased Employee.
1.24 "Employer". The Company and any other Related Company which adopts
the Plan with the approval of the Company.
1.25 "ERISA". The Employee Retirement Income Security Act of 1974, as
amended. Reference to any specific ERISA section shall include
such section, any Department of Labor Regulation promulgated
thereunder from time to time, and any comparable provision of any
future legislation amending, supplementing or superseding such
section.
1.26 "Fiscal Year". The Employer's annual accounting period.
1.27 "Forfeiture Account". An account holding amounts forfeited by
Terminated Participants, invested in interest bearing deposits
(which may include interest bearing deposits of the Trustee) and/or
money market type assets or funds, pending disposition as provided
in the Plan and Trust and as directed by the Administrator.
1.28 "Former Participant". The Plan status of an individual after he or
she is determined to be a Terminated Participant and his or her
Account is distributed or forfeited.
1.29 "HCE" or "Highly Compensated Employee". An Employee described as a
Highly Compensated Employee in Section 12.
1.30 "Hour of Service". Each hour for which an Employee is entitled to:
(a) payment for the performance of duties for any Related Company;
(b) payment from any Related Company on account of a period of
time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence;
(c) back pay, irrespective of mitigation of damages, by award or
agreement with any Related Company (and these hours shall be
credited to the period to which the award or agreement
pertains); or
(d) no payment, but is on a Leave of Absence (and these hours
shall be based upon his or her normally scheduled hours per
week or a 40 hour week if there is no regular schedule).
The crediting of Hours of Service for which no duties are performed
shall be in accordance with the U.S. Department of Labor regulation
sections 2530.200b-2(b) and (c). Actual hours shall be used
whenever an accurate record of hours are maintained for an
Employee. Otherwise, an equivalent number of hours
5
<PAGE>
shall be credited for each payroll period in which the Employee would
be credited with at least 1 Hour of Service. The payroll period
equivalencies are 45 hours weekly, 90 hours biweekly, 95 hours
semimonthly and 190 hours monthly.
With regard to an individual who became an Employee coincident to
the Company's acquisition of PCs Compleat, Inc., his or her service
prior to such acquisition that would be taken into account under
the terms of the PCs Compleat Plan shall be included in the
determination of his or her Hours of Service for eligibility and/or
vesting.
An Employee's service with a predecessor or acquired company shall
only be counted in the determination of his or her Hours of Service
for eligibility and/or vesting purposes if (1) the Company directs
that credit for such service be granted, or (2) a qualified plan of
the predecessor or acquired company is subsequently maintained by
any Related Company.
1.31 "Ineligible". The Plan status of an individual who (1) is an
Employee of a Related Company which is not then an Employer, (2) is
an Employee of an Employer, but not an Eligible Employee, (3) is
not an Employee, (4) is a reclassified person with respect to any
period before the date of the determination referred to in
Section 1.20, or (5) declined eligibility to participate in the Plan
by execution and delivery to the Administrator of a written waiver of
participation.
1.32 "Ineligible Participant". The Plan status of a Participant who is
(1) an Employee of a Related Company which is not then an Employer,
or (2) an Employee of an Employer, but not an Eligible Employee.
1.33 "Investment Fund". An investment fund as described in Section 16.2.
The Investment Funds authorized by the Administrator to be offered
under the Plan as of the Effective Date are set forth in Appendix A.
1.34 "Leased Employee". An individual, not otherwise an Employee, who,
pursuant to an agreement between a Related Company and a leasing
organization, has performed, on a substantially full-time basis,
for a period of at least 12 months, services of any type
historically performed by Employees in the business field of the
Related Company, unless:
(a) the individual is covered by a money purchase pension plan
maintained by the leasing organization and meeting the
requirements of Code section 414(n)(5)(B), and
(b) such individuals do not constitute more than 20% of all
Non-Highly Compensated Employees of all Related Companies (within
the meaning of Code section 414(n)(5)(C)(ii)).
6
<PAGE>
For Plan Years commencing after December 31, 1996, "services under
the primary direction or control of the Related Company" shall be
substituted for the preceding reference to "services of any type
historically performed by Employees in the business field of the
Related Company".
1.35 "Leave of Absence". A period during which an individual is deemed
to be an Employee, but is absent from active employment, provided
that the absence:
(a) was authorized by a Related Company; or
(b) was due to military service in the United States armed forces
and the individual returns to active employment within the period
during which he or she retains employment rights under federal
law.
1.36 "Loan Account". The record maintained for purposes of accounting
for a Participant's loan and payments of principal and interest
thereon.
1.37 "NHCE" or "Non-Highly Compensated Employee". An Employee described
as a Non-Highly Compensated Employee in Section 12.
1.38 "Normal Retirement Date". The later of the date of a Participant's
65th birthday or attainment of four Years of Vesting Service.
1.39 "Owner". A person with an ownership interest in the capital,
profits, outstanding stock or voting power of a Related Company
within the meaning of Code section 318 or 416 (which excludes
indirect ownership through a qualified plan).
1.40 "Parental Leave". The period of absence from work by reason of the
pregnancy of an Employee, the birth of the Employee's child, the
placement of a child with the Employee in connection with the
child's adoption, or the caring for such child immediately after
birth or placement as described in Code section 410(a)(5)(E).
1.41 "Participant". The Plan status of an Eligible Employee after he or
she completes the eligibility requirements and enters the Plan as
described in Section 2.1 and any individual for whom assets have
been transferred from a predecessor plan merged, in whole or in
part, with the Plan. An Eligible Employee who makes a Rollover
Contribution prior to completing the eligibility requirements as
described in Section 2.1 shall also be considered a Participant,
except that he or she shall not be considered a Participant for
purposes of Plan provisions related to Contributions, other than a
Rollover Contribution, until he or she completes the eligibility
requirements and enters the Plan as described in Section 2.1. A
Participant's participation continues until his or her employment
with all Related Companies ends and his or her Account is
distributed or forfeited.
1.42 "Pay". The wages, overtime, salary, bonus and commission paid to
an Eligible Employee by an Employer while he or she is a
Participant during the current
7
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period.
Pay is neither increased by any salary credit nor decreased by any
salary reduction pursuant to Code sections 125 or 402(e)(3). Pay
is limited to $150,000 per Plan Year (as adjusted for cost of
living increases pursuant to Code sections 401(a)(17) and 415(d)).
1.43 "PCs Compleat Plan". The PCs Compleat 401(k) Plan, a qualified
profit sharing plan, as described in Code section 401(a), which
included a qualified cash or deferred arrangement, as described in
Code section 401(k), originally effective August 1, 1993 and merged
herein effective February 26, 1998.
1.44 "Period of Employment". The period beginning on the date an
Employee first performs an hour of service and ending on the date
his or her employment ends. Employment ends on the date the
Employee quits, is discharged, retires or dies or (if earlier) the
first anniversary of his or her absence for any other reason. The
period of absence starting with the date an Employee's employment
ends and ending on the date he or she next performs an hour of
service is (1) included in his or her Period of Employment if the
period of absence does not exceed one year, and (2) excluded if
such period exceeds one year.
Period of Employment includes the period prior to a Break in Service.
With regard to an individual who became an Employee coincident to
the Company's acquisition of PCs Compleat, Inc. his or her service
prior to such acquisition that would be taken into account under
the terms of the PCs Compleat Plan shall be included in the
determination of his or her Period of Employment for eligibility
and/or vesting.
An Employee's service with a predecessor or acquired company shall
only be counted in the determination of his or her Period of
Employment for eligibility and/or vesting purposes if (1) the
Company directs that credit for such service be granted, or (2) a
qualified plan of the predecessor or acquired company is
subsequently maintained by any Related Company.
1.45 "Plan". The CompSavings Plan for Employees of CompUSA Inc. set
forth in this document, as from time to time amended.
1.46 "Plan Year". The annual accounting period of the Plan and Trust
which ends on each December 31.
1.47 "QDRO". A domestic relations order which the Administrator has
determined to be a qualified domestic relations order within the
meaning of Code section 414(p).
1.48 "Related Company". With respect to any Employer, that Employer and
any corporation, trade or business which is, together with that
Employer, a member
8
<PAGE>
of the same controlled group of corporations, a trade or business under common
control, or an affiliated service group within the meaning of Code sections
414(b), (c), (m) or (o), except that for purposes of Section 13 "within the
meaning of Code sections 414(b), (c), (m) or (o), as modified by Code section
415(h)" shall be substituted for the preceding reference to "within the meaning
of Code sections 414(b), (c), (m) or (o)".
1.49 "Required Beginning Date". The latest date benefit payments shall
commence to a Participant.
(a) For calendar years commencing before January 1, 1997, such date
shall mean:
(1) with regard to a Participant who (i) attained age 70 1/2 in
1996, (ii) did not terminate employment with all Related
Companies before January 1, 1997, and (iii) is not or was
not a 5% Owner, the April 1 that next follows the later of
(i) the calendar year in which the Participant attained age
70 1/2, or (ii) if the Participant elects to apply this
clause (ii), the calendar year in which the Participant
terminates employment with all Related Companies (and any
such election must be made prior to January 1, 1998); and
(2) with regard to a Participant who attained age 70 1/2 before
January 1, 1996 or, in 1996 if he or she (i) terminated
employment with all Related Companies before January 1, 1997
or (ii) is or was a 5% Owner, the April 1 that next follows
the calendar year in which the Participant attains age
70 1/2.
A Participant shall be considered a 5% Owner for this purpose
if such Participant is a 5% Owner as defined in Code section
416(i) (determined in accordance with Code section 416 but
without regard to whether the Plan is top-heavy) at any time
during the Plan Year ending with or within the calendar year
in which the Participant attains age 66 1/2 or in any
subsequent Plan Year.
(b) For calendar years commencing after December 31, 1996 and before
January 1, 1998, such date shall mean:
(1) with regard to a Participant who attained age 70 1/2 in 1997,
the April 1 that next follows the calendar year in which he
or she attained age 70 1/2, except that if the Participant
(i) did not terminate employment with all Related Companies
before January 1, 1998, and (ii) is not a 5% Owner, such date
shall instead mean the April 1 that next follows the later of
(i) the calendar year in which the Participant attained age
70 1/2, or (ii) if the Participant elects to apply this
clause (ii), the calendar year in which the Participant
terminates employment with all
9
<PAGE>
Related Companies (and any such election must be made prior
to April 1, 1998); and
(2) with regard to a Participant who is a 5% Owner, the April 1
that next follows the calendar year in which the Participant
attains age 70 1/2.
A Participant shall be considered a 5% Owner for this purpose if
such Participant is a 5% Owner with respect to the Plan Year
ending in the calendar year in which the Participant attains age
70 1/2.
(c) For calendar years commencing after December 31, 1997, such date
shall mean:
(1) with regard to a Participant who is not a 5% Owner, the
April 1 that next follows the later of (i) the calendar year
in which the Participant attained age 70 1/2, or (ii) the
calendar year in which the Participant terminates employment
with all Related Companies; and
(2) with regard to a Participant who is a 5% Owner, the April 1
that next follows the calendar year in which the Participant
attains age 70 1/2.
A Participant shall be considered a 5% Owner for this purpose if
such Participant is a 5% Owner with respect to the Plan Year
ending in the calendar year in which the Participant attains age
70 1/2.
1.50 "Settlement Date". For each Trade Date, the Trustee's next
business day.
1.51 "Spousal Consent". The written consent given by a spouse to a
Participant's election or waiver of a specified form of benefit or
Beneficiary designation. The spouse's consent must acknowledge
the effect on the spouse of the Participant's election, waiver or
designation, and be duly witnessed by a notary public. Spousal
Consent shall be valid only with respect to the spouse who signs
the Spousal Consent and only for the particular choice made by the
Participant which requires Spousal Consent. A Participant may
revoke (without Spousal Consent) a prior election, waiver or
designation that required Spousal Consent at any time before
payments begin. Spousal Consent also means a determination by the
Administrator that there is no spouse, the spouse cannot be
located, or such other circumstances as may be established under
Code section 417(a)(2)(B).
1.52 "Seep Account". The subsidiary Account for each Participant
through which all transactions are processed, which is invested in
interest bearing deposits (which may include interest bearing
deposits of the Trustee) and/or money market type assets or funds.
10
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1.53 "Sweep Date". The cut off date and time for receiving
instructions for transactions to be processed on the next Trade
Date.
1.54 "Taxable Income". Compensation in the amount reported by the
Employer or a Related Company as "Wages, tips, other compensation"
on Form W-2, or any successor method of reporting under Code
section 6041(d).
1.55 "Terminated Participant". The Plan status of a Participant who is
not an Employee and with respect to whom the Administrator has
reported to the Trustee that the Participant's employment has
terminated with all Related Companies.
1.56 "Trade Date". Each day the Investment Funds are valued, which is
normally every day the assets of such Investment Funds are traded.
1.57 "Trust". The legal entity created by those provisions of this
document which relate to the Trustee. The Trust is part of the
Plan and holds the Plan assets which are comprised of the
aggregate of Participants' Accounts, any unallocated funds
invested in interest bearing deposits (which may include interest
bearing deposits of the Trustee) and/or money market type assets
or funds, pending allocation to Participants' Accounts or
disbursement to pay Plan fees and expenses and the Forfeiture
Account.
1.58 "Trustee". Merrill Lynch Trust Company, FSB, a federal savings
bank, chartered under the laws of the United States.
1.59 "USERRA". The Uniformed Services Employment and Reemployment
Rights Act of 1994, as amended.
1.60 "Year of Vesting Service". A 12 month Period of Employment.
Years of Vesting Service shall include service credited prior to
January 1, 1995.
11
<PAGE>
2 ELIGIBILITY
2.1 Eligibility
All Participants as of January 1, 1998 shall continue their
eligibility to participate in the Plan. Each other Eligible
Employee shall become a Participant on the first day of the next
month after the date he or she attains age 21 and completes a
six-month eligibility period for which he or she is credited with
at least 500 Hours of Service. The initial eligibility period
begins on the date an Employee first performs an Hour of Service.
Subsequent eligibility periods begin with the start of each half
of the Plan Year beginning after the first Hour of Service is
performed.
Effective April 1, 1998, all Participants as of April 1, 1998
shall continue their eligibility to participate. Each other
Eligible Employee shall become a Participant on the later of
April 1, 1998 or the first day of the next calendar quarter after
the date his or her Period of Employment commences or, if later,
the first day of the calendar quarter after he or she attains age
21.
2.2 Ineligible Employees
If an Employee completes the above eligibility requirements, but
is Ineligible at the time participation would otherwise begin (if
he or she were not Ineligible), he or she shall become a
Participant on the first subsequent date on which he or she is an
Eligible Employee.
2.3 Ineligible, Terminated or Former Participants
An Ineligible, Terminated or Former Participant may not make or
share in any Contributions, other than such Contributions due to
be made on his or her behalf after the date he or she became an
Ineligible, Terminated or Former Participant for periods prior to
such date, nor may an Ineligible or Terminated Participant be
eligible for a new Plan loan (except as described in Section 9.1),
during the period he or she is an Ineligible or Terminated
Participant, but he or she shall continue to participate for all
other purposes. An Ineligible, Terminated or Former Participant
shall automatically become an active Participant on the date he or
she again becomes an Eligible Employee.
12
<PAGE>
3 PARTICIPANT CONTRIBUTIONS
3.1 Pre-Tax Contribution Election
Upon becoming a Participant, an Eligible Employee may elect to
reduce his or her Pay by an amount which does not exceed the
Contribution Dollar Limit or the limits described in the
Contribution Percentage Limits paragraph of this Section 3, and
have such amount contributed to the Plan by the Employer as a
Pre-Tax Contribution. The election shall be made in such manner
and with such advance notice as prescribed by the Administrator
and may be limited to a whole percentage of Pay. In no event
shall an Employee's Pre-Tax Contributions under the Plan and
comparable contributions to all other plans, contracts or
arrangements of all Related Companies exceed the Contribution
Dollar Limit for the Employee's taxable year beginning in the
Plan Year.
3.2 Changing a Contribution Election
A Participant who is an Eligible Employee may change his or her
Pre-Tax Contribution election at any time, but no more frequently
than twice in any Plan Year (not including his or her initial
Pre-Tax Contribution election), in such manner and with such
advance notice as prescribed by the Administrator, and such
election change shall be effective with the first payroll paid
after such date. A Participant's Contribution election made as a
percentage of Pay shall automatically apply to Pay increases or
decreases.
3.3 Revoking and Resuming a Contribution Election
A Participant may revoke his or her Pre-Tax Contribution election
at any time in such manner and with such advance notice as
prescribed by the Administrator, and such revocation shall be
effective no later than with the second payroll paid after such
date.
A Participant who is an Eligible Employee may resume Pre-Tax
Contributions by making a new election at any time in such manner
and with such advance notice as prescribed by the Administrator,
and such election shall be effective with the first payroll paid
after such date.
3.4 Contribution Percentage Limits
The Administrator may establish and change from time to time, in
writing, without the necessity of amending the Plan and Trust, the
minimum, if applicable, and maximum Pre-Tax Contribution
percentages, prospectively or retrospectively (for the current
Plan Year), for all Participants. In addition, the Administrator
may establish any lower percentage limits for Highly Compensated
Employees as it deems necessary to satisfy the tests described in
Section 12. As of the Effective Date, the Pre-Tax Contribution
minimum percentage is 1% and the maximum percentage is 15%.
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<PAGE>
Irrespective of the limits that may be established by the
Administrator in accordance with the paragraph above, in no event
shall the Contributions made by or on behalf of a Participant for
a Plan Year exceed the maximum allowable under Code section 415.
3.5 Refunds When Contribution Dollar Limit Exceeded
A Participant who makes Pre-Tax Contributions for a calendar year
to the Plan and comparable contributions to any other qualified
defined contribution plan in excess of the Contribution Dollar
Limit may notify the Administrator in writing by the following
March 1 (or as late as April 14 if allowed by the Administrator)
that an excess has occurred. In this event, the amount of the
excess specified by the Participant, adjusted for investment gain
or loss, shall be refunded to him or her by the April 15 following
the year of deferral and shall not be included as an Annual
Addition (as defined in Section 13.1) under Code section 415 for
the year contributed. The excess amounts shall first be taken
from unmatched Pre-Tax Contributions and then from matched Pre-Tax
Contributions. Any Company Match Contributions attributable to
refunded excess Pre-Tax Contributions as described in this
Section, adjusted for investment gain or loss, shall be forfeited
and used as described in Section 8. Refunds and forfeitures shall
not include investment gain or loss for the period between the end
of the applicable calendar year and the date of distribution or
forfeiture.
3.6 Timing, Posting and Tax Considerations
Pre-Tax Contributions may only be made through payroll deduction.
Pre-Tax Contributions shall be paid to the Trustee in cash and
posted to each Participant's Account(s) as soon as such amounts
can reasonably be separated from the Employer's general assets and
balanced against the specific amount made on behalf of each
Participant and in no event later than 15 business days following
the end of the month that includes the date amounts are deducted
from a Participant's Pay (or as that maximum period may be
otherwise extended by ERISA).
Pre-Tax Contributions shall be treated as Contributions made by an
Employer in determining tax deductions under Code section 404(a).
14
<PAGE>
4 ROLLOVER CONTRIBUTIONS AND TRANSFERS FROM AND TO OTHER QUALIFIED PLANS
4.1 Rollover Contributions
The Administrator may authorize the Trustee to accept a Rollover
Contribution in cash directly from an Eligible Employee or as a
Direct Rollover from another qualified plan on behalf of the
Eligible Employee, even if he or she is not yet a Participant.
The Employee shall be responsible for providing satisfactory
evidence, in such manner as prescribed by the Administrator, that
such Rollover Contribution qualifies as a rollover contribution,
within the meaning of Code section 402(c) or 408(d)(3)(A)(ii).
Such amounts received directly from an Eligible Employee must be
paid to the Trustee in cash within 60 days after the date received
by the Eligible Employee from a qualified plan or conduit
individual retirement account. Rollover Contributions shall be
posted to the Eligible Employee's Rollover Account as of the date
received by the Trustee.
If the Administrator later determines that an amount contributed
pursuant to the above paragraph did not in fact qualify as a
rollover contribution, within the meaning of Code section 402(c)
or 408(d)(3)(A)(ii), the balance credited to the Participant's
Rollover Account shall immediately be (1) segregated from all
other Plan assets, (2) treated as a nonqualified trust established
by and for the benefit of the Participant, and (3) distributed to
the Participant. Any such amount shall be deemed never to have
been a part of the Plan.
4.2 Transfers From and To Other Qualified Plans
The Administrator may instruct the Trustee to receive assets in
cash or in kind directly from another qualified plan or to
transfer assets in cash or in kind directly to another qualified
plan; provided that receipt of a transfer shall not be directed
if:
(a) any amounts are not exempted by Code section 401(a)(11)(B)
from the annuity requirements of Code section 417 unless the
Plan complies with such requirements; or
(b) any amounts include benefits protected by Code section
411(d)(6) which would not be preserved under applicable Plan
provisions.
The Trustee may refuse to receive any such transfer if:
(a) the Trustee finds the in kind assets unacceptable; or
(b) instructions for posting amounts to Participants' Accounts
are incomplete.
Such amounts shall be posted to the appropriate Accounts of
Participants as of the date received by the Trustee. To the
extent a receipt of a transfer includes Participant loans, such
loans shall continue in effect subject to the terms and conditions
in effect as of the date of the transfer or as otherwise agreed to
by the Administrator.
15
<PAGE>
5 EMPLOYER CONTRIBUTIONS
5.1 Company Match Contributions
(a) Frequency and Eligibility.
Basic Contribution: For each Plan Year, the Employer shall
make basic Company Match Contributions, as described in the
following Amount and Allocation Method paragraph, on behalf
of each Participant who contributed during the Plan Year and:
(1) was an Eligible Employee on the last day of the Plan
Year, and
(2) was credited with at least 1,000 Hours of Service for
the Plan Year.
Supplemental Contribution: For each Plan Year, based on the
Employer's profitability for the Fiscal Year which ends
within the Plan Year, the Employer may make supplemental
Company Match Contributions as described in the following
Amount and Allocation Method paragraph, on behalf of each
Participant who was determined to be eligible to receive
basic Company Match Contributions for the Plan Year.
Special Incentive Contribution: The Company may, in its
sole discretion, authorize the Employer to make a special
incentive Company Match Contribution as described in the
following Amount and Allocation Method paragraph, as an
incentive to designated Eligible Employees to commence
making Pre-Tax Contributions. Such special incentive
Company Match Contributions shall be conditioned on the
Eligible Employee making a Pre-Tax Contribution election
during a designated period determined by the Company and
may be subject to the same eligibility conditions that
apply to basic Company Match Contributions described in
(1) and (2) above.
(b) Amount and Allocation Method.
Basic Contribution: The basic Company Match
Contributions (including any Forfeiture Account amounts
applied as basic Company Match Contributions in
accordance with Section 8) for each Plan Year shall total
25% of each eligible Participant's Pre-Tax Contributions
for the Plan Year, provided that no basic Company Match
Contributions (and Forfeiture Account amounts) shall be
made based upon a Participant's Contributions in excess
of 5% of his or her Pay.One-quarter of each such eligible
Participant's basic Company Match Contribution for the
Plan Year shall be designated as for deposit to his or
her Company Match Cash Account and the remaining
three-quarters of such eligible
16
<PAGE>
Participant's basic Company Match Contribution for
the Plan Year shall be designated as for deposit to his or
her Company Match Stock Account. The Employer may change the
25% matching rate, the 5% of considered Pay and the ratio
allocation between Company Match Cash and Company Match Stock
Accounts to any other percentages or ratio allocation,
respectively, including 0% and zero, respectively, generally
by notifying eligible Participants in sufficient time to
adjust their Contribution elections prior to the start of
the period for which the new percentages or ratio allocation
apply.
Supplemental Contribution: The supplemental Company Match
Contributions (including any Forfeiture Account amounts
applied as supplemental Company Match Contributions in
accordance with Section 8) for the Plan Year shall be in an
amount determined by the Employer. Such supplemental Company
Match Contributions shall be allocated in proportion to each
eligible Participant's basic Company Match Contributions for
the Plan Year to the total of all such Contributions for the
Plan Year for all eligible Participants and allocated between
each eligible Participant's Company Match Cash and Company
Match Stock Accounts in the same ratio that basic Company
Match Contributions were allocated to such Accounts.
Special Incentive Contribution: The special incentive
Company Match Contributions (including any Forfeiture
Account amounts applied as special incentive Company
Match Contributions in accordance with Section 8) for
each period shall be in an amount determined by the
Company and allocated as a fixed dollar amount to each
eligible Participant who commenced making Pre-Tax
Contributions in accordance with a Pre-Tax Contribution
election made during the period designated by the Company
as eligible for the special incentive Company Match
Contribution and allocated between each eligible
Participant's Company Match Cash and Company Match Stock
Accounts in the ratio directed by the Company.
(c) Timing, Medium and Posting. The Employer shall make each
period's Company Match Contribution in cash as soon as
administratively feasible, and for purposes of deducting
such Contribution, not later than the Employer's federal
tax filing date, including extensions. Such amounts
shall be paid to the Trustee and posted to each
Participant's Company Match Cash and Company Match Stock
Accounts once the total Company Match Contribution
received has been balanced against the specific amount to
be credited to each Participant's Company Match Cash and
Company Match Stock Accounts.
17
<PAGE>
6 ACCOUNTING
6.1 Individual Participant Accounting
The Administrator shall maintain an individual set of Accounts
for each Participant in order to reflect transactions both by
type of Account and investment medium. Financial transactions
shall be accounted for at the individual Account level by
posting each transaction to the appropriate Account of each
affected Participant. Participant Account values shall be
maintained in shares for the Investment Funds and in dollars
for the Sweep and Loan Accounts. At any point in time, the
Account value shall be determined using the most recent Trade
Date values provided by the Trustee.
6.2 Sweep Account is Transaction Account
All transactions related to amounts being contributed to or
distributed from the Trust shall be posted to each affected
Participant's Sweep Account. Any amount held in the Sweep
Account shall be credited with interest up until the date on
which it is removed from the Sweep Account.
6.3 Trade Date Accounting and Investment Cycle
Participant Account values shall be determined as of each
Trade Date. For any transaction to be processed as of a Trade
Date, the Trustee must receive instructions for the
transaction by the Sweep Date. Such instructions shall apply
to amounts held in the Account on that Sweep Date. Financial
transactions of the Investment Funds shall be posted to
Participants' Accounts as of the Trade Date, based upon the
Trade Date values provided by the Trustee, and settled on the
Settlement Date.
6.4 Accounting for Investment Funds
Investments in each Investment Fund shall be maintained in
shares. The Trustee is responsible for determining the share
values of each Investment Fund as of each Trade Date. To the
extent an Investment Fund is comprised of collective
investment funds offered by the Trustee or any other entity
authorized to offer collective investment funds, the share
values shall be determined in accordance with the rules
governing such collective investment funds, which are
incorporated herein by reference. All other share values
shall be determined by the Trustee. The share value of each
Investment Fund shall be based on the fair market value of its
underlying assets.
6.5 Payment of Fees and Expenses
Except to the extent Plan fees and expenses related to Account
maintenance, transaction and Investment Fund management and
maintenance, set forth below, are paid by the Employer
directly, or indirectly, through the Forfeiture Account as
directed by the Administrator, such fees and expenses shall be
paid as set forth below.
18
<PAGE>
(a) Account Maintenance: Account maintenance fees and
expenses, may include but are not limited to,
administrative, Trustee, government annual report
preparation, audit, legal, nondiscrimination testing and
fees for any other special services. Account maintenance
fees shall be charged to Participants on a per
Participant basis provided that no fee shall reduce a
Participant's Account balance below zero.
(b) Transaction: Transaction fees and expenses, may include
but are not limited to, periodic installment payment,
Investment Fund election change and loan fees.
Transaction fees shall be charged to the Participant's
Account involved in the transaction provided that no fee
shall reduce a Participant's Account balance below zero.
(c) Investment Fund Management and Maintenance: Management
and maintenance fees and expenses related to the
Investment Funds shall be charged at the Investment Fund
level and reflected in the net gain or loss of each
Investment Fund.
The Company may determine that the Employers pay a lower portion
of the fees and expenses allocable to the Accounts of Participants
who are no longer Employees or who are not Beneficiaries, unless
doing so would result in discrimination prohibited under Code
section 401(a)(4) or a significant detriment prohibited by Code
section 411(a)(11). As of the Effective Date, a breakdown of
which Plan fees and expenses shall generally be borne by the Trust
(and charged to individual Participants' Accounts or charged at
the Investment Fund level and reflected in the net gain or loss of
each Investment Fund) and those that shall be paid by the Employer
is set forth in Appendix B, which may be changed from time to time
by the Company, in writing, without the necessity of amending the
Plan and Trust.
The Trustee shall have the authority to pay any such fees and
expenses, which remain unpaid by the Employer for 60 days, from
the Trust.
6.6 Accounting for Participant Loans
Participant loans shall be held in a separate Loan Account of
the Participant and accounted for in dollars as an earmarked
asset of the borrowing Participant's Account.
6.7 Error Correction
The Administrator may correct any errors or omissions in the
administration of the Plan by restoring any Participant's
Account balance with the amount that would be credited to the
Account had no error or omission been made. Funds necessary
for any such restoration shall be provided through payment
made by the Employer, or by the Trustee to the extent the
error or omission is attributable to actions or inactions of
the Trustee, or if the restoration involves an Account holding
amounts contributed by an Employer, the Administrator may
direct the Trustee to use amounts from the Forfeiture Account.
19
<PAGE>
6.8 Participant Statements
The Administrator shall provide Participants with statements
of their Accounts as soon after the end of each quarter of the
Plan Year as administratively feasible.
6.9 Special Accounting During Conversion Period
The Administrator and Trustee may use any reasonable
accounting methods in performing their respective duties
during any Conversion Period. This includes, but is not
limited to, the method for allocating net investment gains or
losses and the extent, if any, to which contributions received
by and distributions paid from the Trust during this period
share in such allocation.
6.10 Accounts for Alternate Payees
A separate Account shall be established for an Alternate Payee
entitled to any portion of a Participant's Account under a
QDRO as of the date and in accordance with the directions
specified in the QDRO. In addition, a separate Account may be
established during the period of time the Administrator, a
court of competent jurisdiction or other appropriate person is
determining whether a domestic relations order qualifies as a
QDRO. Such a separate Account shall be valued and accounted
for in the same manner as any other Account.
(a) Distributions Pursuant to QDROs. If a QDRO so provides,
the portion of a Participant's Account payable to an
Alternate Payee may be distributed, in a form permissible
under Section 11 and Code section 414(p), to the
Alternate Payee at any time beginning as soon as
practicable after the QDRO determination is made,
regardless of whether the Participant is entitled to a
distribution from the Plan at such time. The Alternate
Payee shall be provided the notice prescribed by Code
section 402(f).
(b) Participant Loans. Except to the extent required by law,
an Alternate Payee, on whose behalf a separate Account
has been established, shall not be entitled to borrow
from such Account. If a QDRO specifies that the Alternate
Payee is entitled to any portion of the Account of a
Participant who has an outstanding loan balance, all
outstanding loans shall generally continue to be held in
the Participant's Account and shall not be divided
between the Participant's and Alternate Payee's Accounts.
(c) Investment Direction. Where a separate Account has been
established on behalf of an Alternate Payee and has not
yet been distributed, the Alternate Payee may direct the
investment of such Account in the same manner as if he or
she were a Participant.
20
<PAGE>
7 INVESTMENT FUNDS AND ELECTIONS
7.1 Investment Funds
Except for Participants' Sweep and Loan Accounts and any
unallocated funds invested in interest bearing deposits (which
may include interest bearing deposits of the Trustee) and/or
money market type assets or funds, pending allocation to
Participants' Accounts or disbursement to pay Plan fees and
expenses and the Forfeiture Account, the Trust shall be
maintained in various Investment Funds. The Administrator
shall select the Investment Funds offered to Participants and
may change the number or composition of the Investment Funds,
subject to the terms and conditions agreed to with the
Trustee. As of the Effective Date, a list of the Investment
Funds offered under the Plan is set forth in Appendix A, which
may be changed from time to time by the Administrator, in
writing, and as agreed to by the Trustee, without the
necessity of amending the Plan and Trust.
The Administrator may set a maximum percentage of the total
election that a Participant may direct into any specific
Investment Fund, which maximum, if any, as of the Effective
Date is set forth in Appendix A, which may be changed from
time to time by the Administrator, in writing, without the
necessity of amending the Plan and Trust.
7.2 Responsibility for Investment Choice
Each Participant shall direct the investment of all of his or
her Accounts except for his or her Company Match Stock Account
which shall be entirely invested in the Investment Fund
specified by the Administrator, which Investment Fund as of
the Effective Date is set forth in Appendix A. However, a
Participant may direct the investment of the balances in his
or her Company Match Stock Account. Future amounts deposited
to his or her Company Match Stock Account shall continue to be
entirely invested in the Investment Fund specified by the
Administrator, until otherwise directed by the Participant.
Each Participant shall be solely responsible for the selection
of his or her Investment Fund choices. No fiduciary with
respect to the Plan is empowered to advise a Participant as to
the manner in which his or her Accounts are to be invested,
and the fact that an Investment Fund is offered shall not be
construed to be a recommendation for investment.
During any Conversion Period, Trust assets may be held in any
investment vehicle permitted by the Plan, as directed by the
Administrator, irrespective of prior Participant investment
elections.
7.3 Investment Fund Elections
A Participant shall provide his or her initial investment
election upon becoming a Participant and may change his or her
investment election at any time in accordance with procedures
established by the Administrator and the Trustee.
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<PAGE>
A Participant shall make his or her investment election in any
combination of one or any number of the Investment Funds
offered in accordance with the procedures established by the
Administrator and Trustee. Investment elections received by the
Trustee by the Sweep Date shall be effective on the following
Trade Date.
7.4 Default if No Valid Investment Election
The Administrator shall specify an Investment Fund for the
investment of that portion of a Participant's Account which is
not yet held in an Investment Fund and for which no valid
investment election is on file. The Investment Fund specified
as of the Effective Date is set forth in Appendix A, which may
be changed from time to time by the Administrator, in writing,
without the necessity of amending the Plan and Trust.
7.5 Investment Fund Election Change Fees
A reasonable processing fee may be charged directly to a
Participant's Account for Investment Fund election changes in
excess of a specified number per year as determined by the
Administrator.
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<PAGE>
8 VESTING & FORFEITURES
8.1 Fully Vested Accounts
A Participant shall be fully vested in these Accounts at all
times:
Pre-Tax Account
Pre-Tax (Prior Employer) Account
Rollover Account
8.2 Full Vesting Upon Certain Events
A Participant's entire Account shall become fully vested once
he or she has attained his or her Normal Retirement Date while
an Employee or upon his or her terminating employment with all
Related Companies due to his or her death.
8.3 Vesting Schedule
In addition to the vesting provided above, a Participant's
Company Match Cash and Company Match Stock Accounts shall
become vested in accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF VESTING VESTED
SERVICE PERCENTAGE
------- ----------
<S> <C>
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
</TABLE>
If this vesting schedule is changed, the vested percentage for
each Participant shall not be less than his or her vested
percentage determined as of the last day prior to this change,
and for any Participant with at least three Years of Vesting
Service when the schedule is changed, his or her vested
percentage shall be determined using the more favorable
vesting schedule.
8.4 Forfeitures of Non-Vested Account Balances
A Terminated Participant shall forfeit his or her non-vested
Account balance as of the Settlement Date following the Sweep
Date on which he or she is determined to be a Terminated
Participant. Forfeitures from all Accounts subject to vesting
shall be transferred to and maintained in the Forfeiture
Account.
8.5 Use of Forfeiture Account Amounts
Forfeiture Account amounts shall be used to restore Accounts,
to pay Plan fees and expenses and to reduce future Company
Match Contributions to be made, as directed by the
Administrator.
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8.6 Rehired Employees
(a) Service Restoration. If a former Employee again becomes
an Employee, all Periods of Employment credited when his
or her employment last terminated shall be counted in
determining his or her vested interest.
(b) Account Restoration. If a former Employee again becomes
an Employee before he or she incurs a Break in Service,
the amount forfeited after his or her employment last
terminated shall be restored to his or her Account. The
restoration shall include the interest which would have
been credited had such forfeiture been invested in the
Sweep Account from the date forfeited until the date the
restoration amount is restored. The restoration amount
shall come from the Forfeiture Account to the extent
possible, and any additional amount needed shall be
contributed by the Employer. His or her vested interest
in the restored Account shall then be equal to:
V% times (AB + D) - D
where:
V% = current vested percentage
AB = current Account balance
D = amount previously distributed from Account
24
<PAGE>
9 PARTICIPANT LOANS
9.1 Participant Loans Permitted
Loans to Participants and Beneficiaries are permitted pursuant
to the terms and conditions set forth in this Section, except
that a loan shall not be permitted to a Participant who is no
longer an Employee or to a Beneficiary, unless such Participant
or Beneficiary is otherwise a party in interest (as defined in
ERISA section 3(14)).
9.2 Loan Application, Note and Security
A Participant shall apply for any loan in such manner and
with such advance notice as prescribed by the Administrator.
Each loan shall be evidenced by a promissory note, secured only
by the portion of the Participant's Account from which the loan
is made, and the Plan shall have a lien on this portion of his or
her Account.
9.3 Spousal Consent
A Participant is not required to obtain Spousal Consent in order
to use any portion of his or her Account as security for a loan
under the Plan.
9.4 Loan Approval
The Administrator, or the Trustee, if otherwise authorized by
the Administrator and agreed to by the Trustee, is responsible
for determining that a loan request conforms to the
requirements described in this Section and granting such
request.
9.5 Loan Funding Limits, Account Sources and Funding Order
The loan amount must meet all of the following limits as
determined as of the Sweep Date the loan is processed and shall
be funded from the Participant's Accounts as follows:
(a) Plan Minimum Limit. The minimum amount for any loan is
$500.
(b) Plan Maximum Limit, Account Sources and Funding
Order. Subject to the legal limit described in (c) below,
the maximum a Participant may borrow, including the
aggregate outstanding balances of existing Plan loans, is
100% of the following of the Participant's Accounts which
are fully vested in the priority order as follows:
Pre-Tax Account
Pre-Tax (Prior Employer) Account
Rollover Account
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<PAGE>
(c) Legal Maximum Limit. The maximum a Participant may
borrow, including the aggregate outstanding balances of
existing Plan loans, is 50% of his or her vested Account
balance, not to exceed $50,000. However, the $50,000
maximum is reduced by the Participant's highest aggregate
outstanding Plan loan balance during the 12-month period
ending on the day before the Sweep Date as of which the
loan is made. For purposes of this paragraph, the
qualified plans of all Related Companies shall be treated
as though they are part of the Plan to the extent it would
decrease the maximum loan amount.
9.6 Maximum Number of Loans
A Participant may have a maximum of two loans outstanding at any
given time.
9.7 Source and Timing of Loan Funding
A loan to a Participant shall be made solely from his or her own
Account. The available assets shall be determined first by
Account and then within each Account used for funding a loan,
amounts shall first be taken from the Sweep Account and then
taken by Investment Fund in direct proportion to the market
value of the Participant's interest in each Investment Fund as
of the Trade Date on which the loan is processed.
The loan shall be funded on the Settlement Date following the
Trade Date as of which the loan is processed. The Trustee shall
make payment to the Participant as soon thereafter as
administratively feasible.
9.8 Interest Rate
The interest rate charged on Participant loans shall be a fixed
reasonable rate of interest, determined from time to time by the
Administrator, which provides the Plan with a return
commensurate with the prevailing interest rate charged by
persons in the business of lending money for loans which would
be made under similar circumstances. As of the Effective Date,
the interest rate is determined as set forth in Appendix C,
which may be changed from time to time by the Administrator, in
writing, without the necessity of amending the Plan and Trust.
9.9 Loan Payment
Substantially level amortization shall be required of each loan
with payments made at least monthly, generally through payroll
deduction. Loans may be prepaid in full or in part at any time.
The Participant may choose the loan repayment period, not to
exceed five years.
9.10 Loan Payment Hierarchy
Loan principal payments shall be credited to the Participant's
Accounts in the inverse of the order used to fund the loan.
Loan interest shall be credited to the Participant's Accounts in
direct proportion to the principal payment. Loan
26
<PAGE>
payments credited to Accounts for which the Participant directs
investment as described in Section 7 are credited to the
Investment Funds based upon the Participant's current investment
election for new Contributions. Loan payments credited to
Accounts for which the Participant does not direct investment as
described in Section 7 are credited to the Investment Funds
specified by the Administrator for such Accounts.
9.11 Repayment Suspension
The Administrator may agree to a suspension of loan payments for
up to three months for a Participant who is on a Leave of
Absence without pay. During the suspension period, interest
shall continue to accrue on the outstanding loan balance. At
the expiration of the suspension period all outstanding loan
payments and accrued interest thereon shall be due unless
otherwise agreed upon by the Administrator.
9.12 Loan Default
A loan is treated as in default if a scheduled loan payment is
not made at the time required. A Participant shall then have a
grace period to cure the default before it becomes final. Such
grace period shall be for a period that does not extend beyond
the last day of the calendar quarter following the calendar
quarter in which the scheduled loan payment was due or such
lesser or greater maximum period as may later be authorized by
Code section 72(p).
In the event a default is not cured within the grace period, the
Administrator may direct the Trustee to report the outstanding
principal balance of the loan and accrued interest thereon as a
taxable distribution from the Plan to the Participant. As soon
as a Plan withdrawal or distribution to such Participant would
otherwise be permitted, the Administrator may instruct the
Trustee to execute upon its security interest in the
Participant's Account by distributing the note to the
Participant.
9.13 Call Feature
The Administrator shall have the right to call any Participant
loan once a Participant's employment with all Related Companies
has terminated, unless he or she is otherwise a party in
interest (as defined in ERISA section 3(14)), or if the Plan is
terminated.
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10 IN-SERVICE WITHDRAWALS
10.1 In-Service Withdrawals Permitted
In-service withdrawals to a Participant who is an Employee are
permitted pursuant to the terms and conditions set forth in this
Section and pursuant to the terms and conditions set forth in
Section 11 with regard to an in-service withdrawal made in
accordance with a Participant's Required Beginning Date.
10.2 In-Service Withdrawal Application and Notice
A Participant shall apply for any in-service withdrawal in such
manner and with such advance notice as prescribed by the
Administrator. The Participant shall be provided the notice
prescribed by Code section 402(f).
Code sections 401(a)(11) and 417 do not apply to in-service
withdrawals under the Plan as described in this Section. An
in-service withdrawal may commence less than 30 days after the
aforementioned notice is provided, if:
(a) the Participant is clearly informed that he or she
has the right to a period of at least 30 days after receipt
of such notice to consider his or her option to elect or
not elect a Direct Rollover for all or a portion, if any,
of his or her in-service withdrawal which constitutes an
Eligible Rollover Distribution; and
(b) the Participant after receiving such notice,
affirmatively elects a Direct Rollover for all or a
portion, if any, of his or her in-service withdrawal which
constitutes an Eligible Rollover Distribution or
alternatively elects to have all or a portion made payable
directly to him or her, thereby not electing a Direct
Rollover for all or a portion thereof.
10.3 Spousal Consent
A Participant is not required to obtain Spousal Consent in order
to receive an in-service withdrawal under the Plan.
10.4 In-Service Withdrawal Approval
The Administrator, or the Trustee, if otherwise authorized by
the Administrator and agreed to by the Trustee, is responsible
for determining whether an in-service withdrawal request
conforms to the requirements described in this Section and
granting such request.
10.5 Payment Form and Medium
The form of payment for an in-service withdrawal shall be a
single lump sum and payment shall be made in cash. With regard
to the portion of an in-service withdrawal representing an
Eligible Rollover Distribution, a Participant may elect a Direct
Rollover for all or a portion of such amount.
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10.6 Source and Timing of In-Service Withdrawal Funding
An in-service withdrawal to a Participant shall be made solely
from his or her own Account and shall be based on the Account
values as of the Trade Date the in-service withdrawal is
processed. The available assets shall be determined first by
Account and then within each Account used for funding an
in-service withdrawal, amounts shall first be taken from the
Sweep Account and then taken by Investment Fund in direct
proportion to the market value of the Participant's interest in
each Investment Fund (which excludes his or her Loan Account
balance) as of the Trade Date on which the in-service withdrawal
is processed.
The in-service withdrawal shall be funded on the Settlement Date
following the Trade Date as of which the in-service withdrawal
is processed. The Trustee shall make payment to the Participant
or on behalf of the Participant as soon thereafter as
administratively feasible.
10.7 Hardship Withdrawals
(a) Requirements. A Participant who is an Employee may
request the withdrawal of up to the amount necessary to
satisfy a financial need including amounts necessary to
pay any federal, state or local income taxes or
penalties reasonably anticipated to result from the
withdrawal. Only requests for withdrawals (1) on
account of a Participant's "Deemed Financial Need" and
(2) which are "Deemed Necessary" to satisfy the
financial need shall be approved.
(b) "Deemed Financial Need". An immediate and heavy
financial need relating to:
(1) the payment of unreimbursed medical care
expenses (described under Code section 213(d))
incurred (or to be incurred) by the Employee, his or
her spouse or dependents (as defined in Code section
152);
(2) the purchase (excluding mortgage payments) of
the Employee's principal residence;
(3) the payment of unreimbursed tuition, related
educational fees and room and board for up to the
next 12 months of post-secondary education for the
Employee, his or her spouse or dependents (as
defined in Code section 152);
(4) the payment of funeral expenses of an
Employee's family member;
(5) the payment of amounts necessary for the
Employee to prevent losing his or her principal
residence through eviction or foreclosure on the
mortgage; or
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(6) any other circumstance specifically permitted under
Code section 401(k)(2)(B)(i)(IV).
(c) "Deemed Necessary". A withdrawal is "Deemed Necessary"
to satisfy the financial need only if the withdrawal
amount does not exceed the financial need and all of
these conditions are met:
(1) the Employee has obtained all possible
withdrawals (other than hardship withdrawals) and
nontaxable loans available from the Plan and all
other plans maintained by Related Companies;
(2) the Administrator shall suspend the Employee
from making any contributions to the Plan and all
other qualified and nonqualified plans of deferred
compensation and all stock option or stock purchase
plans maintained by Related Companies for 12 months
from the date the withdrawal payment is made; and
(3) the Administrator shall reduce the
Contribution Dollar Limit for the Employee with
regard to the Plan and all other plans maintained by
Related Companies for the calendar year next
following the calendar year of the withdrawal by the
amount of the Employee's Pre-Tax Contributions for
the calendar year of the withdrawal.
(d) Account Sources and Funding Order. The withdrawal
shall come from the following of the Participant's fully
vested Accounts, in the priority order as follows:
Rollover Account
Pre-Tax (Prior Employer) Account
Pre-Tax Account
The amount that may be withdrawn from a Participant's
Pre-Tax and Pre-Tax (Prior Employer) Accounts shall not
include any amounts attributable to earnings.
(e) Minimum Amount. There is no minimum amount for a hardship
withdrawal.
(f) Permitted Frequency. There is no restriction on the
number of hardship withdrawals permitted to a Participant.
(g) Suspension from Further Contributions. Upon making
a hardship withdrawal, a Participant may not make
additional Pre-Tax Contributions (or additional
contributions to all other qualified and nonqualified plans
of deferred compensation and all stock option or stock
purchase plans maintained by Related Companies) for a
period of 12 months from the date the withdrawal payment is
made.
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10.8 Rollover Account Withdrawals
(a) Requirements. A Participant who is an Employee may make a
Rollover Account withdrawal.
(b) Account Sources and Funding Order. The withdrawal
shall come from a Participant's Rollover Account.
(c) Minimum Amount. There is no minimum amount for a
Rollover Account withdrawal.
(d) Permitted Frequency. The maximum number of Rollover
Account withdrawals permitted to a Participant in any
12-month period is one.
(e) Suspension from Further Contributions. A Rollover
Account withdrawal shall not affect a Participant's ability
to make or be eligible to receive further Contributions.
10.9 Over Age 59 1/2 Withdrawals
(a) Requirements. A Participant who is an Employee and
over age 59 1/2 may make an Over Age 59 1/2 withdrawal.
(b) Account Sources and Funding Order. The withdrawal
shall come from the following of the Participant's fully
vested Accounts, in the priority order as follows:
Rollover Account
Pre-Tax Account
Pre-Tax (Prior Employer) Account
Company Match Cash Account
Company Match Stock Account
(c) Minimum Amount. There is no minimum amount for an
Over Age 59 1/2 withdrawal.
(d) Permitted Frequency. There is no restriction on the
number of Over Age 59 1/2 withdrawals permitted to a
Participant.
(e) Suspension from Further Contributions. An Over Age
59 1/2 withdrawal shall not affect a Participant's ability
to make or be eligible to receive further Contributions.
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11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR BY REASON OF A PARTICIPANT'S
REQUIRED BEGINNING DATE
11.1 Benefit Information, Notices and Election
A Participant, or his or her Beneficiary in the case of his or
her death, shall be provided with information regarding all
optional times and forms of distribution available under the
Plan, including the notices prescribed by Code sections 402(f)
and 411(a)(11). Subject to the other requirements of this
Section, a Participant, or his or her Beneficiary in the case of
his or her death, may elect, in such manner and with such
advance notice as prescribed by the Administrator, to have his
or her vested Account balance distributed beginning upon any
Settlement Date following the Participant's termination of
employment with all Related Companies and a reasonable period of
time during which the Administrator shall process, and inform
the Trustee of, the Participant's termination or, if earlier, at
the time of the Participant's Required Beginning Date.
Notwithstanding the foregoing, if a Participant's termination of
employment with all Related Companies does not constitute a
separation from service for purposes of Code section
401(k)(2)(B)(i)(I) or otherwise constitute an event set forth
under Code section 401(k)(10)(A)(ii) or (iii) as described in
Section 19.3, the portion of a Participant's Account subject to
the distribution rules of Code section 401(k) may not be
distributed until such time as he or she separates from service
for purposes of Code section 401(k)(2)(B)(i)(I) or, if earlier,
upon such other event as described in Code section 401(k)(2)(B)
and as provided for in the Plan.
A distribution may commence less than 30 days, but more than
seven days (if such distribution is one to which Code sections
401(a)(11) and 417 apply), after the aforementioned notices are
provided, if:
(a) the Participant is clearly informed that he or she
has the right to a period of at least 30 days after receipt
of such notices to consider the decision as to whether to
elect a distribution and if so to elect a particular form
of distribution and to elect or not elect a Direct Rollover
for all or a portion, if any, of his or her distribution
which constitutes an Eligible Rollover Distribution;
(b) the Participant after receiving such notices,
affirmatively elects a distribution and a Direct Rollover
for all or a portion, if any, of his or her distribution
which constitutes an Eligible Rollover Distribution or
alternatively elects to have all or a portion made payable
directly to him or her, thereby not electing a Direct
Rollover for all or a portion thereof; and
(c) if such distribution is one to which Code sections
401(a)(11) and 417 apply, the Participant's election
includes Spousal Consent.
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11.2 Spousal Consent
A Participant is required to obtain Spousal Consent in order to
receive a distribution under the Plan if his or her Account
includes an Annuity Eligible Balance, he or she is eligible for
payment in the form of an annuity and he or she elects payment in
the form of an annuity.
11.3 Payment Form and Medium
Distributions shall be paid in the form of a single lump sum.
Notwithstanding the foregoing, a Participant who is an Employee
may instead elect to be paid annually in a lump sum an amount
sufficient to comply with Code section 401(a)(9) with regard to a
distribution made by reason of his or her Required Beginning Date.
Notwithstanding the foregoing, to preserve benefits protected by
Code section 411(d)(6), and subject to Section 11.12, a
Participant whose Account includes an Annuity Eligible Balance in
excess of $5,000, or that exceeded $5,000 at the time of any
prior in-service withdrawal or distribution, may elect to have
the portion of his or her benefit attributable to his or her
Annuity Eligible Balance paid in the form of a single life
annuity, a single life annuity with a 5-, 10- or 15-year period
certain, a single life annuity with a full cash refund or a joint
and 50% or 100% survivor annuity.
Any annuity option permitted shall be provided through the
purchase of a non-transferable single premium contract from an
insurance company which must conform to the terms of the Plan and
which shall be distributed to the Participant or Beneficiary in
complete satisfaction of the benefit due.
Distributions other than annuity contracts shall be made in cash
(except to the extent a distribution consists of a loan call as
described in Section 9) or a Participant may elect that a lump
sum payment be made in the form of whole shares of Company Stock
and cash in lieu of fractional shares to the extent the
distribution consists of amounts from the Company Stock Fund.
With regard to the portion of a distribution representing an
Eligible Rollover Distribution, a Distributee may elect a Direct
Rollover for all or a portion of such amount.
11.4 Distribution of Small Amounts
If after a Participant's employment with all Related Companies
ends, the Participant's vested Account balance is $5,000 or less,
and if at the time of any prior in-service withdrawal or
distribution the Participant's vested Account balance did not
exceed $5,000, the Participant's benefit shall be paid as a
single lump sum as soon as administratively feasible in
accordance with procedures prescribed by the Administrator.
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11.5 Source and Timing of Distribution Funding
A distribution to a Participant shall be made solely from his or
her own Account and shall be based on the Account values as of
the Trade Date the distribution is processed. The available
assets shall be determined first by Account and then within each
Account used for funding a distribution, amounts shall first be
taken from the Sweep Account and then taken by Investment Fund in
direct proportion to the market value of the Participant's
interest in each Investment Fund as of the Trade Date on which
the distribution is processed.
The distribution shall be funded on the Settlement Date following
the Trade Date as of which the distribution is processed. The
Trustee shall make payment to the Participant or on behalf of the
Participant as soon thereafter as administratively feasible.
11.6 Deemed Distribution
For purposes of Section 8, if at the time a Participant is
determined to be a Terminated Participant, his or her vested
Account balance attributable to Accounts subject to vesting as
described in Section 8 is zero, his or her vested Account balance
shall be deemed distributed as of the Settlement Date following
the Sweep Date on which he or she is determined to be a
Terminated Participant.
11.7 Latest Commencement Permitted
In addition to any other Plan requirements and unless a
Participant elects otherwise, his or her benefit payments shall
begin not later than 60 days after the end of the Plan Year in
which he or she attains his or her Normal Retirement Date or
retires, whichever is later. However, if the amount of the
payment or the location of the Participant (after a reasonable
search) cannot be ascertained by that deadline, payment shall be
made no later than 60 days after the earliest date on which such
amount or location is ascertained but in no event later than the
Participant's Required Beginning Date. A Participant's failure
to elect in such manner as prescribed by the Administrator to
have his or her vested Account balance distributed, shall be
deemed an election by the Participant to defer his or her
distribution but in no event shall his or her benefit payments
commence later than his or her Required Beginning Date.
With regard to a Participant who is an Employee and who commenced
benefit payments in accordance with Code section 401(a)(9) as in
effect prior to January 1, 1997, and who is not a 5% Owner, he or
she may, but is not required to, discontinue such benefit
payments until he or she is otherwise required to again commence
benefit payments in accordance with Code section 401(a)(9) as in
effect for calendar years commencing after December 31, 1996. A
Participant who elects to discontinue such benefit payments in
accordance with the preceding sentence shall thereby render his
or her existing payment election and, if applicable, any Spousal
Consent to such election, as
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void and a new election including, if applicable, Spousal
Consent to such new election, shall be required subject to the
provisions of Section 11 at the time he or she is required to
again commence benefit payments in accordance with Code section
401(a)(9) as in effect for calendar years commencing after
December 31, 1996.
If benefit payments cannot begin at the time required because the
location of the Participant cannot be ascertained (after a
reasonable search), the Administrator may, at any time
thereafter, treat such person's Account as forfeited subject to
the provisions of Section 18.6.
11.8 Payment Within Life Expectancy
The Participant's payment election must be consistent with the
requirement of Code section 401(a)(9) that all payments are to be
completed within a period not to exceed the lives or the joint
and last survivor life expectancy of the Participant and his or
her Beneficiary. The life expectancies of a Participant and his
or her Beneficiary may not be recomputed annually.
11.9 Incidental Benefit Rule
The Participant's payment election must be consistent with the
requirement that, if the Participant's spouse is not his or her
sole primary Beneficiary, the minimum annual distribution for
each calendar year, beginning with the calendar year preceding
the calendar year that includes the Participant's Required
Beginning Date, shall not be less than the quotient obtained by
dividing (a) the Participant's vested Account balance as of the
last Trade Date of the preceding year by (b) the applicable
divisor as determined under the incidental benefit requirements
of Code section 401(a)(9).
11.10 Payment to Beneficiary
Payment to a Beneficiary must be completed by the end of the
calendar year that contains the fifth anniversary of the
Participant's death, except that:
(a) If the Participant dies after his or her Required
Beginning Date, payment to his or her Beneficiary must be
made at least as rapidly as provided in the Participant's
distribution election;
(b) If the surviving spouse is the Beneficiary, payments
need not begin until the later of (i) the end of the
calendar year that includes the first anniversary of the
Participant's death, or (ii) the end of the calendar year in
which the Participant would have attained age 70 1/2 and must
be completed within the spouse's life or life expectancy; and
(c) If the Participant and the surviving spouse who is
the Beneficiary die (i) before the Participant's Required
Beginning Date and (ii) before payments have begun to the
spouse, the spouse shall be treated as the Participant in
applying these rules.
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11.11 Beneficiary Designation
Each Participant may complete a beneficiary designation form
indicating the Beneficiary who is to receive the Participant's
Account at the time of his or her death. The designation may be
changed at any time. However, a Participant's spouse shall be
the sole primary Beneficiary unless the designation includes
Spousal Consent for another Beneficiary. If no proper
designation is in effect at the time of a Participant's death or
if the Beneficiary does not survive the Participant, the
Beneficiary shall be, in the order listed, the:
(a) Participant's surviving spouse, or
(b) Participant's estate.
11.12 QJSA and QPSA Definitions, Information and Elections
The following definitions, information and election rules shall
apply to any Participant whose Account includes an Annuity
Eligible Balance, who is eligible for payment in the form of
annuity and who elects payment in the form of an annuity and only
with regard to such Participant's Annuity Eligible Balance:
(a) Annuity Starting Date. The first day of the first
period for which an amount is payable as an annuity, or, in
the case of a benefit not payable in the form of an annuity,
the first day on which all events have occurred which
entitle the Participant to such benefit. Such date shall be
a date no earlier than the expiration of the seven-day
period that commences the day after the information
described in the QJSA Information to a Participant paragraph
below is provided to the Participant.
(b) "QJSA". A qualified joint and survivor annuity,
meaning for a married Participant, a form of benefit payment
which is the actuarial equivalent of the Participant's
vested Account balance at the Annuity Starting Date, payable
to the Participant in monthly payments for life and
providing that, if the Participant's spouse survives him or
her, monthly payments equal to 50% of the amount payable to
the Participant during his or her lifetime shall be paid to
the spouse for the remainder of such person's lifetime and
for a single Participant, a form of benefit payment which is
the actuarial equivalent of the Participant's vested Account
balance at the Annuity Starting Date, payable to the
Participant in monthly payments for life.
(c) "QPSA". A qualified pre-retirement survivor annuity,
meaning that upon the death of a Participant before the
Annuity Starting Date, the vested portion of the
Participant's Account becomes payable to the surviving
spouse as a life annuity, except to the extent of any Loan
Account balance, unless Spousal Consent has been given to a
different Beneficiary or the surviving spouse chooses a
different form of payment.
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(d) QJSA Information to a Participant. The Administrator
shall provide each Participant a written explanation of (1)
the terms and conditions of the QJSA, (2) the right to a
period of at least 30 days after receipt of the written
explanation to make an election to waive this form of
payment and choose an optional form of payment and the
effect of this election, (3) the right to revoke this
election and the effect of this revocation, and (4) the need
for Spousal Consent.
The Administrator shall provide such written explanation no
more than 90 days before the Annuity Starting Date.
(e) QJSA Election by Participant. A Participant may
elect, and such election shall include Spousal Consent if
married, at any time within the 90 day period ending on the
Annuity Starting Date to (1) waive the right to receive the
QJSA and elect an optional form of payment, or (2) to revoke
or change any such election.
(f) QPSA Beneficiary Information to a Participant. The
Administrator shall provide each married Participant a
written explanation stating (1) his or her death benefit is
payable to his or her surviving spouse, (2) he or she may
choose that the benefit be paid to a different Beneficiary,
(3) he or she has the right to revoke or change a prior
designation and the effects of such revocation or change,
and (4) the need for Spousal Consent.
The Administrator shall provide such written explanation no
later than the later of (1) the end of the period beginning
with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age
35, (2) the period beginning one year before and ending one
year after a Participant becomes a Participant, (3) the
period beginning one year before and ending one year after
Code section 401(a)(11) first applies to the Participant, or
(4) in the case of a Participant who terminates employment
with all Related Companies before attaining age 35, the
period beginning one year before and ending one year after
his or her termination of employment with all Related
Companies.
(g) QPSA Beneficiary Designation by a Participant. A
married Participant may designate, with Spousal Consent, a
non-spouse Beneficiary at any time after the Participant has
been given the information in the QPSA Beneficiary
Information to a Participant paragraph above and upon the
earlier of (1) the date the Participant is no longer an
Employee, or (2) the beginning of the Plan Year in which the
Participant attains age 35.
(h) QPSA Information to a Surviving Spouse. Each
surviving spouse shall be given a written explanation of (1)
the terms and conditions of being paid his or her Account
balance in the form of a single life annuity, (2) the right
to make an election to waive this form of payment and choose
an optional form of payment and the effect of this election,
and (3) the
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right to revoke this election and the effect of this
revocation.
(i) QPSA Election by Surviving Spouse. A
surviving spouse may elect, at any time up to the
Annuity Starting Date, to (1) waive the right to
receive a single life annuity and elect an optional
form of payment, or (2) revoke or change any such
election.
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12 ADP AND ACP TESTS
12.1 Contribution Limitation Definitions
The following definitions are applicable to this Section 12
(where a definition is contained in both Sections 1 and 12, for
purposes of Section 12 the Section 12 definition shall be
controlling):
(a) "ACP" or "Average Contribution Percentage". The Average
Percentage calculated using Contributions allocated to
Participants as of a date within the Plan Year.
(b) "ACP Test". The determination of whether the ACP is in
compliance with the Basic or Alternative Limitation for a
Plan Year (as defined in Section 12.2).
(c) "ADP" or "Average Deferral Percentage". The Average
Percentage calculated using Deferrals allocated to
Participants as of a date within the Plan Year.
(d) "ADP Test". The determination of whether the ADP is in
compliance with the Basic or Alternative Limitation for a
Plan Year (as defined in Section 12.2).
(e) "Average Percentage". The average of the calculated
percentages for Participants within the specified group.
The calculated percentage refers to either the "Deferrals"
or "Contributions" (as defined in this Section) made on
each Participant's behalf for the Plan Year, divided by
his or her Compensation. (Pre-Tax Contributions to the
Plan or comparable contributions to plans of Related
Companies which must be refunded solely because they
exceed the Contribution Dollar Limit are included in the
percentage for the HCE Group but not for the NHCE Group.)
(f) "Contributions" (i) shall include Company Match
Contributions and (ii) may include Pre-Tax Contributions,
but with regard to (ii), only to the extent that (1) the
Administrator elects to use them, (2) they are not used or
counted in the ADP Test and (3) they otherwise satisfy the
requirements as prescribed under Code section 401(m)
permitting treatment as Contributions for purposes of the
ACP Test.
(g) "Current Year Testing Method". The use of the Plan Year's
ADP for the Plan Year's NHCE Group for purposes of
performing the Plan Year's ADP Test and/or the use of the
Plan Year's ACP for the Plan Year's NHCE Group for
purposes of performing the Plan Year's ACP Test.
(h) "Deferrals" shall include Pre-Tax Contributions.
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(i) "HCE" or "Highly Compensated Employee".
For Plan Years commencing after December 31, 1996, with
respect to all Related Companies, an Employee who (in
accordance with Code section 414(q)):
(1) Was a more than 5% Owner (within the meaning of
Code section 414(q)(2)) at any time during the Plan
Year or the preceding Plan Year; or
(2) Received Compensation during the preceding
Plan Year in excess of $80,000 (as adjusted for such
Year pursuant to Code sections 414(q)(1) and 415(d))
or, if the Company elects for such preceding Plan
Year, "in excess of $80,000 (as adjusted for such
Year pursuant to Code sections 414(q)(1) and 415(d))
and was a member of the "top-paid group" (within the
meaning of Code section 414(q)(3)) for such
preceding Plan Year" shall be substituted for the
preceding reference to "in excess of $80,000 (as
adjusted for such Year pursuant to Code sections
414(q)(1) and 415(d))".
A former Employee shall be treated as an HCE if (1) such
former Employee was an HCE when he or she separated from
service, or (2) such former Employee was an HCE in service
at any time after attaining age 55.
The determination of who is an HCE and the determination of
the number and identity of Employees in the top-paid group
shall be made in accordance with Code section 414(q).
(j) "HCE Group" and "NHCE Group". With respect to
all Related Companies, the respective group of HCEs and
NHCEs who are eligible to have amounts contributed on
their behalf for the respective Plan Year, including
Employees who would be eligible but for their election
not to participate or to contribute, or because their
Pay is greater than zero but does not exceed a stated
minimum. For Plan Years commencing after December 31,
1998, with respect to all Related Companies, if the
Plan permits participation prior to an Eligible
Employee's satisfaction of the minimum age and service
requirements of Code section 410(a)(1)(A), Eligible
Employees who have not met the minimum age and service
requirements of Code section 410(a)(1)(A) may be
excluded in the determination of the NHCE Group, but
not in the determination of the HCE Group, for purposes
of (i) the ADP Test, if Code section 410(b)(4)(B) is
applied in determining whether the 401(k) portion of
the Plan meets the requirements of Code section 410(b),
or (ii) the ACP Test, if Code section 410(b)(4)(B) is
applied in determining whether the 401(m) portion of
the Plan meets the requirements of Code section 410(b).
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(1) If the Related Companies maintain two or more plans
which are subject to the ADP or ACP Test and are
considered as one plan for purposes of Code sections
401(a)(4) or 410(b), all such plans shall be
aggregated and treated as one plan for purposes of
meeting the ADP and ACP Tests, provided that the
plans may only be aggregated if they have the same
plan year.
(2) If an HCE is covered by more than one cash or
deferred arrangement, or more than one arrangement
permitting employee or matching contributions,
maintained by the Related Companies, all such plans
shall be aggregated and treated as one plan (other
than those plans that may not be permissively
aggregated) for purposes of calculating the separate
percentage for the HCE which is used in the
determination of the Average Percentage. For
purposes of the preceding sentence, if such plans
have different plan years, the plans are aggregated
with respect to the plan years ending with or within
the same calendar year.
(k) "Multiple Use Test". The test described in Section 12.4
which a Plan must meet where the Alternative Limitation
(described in Section 12.2) is used to meet both the ADP
and ACP Tests.
(l) "NHCE" or "Non-Highly Compensated Employee". An Employee
who is not an HCE.
(m) "Prior Year Testing Method". The use of the preceding
Plan Year's ADP for the preceding Plan Year's NHCE Group
for purposes of performing the Plan Year's ADP Test
and/or the use of the preceding Plan Year's ACP for the
preceding Plan Year's NHCE Group for purposes of
performing the Plan Year's ACP Test.
12.2 ADP and ACP Tests
For Plan Years commencing after December 31, 1996, for each Plan
Year, the Prior Year Testing Method shall be used and the ADP
and ACP for the HCE Group must meet either the Basic or
Alternative Limitation when compared to the respective preceding
Plan Year's ADP and ACP for the preceding Plan Year's NHCE
Group, defined as follows:
(a) Basic Limitation. The HCE Group Average Percentage may
not exceed 1.25 times the NHCE Group Average Percentage.
(b) Alternative Limitation. The HCE Group Average Percentage
is limited by reference to the NHCE Group Average
Percentage as follows:
41
<PAGE>
<TABLE>
<CAPTION>
IF THE NHCE GROUP THEN THE MAXIMUM HCE
AVERAGE PERCENTAGE IS: GROUP AVERAGE PERCENTAGE IS:
---------------------- ----------------------------
<S> <C>
Less than 2% 2 times NHCE Group Average %
2% to 8% NHCE Group Average % plus 2%
More than 8% NA - Basic Limitation applies
</TABLE>
Alternatively, the Company may elect to use the Current Year
Testing Method and the ADP and/or ACP for the HCE Group must
meet either the Basic or Alternative Limitation as defined above
when compared to the respective Plan Year's ADP and/or ACP for
the Plan Year's NHCE Group. If a Current Year Testing Method
election is made, such election may not be changed except as
provided by the Code.
12.3 Correction of ADP and ACP Tests
For Plan Years commencing after December 31, 1996, for each Plan
Year, if the ADP or ACP Tests are not met, the Administrator
shall determine, no later than the end of the next Plan Year, a
maximum percentage to be used in place of the calculated
percentage for all HCEs that would reduce the ADP and/or ACP for
the HCE Group by a sufficient amount to meet the ADP and ACP
Tests.
With regard to each HCE whose Deferral percentage and/or
Contribution percentage is in excess of the maximum percentage,
a dollar amount of excess Deferrals and/or excess Contributions
shall then be determined by (i) subtracting the product of such
maximum percentage for the ADP and the HCE's Compensation from
the HCE's actual Deferrals and (ii) subtracting the product of
such maximum percentage for the ACP and the HCE's Compensation
from the HCE's actual Contributions. Such amounts shall then be
aggregated to determine the total dollar amount of excess
Deferrals and/or excess Contributions. ADP and/or ACP
corrections shall be made in accordance with the leveling method
as described below.
(a) ADP Correction. The HCE with the highest Deferral dollar
amount shall have his or her Deferral dollar amount
reduced in an amount equal to the lesser of the dollar
amount of excess Deferrals for all HCEs or the dollar
amount that would cause his or her Deferral dollar amount
to equal that of the HCE with the next highest Deferral
dollar amount. The process shall be repeated until the
total of the Deferral dollar amount reductions equals the
dollar amount of excess Deferrals for all HCEs.
To the extent an HCE's Deferrals were determined to be
reduced as described in the paragraph above, Pre-Tax
Contributions shall, by the end of the next Plan Year, be
refunded to the HCE, except that such amount to be
refunded shall be reduced by Pre-Tax Contributions
previously refunded because they exceeded the
Contribution Dollar Limit. The excess amounts shall first
be taken from unmatched Pre-Tax
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Contributions and then from matched Pre-Tax
Contributions. Any Company Match Contributions
attributable to refunded excess Pre-Tax Contributions as
described in this Section, adjusted for investment gain
or loss for the Plan Year to which the excess Pre-Tax
Contributions relate, shall be forfeited and used as
described in Section 8.
(b) ACP Correction. The HCE with the highest Contribution
dollar amount shall have his or her Contribution dollar
amount reduced in an amount equal to the lesser of the
dollar amount of excess Contributions for all HCEs or the
dollar amount that would cause his or her Contribution
dollar amount to equal that of the HCE with the next
highest Contribution dollar amount. The process shall be
repeated until the total of the Contribution dollar
amount reductions equals the dollar amount of excess
Contributions for all HCEs.
To the extent an HCE's Contributions were determined to
be reduced as described in the paragraph above, Company
Match Contributions shall, by the end of the next Plan
Year, be refunded to the HCE to the extent vested, and
forfeited and used as described in Section 8 to the
extent such amounts were not vested, as of the end of the
Plan Year being tested.
(c) Investment Fund Sources. Once the amount of excess
Deferrals and/or Contributions is determined, within each
Account from which amounts are refunded or forfeited,
amounts shall first be taken from the Sweep Account and
then taken by Investment Fund in direct proportion to the
market value of the Participant's interest in each
Investment Fund (which excludes his or her Loan Account
balance) as of the Trade Date on which the correction is
processed.
12.4 Multiple Use Test
If the Alternative Limitation (defined in Section 12.2) is used
to meet both the ADP and ACP Tests, the ADP and ACP for the HCE
Group must also comply with the requirements of Code section
401(m)(9). Such Code section requires that the sum of the ADP
and ACP for the HCE Group (as determined after any corrections
needed to meet the ADP and ACP Tests have been made) not exceed
the sum (which produces the most favorable result) of:
(a) the Basic Limitation (defined in Section 12.2) applied to
either the ADP or ACP for the NHCE Group, and
(b) the Alternative Limitation applied to the other NHCE
Group percentage.
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<PAGE>
12.5 Correction of Multiple Use Test
If the multiple use limit is exceeded, the Administrator shall
determine a maximum percentage to be used in place of the
calculated percentage for all HCEs that would reduce either or
both the ADP or ACP for the HCE Group by a sufficient amount to
meet the multiple use limit. Any excess shall be corrected in
the same manner that excess Deferrals or Contributions are
corrected.
12.6 Adjustment for Investment Gain or Loss
Any excess Deferrals or Contributions to be refunded to a
Participant or forfeited in accordance with this Section 12
shall be adjusted for investment gain or loss. Refunds or
forfeitures shall not include investment gain or loss for the
period between the end of the applicable Plan Year and the date
of distribution or forfeiture.
12.7 Testing Responsibilities and Required Records
The Administrator shall be responsible for ensuring that the
Plan meets the ADP Test, the ACP Test and the Multiple Use Test,
and that the Contribution Dollar Limit is not exceeded. The
Administrator shall maintain records which are sufficient to
demonstrate that the ADP Test, the ACP Test and the Multiple Use
Test, have been met for each Plan Year for at least as long as
the Employer's corresponding tax year is open to audit.
12.8 Separate Testing
(a) Multiple Employers: The determination of HCEs, NHCEs,
and the performance of the ADP Test, the ACP Test and the
Multiple Use Test, and any corrective action resulting
therefrom, shall be conducted separately with regard to
the Employees of each Employer (and its Related
Companies) that is not a Related Company with respect to
the other Employer(s).
(b) Collective Bargaining Units: The performance of the ADP
Test, and if applicable, the ACP Test and the Multiple
Use Test, and any corrective action resulting therefrom,
shall be conducted separately with regard to Employees
who are eligible to participate in the Plan as a result
of a collective bargaining agreement.
In addition, testing may be conducted separately, at the
discretion of the Administrator and to the extent permitted
under Treasury regulations, with regard to any group of
Employees for whom separate testing is permissible under such
regulations.
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<PAGE>
13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS
13.1 "Annual Addition" Defined
The sum for a Plan Year of all (i) contributions (excluding
rollover contributions) and forfeitures allocated to the
Participant's Account and his or her account in all other
defined contribution plans maintained by any Related Company,
(ii) amounts allocated to the Participant's individual medical
account (within the meaning of Code section 415(l)(2)) which is
part of a defined benefit plan maintained by any Related
Company, and (iii) if the Participant is a key employee (within
the meaning of Code section 419A(d)(3)) for the applicable or
any prior Plan Year, amounts attributable to post-retirement
medical benefits allocated to his or her separate account under
a welfare benefit fund (within the meaning of Code section
419(e)) maintained by any Related Company. The Plan Year refers
to the year to which the allocation pertains, regardless of when
it was allocated. The Plan Year shall be the Code section 415
limitation year.
13.2 Maximum Annual Addition
A Participant's Annual Addition for any Plan Year shall not
exceed the lesser of (i) 25% of his or her Taxable Income or
(ii) $30,000 (as adjusted for cost of living increases pursuant
to Code section 415(d)); provided, however, that clause (i)
shall not apply to Annual Additions described in clauses (ii)
and (iii) of Section 13.1 and except that for Plan Years
commencing after December 31, 1997, "Compensation" shall be
substituted for the preceding reference to "Taxable Income".
13.3 Avoiding an Excess Annual Addition
If, at any time during a Plan Year, the allocation of any
additional Contributions would produce an excess Annual Addition
for such year, Contributions to be made for the remainder of the
Plan Year shall be limited to the amount needed for each
affected Participant to receive the maximum Annual Addition.
13.4 Correcting an Excess Annual Addition
Upon the discovery of an excess Annual Addition to a
Participant's Account (resulting from a reasonable error in
determining a Participant's compensation or the maximum
permissible amount of his or her elective deferrals (within the
meaning of Code section 402(g)(3)), or other facts and
circumstances acceptable to the Internal Revenue Service), the
excess amount (adjusted to reflect investment gains) shall first
be returned to the Participant to the extent of his or her
unmatched Pre-Tax Contributions and then to the extent of his or
her matched Pre-Tax Contributions (however to the extent Pre-Tax
Contributions were matched, the applicable Company Match
Contributions shall be forfeited in proportion to the returned
matched Pre-Tax Contributions) and the remaining excess, if any,
shall be forfeited by the Participant and together used as
described in Section 8.
13.5 Correcting a Multiple Plan Excess
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<PAGE>
If a Participant, whose Account is credited with an excess
Annual Addition, received allocations to more than one defined
contribution plan, the excess shall be corrected by reducing the
Annual Addition to the Plan only after all possible reductions
have been made to the other defined contribution plans.
13.6 "Defined Benefit Fraction" Defined
The fraction, for any Plan Year, where the numerator is the
"projected annual benefit" and the denominator is the greater of
125% of the "protected current accrued benefit" or the normal
limit which is the lesser of (i) 125% of the dollar limitation
in effect under Code section 415(b)(1)(A) for the Plan Year or
(ii) 140% of the amount which may be taken into account under
Code section 415(b)(1)(B) for the Plan Year, where a
Participant's:
(a) "projected annual benefit" is the annual benefit provided
by the plan determined pursuant to Code section
415(e)(2)(A), and
(b) "protected current accrued benefit" in a defined benefit
plan in existence (1) on July 1, 1982, shall be the
accrued annual benefit provided for under Public Law
97-248, section 235(g)(4), as amended, or (2) on May 6,
1986, shall be the accrued annual benefit provided for
under Public Law 99-514, section 1106(i)(3).
13.7 "Defined Contribution Fraction" Defined
The fraction where the numerator is the sum of the Participant's
Annual Addition for each Plan Year to date and the denominator
is the sum of the "annual amounts" for each year in which the
Participant has performed service with a Related Company. The
"annual amount" for any Plan Year is the lesser of (i) 125% of
the dollar limitation in effect under Code section 415(c)(1)(A)
(determined without regard to subsection (c)(6)) for the Plan
Year or (ii) 140% of the amount which may be taken into account
under Code section 415(c)(1)(B) for the Plan Year, where:
(a) each Annual Addition is determined pursuant to the Code
section 415(c) rules in effect for such Plan Year, and
(b) the numerator is adjusted pursuant to Public Law 97-248,
section 235(g)(3), as amended, or Public Law 99-514,
section 1106(i)(4).
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<PAGE>
13.8 Combined Plan Limits and Correction
The sum of a Participant's Defined Benefit Fraction and Defined
Contribution Fraction for any Plan Year may not exceed 1.0. If
the combined fraction exceeds 1.0 for any Plan Year, the
Participant's benefit under any defined benefit plan (to the
extent it has not been distributed or used to purchase an
annuity contract) shall be limited so that the combined fraction
does not exceed 1.0 before any defined contribution limits shall
be enforced.
For Plan Years commencing after December 31, 1999, the
provisions of the preceding paragraph shall no longer be
effective.
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<PAGE>
14 TOP HEAVY RULES
14.1 Top Heavy Definitions
When capitalized, the following words and phrases have the
following meanings when used in this Section:
(a) "Aggregation Group". The group consisting of each
qualified plan of the Related Companies (1) in which a
Key Employee is a participant or was a participant during
the determination period (regardless of whether such plan
has terminated), or (2) which enables another plan in the
group to meet the requirements of Code sections 401(a)(4)
or 410(b). The Administrator may also treat any other
qualified plan of the Related Companies as part of the
group if the resulting group would continue to meet the
requirements of Code sections 401(a)(4) and 410(b) with
such plan being taken into account.
(b) "Determination Date". For any Plan Year, the last Trade
Date of the preceding Plan Year or, in the case of the
Plan's first Plan Year, the last Trade Date of that Plan
Year.
(c) "Key Employee". A current or former Employee (or his or
her Beneficiary) who at any time during the five year
period ending on the Determination Date was:
(1) an officer of a Related Company whose Compensation
(i) exceeds 50% of the amount in effect under Code
section 415(b)(1)(A) and (ii) places him or her
within the following highest paid group of officers:
<TABLE>
<CAPTION>
NUMBER OF EMPLOYEES NUMBER OF
NOT EXCLUDED UNDER CODE HIGHEST PAID
SECTION 414(q)(5) OFFICERS INCLUDED
----------------- -----------------
<S> <C>
Less than 30 3
30 to 500 10% of the number of
Employees not excluded
under Code section
414(q)(5)
More than 500 50
</TABLE>
(2) a more than 5% Owner,
(3) a more than 1% Owner whose Compensation exceeds
$150,000, or
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<PAGE>
(4) a more than 0.5% Owner who is among the 10 Employees
owning the largest interest in a Related Company and
whose Compensation exceeds the amount in effect
under Code section 415(c)(1)(A).
(d) "Plan Benefit". The sum as of the Determination Date of
(1) an Employee's Account, (2) the present value of his
or her other accrued benefits provided by all qualified
plans within the Aggregation Group, and (3) the aggregate
distributions made within the five year period ending on
such Date. For this purpose, the present value of the
Employee's accrued benefit in a defined benefit plan
shall be determined by the method that is used for
benefit accrual purposes under all such plans maintained
by the Related Companies or, if there is no such single
method used under all such plans, as if the benefit
accrues no more rapidly than the slowest rate permitted
by the fractional accrual rule in Code section
411(b)(1)(C). Plan Benefits shall exclude rollover
contributions and similar transfers made after December
31, 1983 as provided in Code section 416(g)(4)(A).
(e) "Top Heavy". The Plan's status when the Plan Benefits of
Key Employees account for more than 60% of the Plan
Benefits of all Employees who have performed services at
any time during the five year period ending on the
Determination Date. The Plan Benefits of Employees who
were, but are no longer, Key Employees (because they have
not been an officer or Owner during the five year
period), are excluded in the determination.
14.2 Special Contributions
(a) Minimum Contribution Requirement. For each Plan Year in
which the Plan is Top Heavy, the Employer shall not allow
any contributions (other than a Rollover Contribution
from a plan maintained by a non Related Company) to be
made by or on behalf of any Key Employee unless the
Employer makes a contribution (other than contributions
made by an Employer in accordance with a Participant's
salary deferral election or contributions made by an
Employer based upon the amount contributed by a
Participant) on behalf of all Participants who were
Eligible Employees as of the last day of the Plan Year in
an amount equal to at least 3% of each such Participant's
Taxable Income.
(b) Overriding Minimum Benefit. Notwithstanding the
foregoing, contributions shall be permitted on behalf of
Key Employees if the Employer also maintains a defined
benefit plan which automatically provides a benefit which
satisfies the Code section 416(c)(1) minimum benefit
requirements, including the adjustment provided in Code
section 416(h)(2)(A), if applicable. If the Plan is part
of an Aggregation Group under which a Key Employee is
receiving a benefit and no minimum contribution is
provided under any other plan, a minimum contribution
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<PAGE>
of at least 3% of Taxable Income shall be provided to the
Participants specified in the preceding paragraph. In
addition, the Employer may offset a defined benefit
minimum by contributions (other than contributions made
by an Employer in accordance with a Participant's salary
deferral election or contributions made by an Employer
based upon the amount contributed by a Participant) made
to the Plan.
14.3 Adjustment to Combined Limits for Different Plans
For each Plan Year in which the Plan is Top Heavy, 100% shall be
substituted for 125% in determining the Defined Benefit Fraction
and the Defined Contribution Fraction. For Plan Years
commencing after December 31, 1999, the provisions of the
preceding sentence shall no longer be effective.
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<PAGE>
15 PLAN ADMINISTRATION
15.1 Plan Delineates Authority and Responsibility
Plan fiduciaries include the Company, the Administrator, the
Committee and/or the Trustee, as applicable, whose specific
duties are delineated in the Plan and Trust. In addition, Plan
fiduciaries also include any other person to whom fiduciary
duties or responsibilities are delegated with respect to the
Plan. Any person or group may serve in more than one fiduciary
capacity with respect to the Plan. To the extent permitted
under ERISA section 405, no fiduciary shall be liable for a
breach by another fiduciary.
15.2 Fiduciary Standards
Each fiduciary shall:
(a) discharge his or her duties in accordance with the Plan
and Trust to the extent they are consistent with ERISA;
(b) use that degree of care, skill, prudence and diligence
that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims;
(c) act with the exclusive purpose of providing benefits to
Participants and their Beneficiaries, and defraying
reasonable expenses of administering the Plan; and
(d) diversify Plan investments, to the extent such fiduciary
is responsible for directing the investment of Plan
assets, so as to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not
to do so.
15.3 Company is ERISA Plan Administrator
The Company is the administrator of the Plan (within the meaning
of ERISA section 3(16)) and is responsible for compliance with
all reporting and disclosure requirements, except those that are
explicitly the responsibility of the Trustee under applicable
law. The Administrator and/or Committee shall have any necessary
authority to carry out such functions through the actions of the
Administrator, duly appointed officers of the Company and/or the
Committee.
15.4 Administrator Duties
The Administrator shall have the discretionary authority to
construe the Plan and Trust, other than the provisions which
relate to the Trustee, and to do all things necessary or
convenient to effect the intent and purposes thereof,
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<PAGE>
whether or not such powers are specifically set forth in the
Plan and Trust. Actions taken in good faith by the
Administrator shall be conclusive and binding on all interested
parties, and shall be given the maximum possible deference
allowed by law. In addition to the duties listed elsewhere in
the Plan and Trust, the Administrator's authority shall include,
but not be limited to, the discretionary authority to:
(a) determine who is eligible to participate, if a
contribution qualifies as a rollover contribution, the
allocation of Contributions, and the eligibility for
loans, in-service withdrawals and distributions;
(b) provide each Participant with a summary plan description
no later than 90 days after he or she has become a
Participant (or such other period permitted under ERISA
section 104(b)(1)), as well as informing each Participant
of any material modification to the Plan in a timely
manner;
(c) make a copy of the following documents available to
Participants during normal work hours: the Plan and Trust
(including subsequent amendments), all annual and interim
reports of the Trustee related to the entire Plan, the
latest annual report and the summary plan description;
(d) determine the fact of a Participant's death and of any
Beneficiary's right to receive the deceased Participant's
Account based upon such proof and evidence as it deems
necessary;
(e) establish and review at least annually a funding policy
bearing in mind both the short-run and long-run needs and
goals of the Plan and to the extent Participants may
direct their own investments, the funding policy shall
focus on which Investment Funds are available for
Participants to use; and
(f) adjudicate claims pursuant to the claims procedure
described in Section 18.
15.5 Advisors May be Retained
The Administrator may retain such agents and advisors (including
attorneys, accountants, actuaries, consultants, record keepers,
investment counsel and administrative assistants) as it
considers necessary to assist it in the performance of its
duties. The Administrator shall also comply with the bonding
requirements of ERISA section 412.
15.6 Delegation of Administrator Duties
The Company, as Administrator of the Plan, has appointed a
Committee to administer the Plan on its behalf. The Company
shall provide the Trustee with the names and specimen signatures
of any persons authorized to serve as
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<PAGE>
Committee members and act as or on its behalf. Any Committee
member appointed by the Company shall serve at the pleasure of
the Company, but may resign by written notice to the Company.
Any Committee member who is an Employee shall be deemed to
resign as a Committee member upon his or her termination of
employment with all Related Companies, unless expressly provided
to the contrary by written notice delivered to the Committee by
such Committee member. Committee members shall serve without
compensation from the Plan for such services. Except to the
extent that the Company otherwise provides, any delegation of
duties to the Committee shall carry with it the full
discretionary authority of the Administrator to complete such
duties.
15.7 Committee Operating Rules
(a) Actions of Majority. Any act delegated by the Company to
the Committee may be done by a majority of its members.
The majority may be expressed by a vote at a meeting or
in writing without a meeting, and a majority action shall
be equivalent to an action of all Committee members.
(b) Meetings. The Committee shall hold meetings upon such
notice, place and times as it determines necessary to
conduct its functions properly.
(c) Reliance by Trustee. The Committee may authorize one or
more of its members to execute documents on its behalf
and may authorize one or more of its members or other
individuals who are not members to give written direction
to the Trustee in the performance of its duties. The
Committee shall provide such authorization in writing to
the Trustee with the name and specimen signatures of any
person authorized to act on its behalf. The Trustee
shall accept such direction and rely upon it until
notified in writing that the Committee has revoked the
authorization to give such direction. The Trustee shall
not be deemed to be on notice of any change in the
membership of the Committee, parties authorized to direct
the Trustee in the performance of its duties, or the
duties delegated to and by the Committee until notified
in writing.
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<PAGE>
16 MANAGEMENT OF INVESTMENTS
16.1 Trust Agreement
All Plan assets shall be held by the Trustee in trust, in
accordance with those provisions of the Plan and Trust which
relate to the Trustee, for use in providing Plan benefits and
paying Plan fees and expenses not paid directly by the Employer.
Plan benefits shall be drawn solely from the Trust and paid by
the Trustee as directed by the Administrator. Notwithstanding
the foregoing, the Company may appoint, with the approval of the
Trustee, another trustee to hold and administer Plan assets
which do not meet the requirements of Section 16.2.
16.2 Investment Funds
The Administrator is hereby granted authority to direct the
Trustee to invest Trust assets in one or more Investment Funds.
The number and composition of Investment Funds may be changed
from time to time, without the necessity of amending the Plan
and Trust. The Trustee may establish reasonable limits on the
number of Investment Funds as well as the acceptable assets for
any such Investment Fund. Each of the Investment Funds may be
comprised of any of the following:
(a) shares of a registered investment company, whether or not
the Trustee or any of its affiliates is an advisor to, or
other service provider to, such company;
(b) collective investment funds maintained by the Trustee, or
any other fiduciary to the Plan, which are available for
investment by trusts which are qualified under Code
sections 401(a) and 501(a);
(c) individual equity and fixed income securities which are
readily tradable on the open market;
(d) synthetic guaranteed investment contracts and guaranteed
investment contracts issued by an insurance company
and/or synthetic guaranteed investment contracts and bank
investment contracts issued by a bank;
(e) interest bearing deposits (which may include interest
bearing deposits of the Trustee); and
(f) Company Stock.
Any Investment Fund assets invested in a collective investment
fund, shall be subject to all the provisions of the instruments
establishing and governing such fund. These instruments,
including any subsequent amendments, are incorporated herein by
reference.
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<PAGE>
16.3 Authority to Hold Cash
The Trustee shall have the authority to cause the investment manager
of each Investment Fund to maintain sufficient deposit or money market
type assets in each Investment Fund to handle the Investment Fund's
liquidity and disbursement needs. Each Participant's and
Beneficiary's Sweep Account, which is used to hold assets pending
investment or disbursement, shall consist of interest bearing deposits
(which may include interest bearing deposits of the Trustee) and/or
money market type assets or funds.
16.4 Trustee to Act Upon Instructions
The Trustee shall carry out instructions to invest assets in the
Investment Funds as soon as practicable after such instructions are
received from the Administrator, Participants or Beneficiaries. Such
instructions shall remain in effect until changed by the
Administrator, Participants or Beneficiaries.
16.5 Administrator Has Right to Vote Registered Investment Company Shares
The Administrator shall be entitled to vote proxies or exercise any
shareholder rights relating to shares held on behalf of the Plan in a
registered investment company. Notwithstanding the foregoing, the
authority to vote proxies and exercise shareholder rights related to
such shares held in a Custom Fund is vested as provided otherwise in
Section 16.
16.6 Custom Fund Investment Management
The Administrator may designate, with the consent of the Trustee, an
investment manager for any Investment Fund established by the Trustee
solely for Participants of the Plan and, subject to Section 16.7, any
other qualified plan of the Company or a Related Company (a "Custom
Fund"). The investment manager may be the Administrator, Trustee or
an investment manager pursuant to ERISA section 3(38). The
Administrator shall advise the Trustee in writing of the appointment
of an investment manager and shall cause the investment manager to
acknowledge to the Trustee in writing that the investment manager is a
fiduciary to the Plan.
A Custom Fund shall be subject to the following:
(a) Guidelines. Written guidelines, acceptable to the Trustee,
shall be established for a Custom Fund. If a Custom Fund
consists solely of collective investment funds or shares of a
registered investment company (and sufficient deposit or money
market type assets to handle the Custom Fund's liquidity and
disbursement needs), its underlying instruments shall
constitute the guidelines.
(b) Authority of Investment Manager. The investment manager of a
Custom Fund shall have the authority to vote or execute proxies,
55
<PAGE>
exercise shareholder rights, manage, acquire, and dispose of
Trust assets. Notwithstanding the foregoing, if the Company
provides for a Company Stock Fund, the authority to vote
proxies and exercise shareholder rights related to shares of
Company Stock held in the Company Stock Fund is vested as
provided otherwise in Section 16.
(c) Custody and Trade Settlement. Unless otherwise agreed to by
the Trustee, the Trustee shall maintain custody of all Custom
Fund assets and be responsible for the settlement of all Custom
Fund trades. For purposes of this Section, shares of a
collective investment fund, shares of a registered investment
company and synthetic guaranteed investment contracts and
guaranteed investment contracts issued by an insurance company
and/or synthetic guaranteed investment contracts and bank
investment contracts issued by a bank, shall be regarded as the
Custom Fund assets instead of the underlying assets of such
instruments.
(d) Limited Liability of Co-Fiduciaries. Neither the Administrator
nor the Trustee shall be obligated to invest or otherwise
manage any Custom Fund assets for which the Trustee or
Administrator is not the investment manager nor shall the
Administrator or Trustee be liable for acts or omissions with
regard to the investment of such assets except to the extent
required by ERISA.
16.7 Master Custom Fund
The Trustee may establish, at the direction of the Administrator, a
single Custom Fund (the "Master Custom Fund"), for the benefit of the
Plan and any other qualified plan of the Company or a Related Company
for which the Trustee acts as trustee pursuant to a plan and trust
document that contains a provision substantially identical to this
provision. The assets of the Plan, to the extent invested in the
Master Custom Fund, shall consist only of that percentage of the
assets of the Master Custom Fund represented by the shares held by the
Plan.
16.8 Authority to Segregate Assets
The Administrator may direct the Trustee to split an Investment Fund
into two or more funds in the event any assets in the Investment Fund
are illiquid or the value is not readily determinable. In the event
of such segregation, the Administrator shall give instructions to the
Trustee on what value to use for the split-off assets, and the Trustee
shall not be responsible for confirming such value.
16.9 Maximum Permitted Investment in Company Stock
If the Company provides for a Company Stock Fund, directly or through
a Master Custom Fund, the Company Stock Fund shall be comprised of
Company
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Stock and sufficient deposit or money market type assets to
handle the Company Stock Fund's liquidity and disbursement needs. The
Company Stock Fund may be as large as necessary to comply with
Participants' and Beneficiaries' investment elections as well the
total investment of Participants' and Beneficiaries' Company Match
Stock Accounts, to the extent such Accounts are not otherwise invested
in accordance in with Section 7.
16.10 Participants Have Right to Vote and Tender Company Stock
Each Participant or Beneficiary shall be entitled to instruct the
Trustee as to the voting or tendering of any full or partial shares of
Company Stock held on his or her behalf in the Company Stock Fund.
Prior to such voting or tendering of Company Stock, each Participant
or Beneficiary shall receive a copy of the proxy solicitation or other
material relating to such vote or tender decision and a form for the
Participant or Beneficiary to complete which confidentially instructs
the Trustee to vote or tender such shares in the manner indicated by
the Participant or Beneficiary. Upon receipt of such instructions, the
Trustee shall act with respect to such shares as instructed.
With regard to shares for which the Trustee receives no voting or
tendering instructions from Participants or Beneficiaries, the
Administrator shall instruct the Trustee with respect to how to vote
or tender such shares and the Trustee shall act with respect to such
shares as instructed.
16.11 Registration and Disclosure for Company Stock
The Administrator shall be responsible for determining the
applicability (and, if applicable, complying with) to the Plan of the
requirements of the Securities Act of 1933, as amended, and any
applicable state securities laws. The Administrator shall also
specify what restrictive legend or transfer restriction, if any, is
required to be set forth on the certificates of Company Stock
transferred from the Plan to a Participant and the procedure to be
followed by the Trustee to effectuate a transfer or resale of Company
Stock.
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17 TRUST ADMINISTRATION
17.1 Trustee to Construe Trust
The Trustee shall have the discretionary authority to construe
those provisions of the Plan and Trust which relate to the
Trustee and to do all things necessary or convenient to the
administration of the Trust, whether or not such powers are
specifically set forth in the Plan and Trust. Actions taken in
good faith by the Trustee shall be conclusive and binding on all
interested parties, and shall be given the maximum possible
deference allowed by law.
17.2 Trustee To Act As Owner of Trust Assets
Subject to the specific conditions and limitations set forth in
the Plan and Trust, the Trustee shall have all the power,
authority, rights and privileges of an absolute owner of the
Trust assets and, not in limitation but in amplification of the
foregoing, may:
(a) receive, hold, manage, invest and reinvest, sell, tender,
exchange, dispose of, encumber, hypothecate, pledge,
mortgage, lease, grant options respecting, repair, alter,
insure, or distribute any and all property in the Trust;
(b) borrow money, participate in reorganizations, pay calls
and assessments, vote or execute proxies, exercise
subscription or conversion privileges, exercise options
and register any securities in the Trust in the name of
the nominee, in federal book entry form or in any other
form as shall permit title thereto to pass by delivery;
(c) renew, extend the due date, compromise, arbitrate, adjust,
settle, enforce or foreclose, by judicial proceedings or
otherwise, or defend against the same, any obligations or
claims in favor of or against the Trust; and
(d) lend, through a collective investment fund, any securities
held in such collective investment fund to brokers,
dealers or other borrowers and to permit such securities
to be transferred into the name and custody and be voted
by the borrower or others.
17.3 United States Indicia of Ownership
The Trustee shall not maintain the indicia of ownership of any Trust
assets outside the jurisdiction of the district courts of the United
States, except as authorized under ERISA section 404(b).
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17.3 Tax Withholding and Payment
(a) Withholding. The Trustee shall calculate and withhold federal
(and, if applicable, state) income taxes with regard to any
Eligible Rollover Distribution that is not paid as a Direct
Rollover in accordance with the Participant's withholding
election or as required by law if no election is made or the
election is less than the amount required by law. With regard
to any taxable distribution that is not an Eligible Rollover
Distribution, the Trustee shall calculate and withhold federal
(and, if applicable, state) income taxes in accordance with the
Participant's withholding election or as required by law if no
election is made.
(b) Taxes Due From Investment Funds. The Trustee shall pay from
the Investment Fund any taxes or assessments imposed by any
taxing or governmental authority on such Investment Fund or its
income, including related interest and penalties.
17.5 Trust Accounting
(a) Annual Report. Within 60 days (or other reasonable period)
following the close of the Plan Year, the Trustee shall provide
the Administrator with an annual accounting of Trust assets and
information to assist the Administrator in meeting ERISA's
annual reporting and audit requirements.
(b) Periodic Reports. The Trustee shall maintain records and
provide sufficient reporting to allow the Administrator to
monitor the Trust's assets and activity.
(c) Administrator Approval. Approval of any Trustee accounting
shall automatically occur 90 days after such accounting has
been received by the Administrator, unless the Administrator
files a written objection with the Trustee within such time
period. Such approval shall be final as to all matters and
transactions stated or shown therein and binding upon the
Administrator.
17.6 Valuation of Certain Assets
If the Trustee determines that the Trust holds any asset which is not
readily tradable and listed on a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, the
Trustee may engage a qualified independent appraiser to determine the
fair market value of such property, and the appraisal fees shall be
paid from the Investment Fund containing the asset.
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17.7 Legal Counsel
The Trustee may consult with legal counsel of its choice, including
counsel for the Employer or other counsel selected by the Trustee,
upon any question or matter arising under the Plan and Trust. When
relied upon by the Trustee, the opinion of such counsel shall be
evidence that the Trustee has acted in good faith.
17.8 Fees and Expenses
The Trustee's fees for its services as Trustee shall be such as may be
mutually agreed upon by the Company and the Trustee. Trustee fees and
all reasonable expenses of counsel and advisors retained by the
Trustee shall be paid in accordance with Section 6 provided however,
that the Trustee has consulted with the Company before incurring fees
and expenses for such counsel and advisors.
17.9 Trustee Duties and Limitations
The Trustee's duties, unless otherwise agreed to by the Trustee, shall
be confined to construing the terms of the Plan and Trust as they
relate to the Trustee, receiving funds on behalf of and making
payments from the Trust, safeguarding and valuing Trust assets,
investing and reinvesting Trust assets in the Investment Funds as
directed by the Administrator, Participants or Beneficiaries, and
those duties as described in this Section 17.
The Trustee shall have no duty or authority to ascertain whether
Contributions are in compliance with the Plan, to enforce collection
or to compute or verify the accuracy or adequacy of any amount to be
paid to it by the Employer. The Trustee shall not be liable for the
proper application of any part of the Trust with respect to any
disbursement made at the direction of the Administrator.
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18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION
18.1 Plan Does Not Affect Employment Rights
The Plan does not provide any employment rights to any Employee.
The Employer expressly reserves the right to discharge an
Employee at any time, with or without cause, without regard to
the effect such discharge would have upon the Employee's Account
in the Plan.
18.2 Compliance With USERRA
Notwithstanding any provision of the Plan to the contrary, with
regard to an Employee who after serving in the uniformed services
is reemployed on or after December 12, 1994, within the time
required by USERRA, contributions shall be made and benefits and
service credit shall be provided under the Plan with respect to
his or her qualified military service (as defined in Code section
414(u)(5)) in accordance with Code section 414(u). Furthermore,
notwithstanding any provision of the Plan to the contrary,
Participant loan payments may be suspended during a period of
qualified military service.
18.3 Limited Return of Contributions
Except as provided in this Section 18.3, (i) Plan assets shall
not revert to the Employer nor be diverted to any purpose other
than the exclusive benefit of Participants and Beneficiaries and
defraying reasonable expenses of administering the Plan; and (ii)
a Participant's vested interest shall not be subject to
divestment. As provided in ERISA section 403(c)(2), the actual
amount of a Contribution or portion thereof made by the Employer
(or the current value of such if a net loss has occurred) may
revert to the Employer if:
(a) such Contribution or portion thereof is made by reason of a
mistake of fact; or
(b) such Contribution or portion thereof is not deductible under
Code section 404 (such Contributions are hereby conditioned
upon such deductibility) in the taxable year of the Employer
for which the Contribution is made.
The reversion to the Employer must be made (if at all) within one
year of the mistaken payment or the date of disallowance of
deduction, as the case may be. A Participant shall have no rights
under the Plan with respect to any such reversion.
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18.4 Assignment and Alienation
As provided by Code section 401(a)(13) and to the extent not
otherwise required by law, no benefit provided by the Plan may be
anticipated, assigned or alienated at anytime for any reason,
except:
(a) to create, assign or recognize a right to any benefit with
respect to a Participant pursuant to a QDRO; or
(b) to use a Participant's vested Account balance as security for
a loan from the Plan which is permitted pursuant to Code
section 4975.
18.5 Facility of Payment
If a Plan benefit is due to be paid to a minor or if the Administrator
reasonably believes that any payee is legally incapable of receiving
any payment due him or her, the Administrator shall have the payment
of the benefit, or any part thereof, made to the person (or persons or
institution) whom it reasonably believes is caring for or supporting
the payee, unless it has received due notice of claim therefor from a
duly appointed guardian or conservator of the payee. Any payment
shall to the extent thereof, be a complete discharge of any liability
under the Plan to the payee.
18.6 Reallocation of Lost Participant's Accounts
If the Administrator cannot locate a person entitled to payment of a
Plan benefit after a reasonable search, the Administrator may at any
time thereafter treat such person's Account as forfeited and use such
amount as described in Section 8. If such person subsequently
presents the Administrator with a valid claim for the benefit, such
person shall be paid the amount treated as forfeited, plus the
interest that would have been earned in the Sweep Account to the date
of determination. The Administrator shall pay the amount through an
additional amount contributed by the Employer or direct the Trustee to
pay the amount from the Forfeiture Account.
18.7 Suspension of Certain Plan Provisions During Conversion Period
Notwithstanding any provision of the Plan to the contrary, during any
Conversion Period, in accordance with procedures established by the
Administrator and the Trustee, the Administrator may temporarily
suspend, in whole or in part, certain provisions under the Plan, which
may include, but are not limited to, a Participant's right to change
his or her Contribution election, a Participant's right to change his
or her investment election and a Participant's right to borrow or
withdraw from his or her Account or obtain a distribution from his or
her Account.
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18.8 Suspension of Certain Plan Provisions During Other Periods
Notwithstanding any provision of the Plan to the contrary, in
accordance with procedures established by the Administrator and
the Trustee, the Administrator may temporarily suspend a
Participant's right to borrow or withdraw from his or her Account
or obtain a distribution from his or her Account, if (i) the
Administrator receives a domestic relations order and the
Participant's Account is a source of the payment for such
domestic relations order, or (ii) if the Administrator receives
notice that a domestic relations order is being sought by the
Participant, his or her spouse, former spouse, child or other
dependent (as defined in Code section 152) and the Participant's
Account is a source of the payment for such domestic relations
order. Such suspension may continue for a reasonable period of
time (as determined by the Administrator) which may include the
period of time the Administrator, a court of competent
jurisdiction or other appropriate person is determining whether
the domestic relations order qualifies as a QDRO.
18.9 Claims Procedure
(a) Right to Make Claim. An interested party who disagrees
with the Administrator's determination of his or her right
to Plan benefits, or any other matter involving the Plan,
must submit a written claim and exhaust this claim
procedure before legal recourse of any type is sought. The
claim must include the issues the interested party believes
support the claim. The Administrator, pursuant to the
authority provided in the Plan, shall either approve or
deny the claim.
(b) Process for Denying a Claim. The Administrator's partial
or complete denial of an initial claim must include an
understandable, written response covering (1) the specific
reasons why the claim is being denied (with reference to
the pertinent Plan provisions) and (2) the steps necessary
to perfect the claim and obtain a final review.
(c) Appeal of Denial and Final Review. The interested party
may make a written appeal of the Administrator's initial
decision, and the Administrator shall respond in the same
manner and form as prescribed for denying a claim initially.
(d) Time Frame. The initial claim, its review, appeal and
final review shall be made in a timely fashion, subject to
the following time table:
<TABLE>
<CAPTION>
Days to Respond
Action From Last Action
------ ----------------
<S> <C>
Administrator determines benefit NA
Interested party files initial request 60 days
Administrator's initial decision 90 days
Interested party requests final review 60 days
Administrator's final decision 60 days
</TABLE>
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However, the Administrator may take up to twice the
maximum response time for its initial and final review if
it provides an explanation within the normal period of
why an extension is needed and when its decision shall be
forthcoming.
18.10 Construction
Headings are included for reading convenience. The text shall
control if any ambiguity or inconsistency exists between the
headings and the text. The singular and plural shall be
interchanged wherever appropriate. References to Participant
shall include Alternate Payee and/or Beneficiary when appropriate
and even if not otherwise already expressly stated.
18.11 Jurisdiction and Severability
The Plan and Trust shall be construed, regulated and administered
under ERISA and other applicable federal laws and, where not
otherwise preempted, by the laws of the State of New Jersey with
respect to issues affecting the Trustee's responsibilities and by
the laws of the State of Texas with respect to all other matters.
If any provision of the Plan and Trust is or becomes invalid or
otherwise unenforceable, that fact shall not affect the validity
or enforceability of any other provision of the Plan and Trust.
All provisions of the Plan and Trust shall be so construed as to
render them valid and enforceable in accordance with their intent.
18.12 Indemnification by Employer
The Employers hereby agree to indemnify all Plan fiduciaries
against any and all liabilities resulting from any action or
inaction (including a Plan termination in which the Company fails
to apply for a favorable determination from the Internal Revenue
Service with respect to the qualification of the Plan upon its
termination) in relation to the Plan or Trust (i) including
(without limitation) expenses reasonably incurred in the defense
of any claim relating to the Plan or its assets, and amounts paid
in any settlement relating to the Plan or its assets, provided
the terms of such settlement are approved in advance by the
indemnifying Employers, but (ii) excluding liability resulting
from actions or inactions made in bad faith, or resulting from
the negligence or willful misconduct of the Trustee. The
Employers shall have the right, but not the obligation, to
conduct the defense of any action to which this Section applies.
The Plan fiduciaries are not entitled to indemnity from the Plan
assets relating to any such action.
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19 AMENDMENT, MERGER, DIVESTITURES AND TERMINATION
19.1 Amendment
The Company reserves the right to amend the Plan and Trust at any
time, to any extent and in any manner it may deem necessary or
appropriate. The Company (and not the Trustee) shall be
responsible for adopting any amendments necessary to maintain the
qualified status of the Plan and Trust under Code sections 401(a)
and 501(a). If the Committee is acting as the Administrator in
accordance with Section 15.6, it shall have the authority to
adopt Plan and Trust amendments which have no substantial adverse
financial impact upon any Employer or the Plan. All interested
parties shall be bound by any amendment, provided that no
amendment shall:
(a) become effective unless it has been adopted in accordance
with the procedures set forth in Section 19.5;
(b) except to the extent permissible under ERISA and the Code,
make it possible for any portion of the Trust assets to
revert to an Employer or to be used for, or diverted to,
any purpose other than for the exclusive benefit of
Participants and Beneficiaries entitled to Plan benefits
and to defray reasonable expenses of administering the Plan;
(c) decrease the rights of any Participant to benefits accrued
(including the elimination of optional forms of benefits)
to the date on which the amendment is adopted, or if later,
the date upon which the amendment becomes effective, except
to the extent permitted under ERISA and the Code; nor
(d) permit a Participant to be paid any portion of his or her
Account subject to the distribution rules of Code section
401(k) unless the payment would otherwise be permitted
under Code section 401(k).
19.2 Merger
The Plan and Trust may not be merged or consolidated with, nor
may its assets or liabilities be transferred to, another plan
unless each Participant and Beneficiary would, if the resulting
plan were then terminated, receive a benefit just after the
merger, consolidation or transfer which is at least equal to the
benefit which would be received if either plan had terminated
just before such event, adjusted for intervening investment gain
or loss.
19.3 Divestitures
In the event of a sale by an Employer which is a corporation of:
(i) substantially all of the Employer's assets used in a trade or
business to an unrelated corporation, or (ii) a sale of such
Employer's interest in a subsidiary to an unrelated entity or
individual, lump sum distributions shall be permitted from
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the Plan, except as provided below, to Participants with respect
to Employees who continue employment with the corporation
acquiring such assets or who continue employment with such
subsidiary, as applicable.
Notwithstanding the foregoing, distributions shall not be
permitted if the purchaser agrees, in connection with the sale,
to be substituted as the Company as the sponsor of the Plan or to
accept a transfer in a transaction subject to Code section
414(l)(1) of the assets and liabilities representing the
Participants' benefits into a plan of the purchaser or a plan to
be established by the purchaser.
19.4 Plan Termination and Complete Discontinuance of Contributions
The Company may, at any time and for any reason, terminate the
Plan in accordance with the procedures set forth in Section 19.5,
or completely discontinue contributions. Upon either of these
events, or in the event of a partial termination of the Plan
within the meaning of Code section 411(d)(3), the Accounts of
each affected Participant who has not yet incurred a Break in
Service shall be fully vested.
In the event of the Plan's termination, if no successor plan is
established or maintained, lump sum distributions shall be made
in accordance with the terms of the Plan as in effect at the time
of the Plan's termination or as thereafter amended, provided that
a post-termination amendment shall not be effective to the extent
that it violates Section 19.1 unless it is required in order to
maintain the qualified status of the Plan upon its termination.
The Trustee's and Employer's authority shall continue beyond the
Plan's termination date until all Trust assets have been
liquidated and distributed.
19.5 Amendment and Termination Procedures
The following procedural requirements shall govern the adoption
of any amendment or termination (a "Change") of the Plan and
Trust:
(a) The Company may adopt any Change by action of its board of
directors in accordance with its normal procedures.
(b) The Committee, if acting as Administrator in accordance
with Section 15.6, may adopt any Change within the scope of
its authority provided under Section 19.1 and in the manner
specified in Section 15.7(a).
(c) Any Change must be (1) set forth in writing, and (2) signed
and dated by an executive officer of the Company or, in the
case of a Change adopted by the Committee, at least one of
its members.
(d) If the effective date of any Change is not specified in the
document setting forth the Change, it shall be effective as
of the date it is signed by the last person whose signature
is required under clause (c)(2)
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above, except to the extent that another effective date is
necessary to maintain the qualified status of the Plan and
Trust under Code sections 401(a) and 501(a).
(e) No Change shall become effective until it is accepted and
signed by the Trustee (which acceptance shall not
unreasonably be withheld).
19.6 Termination of Employer's Participation
Any Employer may, at any time and for any reason, terminate its
Plan participation by action of its board of directors in
accordance with its normal procedures. Written notice of such
action shall be signed and dated by an executive officer of the
Employer and delivered to the Company. If the effective date of
such action is not specified, it shall be effective on, or as
soon as reasonably practicable after, the date of delivery. Upon
the Employer's request, the Company may instruct the Trustee and
Administrator to spin off all affected Accounts and underlying
assets into a separate qualified plan under which the Employer
shall assume the powers and duties of the Company.
Alternatively, the Company may continue to maintain the Accounts
under the Plan.
19.7 Replacement of the Trustee
The Trustee may resign as Trustee under the Plan and Trust or may
be removed by the Company at any time upon at least 90 days
written notice (or less if agreed to by both parties). In such
event, the Company shall appoint a successor trustee by the end
of the notice period. The successor trustee shall then succeed
to all the powers and duties of the Trustee under the Plan and
Trust. If no successor trustee has been named by the end of the
notice period, the Company's chief executive officer shall become
the trustee, or if he or she declines, the Trustee may petition
the court for the appointment of a successor trustee.
19.8 Final Settlement and Accounting of Trustee
(a) Final Settlement. As soon as administratively feasible
after its resignation or removal as Trustee, the Trustee
shall transfer to the successor trustee all property
currently held by the Trust. However, the Trustee is
authorized to reserve such sum of money as it may deem
advisable for payment of its accounts and expenses in
connection with the settlement of its accounts or other
fees or expenses payable by the Trust. Any balance
remaining after payment of such fees and expenses shall be
paid to the successor trustee.
(b) Final Accounting. The Trustee shall provide a final
accounting to the Administrator within 90 days after the
date Trust assets are transferred to the successor trustee.
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(c) Administrator Approval. Approval of the final accounting
shall automatically occur 90 days after such accounting has
been received by the Administrator, unless the
Administrator files a written objection with the Trustee
within such time period. Such approval shall be final as
to all matters and transactions stated or shown therein and
binding upon the Administrator.
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APPENDIX A - INVESTMENT FUNDS
I. Investment Funds Available
The Investment Funds offered under the Plan as of the Effective Date
include this set of daily valued funds, except that the Franklin Mutual
Beacon Z Fund, the PIMCO Total Return Class A Fund and the H&W
International Fund are offered under the Plan effective as of April 1,
1998:
Asset Allocation Fund
Company Stock Fund
Franklin Mutual Beacon Z Fund
Growth Stock Fund
H&W International Fund
Income Accumulation Fund
PIMCO Total Return Class A Fund
S&P 500 Stock Fund
II. Default Investment Fund
The default Investment Fund as of the Effective Date is the Income
Accumulation Fund.
III. Accounts For Which Investment is Restricted
A Participant may direct the investment of his or her entire Account
except for his or her Company Match Stock Account, and except as
otherwise provided in Section 7, which shall be invested as of the
Effective Date in the Company Stock Fund.
IV. Maximum Percentage Restrictions Applicable to Certain Investment Funds
As of the Effective Date, a Participant or Beneficiary may not elect to
invest more than 50% in the Company Stock Fund. The restriction shall
not apply to, or take into account, a Participant's or Beneficiary's
Company Match Stock Account which may be entirely invested in the
Company Stock Fund without regard to the 50% investment percentage
restriction related to the Company Stock Fund.
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APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES
As of the Effective Date, payment of Plan fees and expenses shall be as follows:
I. Investment Management Fees: These are paid by Participants in that
management fees reduce the investment return reported and credited to
Participants.
II. Recordkeeping Fees: These are paid by the Employer on a quarterly
basis, except that with regard to a Participant who is no longer an
Employee or a Beneficiary, these are paid by the Participant and are
assessed monthly and billed/collected from Accounts quarterly.
III. Loan Fees: A $3.50 per month fee is assessed and billed/collected
quarterly from the Account of each Participant who has an outstanding
loan balance.
IV. Investment Fund Election Changes: For each Investment Fund election
change by a Participant, in excess of four changes per year, a $10 fee
shall be assessed and billed/collected quarterly from the Participant's
Account.
V. Additional Fees Paid by Employer: All other Plan related fees and
expenses shall be paid by the Employer. To the extent that the
Administrator later elects that any such fees shall be borne by
Participants, estimates of the fees shall be determined and reconciled,
at least annually, and the fees shall be assessed monthly and
billed/collected from Accounts quarterly.
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APPENDIX C - LOAN INTEREST RATE
As of the Effective Date, the interest rate charged on Participant loans
shall be equal to the prime rate published in The Wall Street Journal at the
time the loan is processed, plus 1%. If multiple prime rates are published
in The Wall Street Journal, the prime rate selected shall be the rate closest
to the last prime rate used for this purpose.
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COMPUSA INC.
OFFICERS' BONUS PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this CompUSA Inc. Officers' Bonus Plan is to provide incentive
compensation opportunities for certain officers of the Company and its
affiliates. The Plan is designed to assist in the attraction, motivation and
retention of superior talent at the officer level, align the officers'
interests with those of the stockholders by placing a portion of their pay at
risk depending upon corporate performance, and support the achievement of
desired Company performance. Participants in the Plan will have the
opportunity to earn Awards upon the attainment of Performance Goals
established by the Compensation Committee as promptly as practicable but in
any event within the first 90 days of each Plan Year.
ARTICLE II
DEFINITIONS
When used in the Plan, the following terms shall have the following meanings:
2.1 AWARD means an annual incentive compensation award under the Plan.
2.2 BASE EARNINGS means base earnings paid to a Participant while serving in a
Bonus Eligible Position during the Plan Year.
2.3 BOARD OF DIRECTORS means the Board of Directors of the Company.
2.4 BONUS ELIGIBLE POSITION means a position of employment with the Company,
or one of its affiliates, that is designated by the Compensation Committee
or management of the Company or any of its affiliates as eligible for an
Award.
2.5 COMPANY means CompUSA Inc., a Delaware corporation.
2.6 COMPENSATION COMMITTEE means the Compensation Committee of the Board of
Directors, which will have overall responsibility for administering the
Plan.
2.7 DISABILITY: the "Disability" of a Participant shall be deemed to have
occurred whenever a Participant is rendered unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuing period of not
less than twelve months. In the case of any dispute, the determination of
Disability will be made by a licensed physician selected by the
Compensation Committee, which physician's decision will be final and
binding.
2.8 PARTICIPANT means any employee of the Company or any affiliate thereof who
is described as eligible to participate in the Plan as set forth in
Article III hereof.
2.9 PERFORMANCE GOALS means the performance goals established each Plan Year
pursuant to the Plan against which performance will be measured.
2.10 PLAN means this CompUSA Inc. Officers' Bonus Plan, effective as of June
29, 1997, as set forth herein.
2.11 PLAN YEAR means the performance period of the Plan, which shall be
commensurate with the Company's fiscal year.
2.12 RETIREMENT means resignation by the Participant on or after the date on
which the Participant has served the Company or one or more of its
affiliates for at least five years in the aggregate.
<PAGE>
2.13 TARGET AWARD means an Award that may be earned by a Participant for
service in a Bonus Eligible Position upon attainment of all Performance
Goals at the Target Level of Performance. The amount of the Target Award
for a Participant shall be equal to that Participant's Base Earnings
multiplied by the Target Percentage.
2.14 TARGET PERCENTAGE means the percentage (which may exceed 100%) of Base
Earnings of each Participant determined by the Compensation Committee
pursuant to Section 5.1.
2.15 TARGET LEVEL OF PERFORMANCE means the level of performance of a
Performance Goal that, if attained, will entitle the Participant to 100%
of the portion of the Target Award that is related to that Performance
Goal.
2.16 THRESHOLD LEVEL OF PERFORMANCE means the minimum level of attainment of a
Performance Goal that will entitle the Participant to some percentage,
less than 100%, of the portion of the Target Award that is related to that
Performance Goal.
ARTICLE III
ELIGIBILITY
3.1 Subject to the further provisions of this Article III, all employees of
the Company or an affiliate thereof who are "officers" of the Company as
defined in Rule 16a-1(f) promulgated by the Securities and Exchange
Commission under Section 16 of the Securities Exchange Act of 1934, as
amended, are eligible to participate in the Plan.
3.2 An employee must be employed (including approved annual vacation leave) in
a Bonus Eligible Position as of the last day of the Plan Year and have at
least 30 consecutive days of service in a Bonus Eligible Position during
the Plan Year in order to be eligible to receive an Award for such Plan
Year. An employee whose employment terminates during the Plan Year for
any reason other than those reasons set forth in Section 3.4 is not
eligible to receive an Award for such Plan Year.
3.3 Any provision of the Plan to the contrary notwithstanding: (i) for
purposes of determining an employee's period of service in a Bonus
Eligible Position during a Plan Year, any period of approved annual
vacation leave, and any period of a leave of absence (whether paid or
unpaid) to which the employee is entitled pursuant to the Family and
Medical Leave Act, shall be included as service for such Plan Year; and
(ii) for purposes of determining whether an employee is employed in a
Bonus Eligible Position as of the last day of a Plan Year, an employee on
a leave of absence as of the last day of a Plan Year (whether paid or
unpaid) to which the employee is entitled pursuant to the Family and
Medical Leave Act who was employed in a Bonus Eligible Position when such
leave of absence commenced, shall be deemed to be employed as of such
date.
3.4 Any Participant whose employment terminates during a Plan Year (but prior
to the last day of such Plan Year) due to Disability, Retirement or death
shall be eligible for an Award for the Plan Year based on the
Participant's service in a Bonus Eligible Position during the Plan Year,
provided such Participant has completed 30 consecutive days of service in
a Bonus Eligible Position during the Plan Year. In the event of an
employee's death, the beneficiary of the employee under the Plan shall be
the same as the Participant's designated beneficiary under the CompSavings
Plan for Employees of CompUSA Inc.
(ii)
<PAGE>
ARTICLE IV
ADMINISTRATION OF THE PLAN; AMENDMENT AND TERMINATION
4.1 The Plan shall be administered by the Compensation Committee. Subject to
the provisions of the Plan, the Compensation Committee shall have the
right and authority, in its sole and absolute discretion, to: (i) adopt,
amend or rescind administrative and interpretive rules and regulations
relating to the Plan, (ii) construe the Plan, (iii) make all other
determinations necessary or advisable for administering the Plan and (iv)
exercise the powers conferred on the Compensation Committee under the
Plan. The Compensation Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall
be the sole and final judge of such expediency. The determinations of the
Compensation Committee on the matters referred to in this Section 4.1
shall be final and binding.
4.2 Subject to the provisions of the Plan, the Board of Directors shall have
the exclusive authority to amend, modify, suspend or terminate the Plan at
any time with or without notice; provided that no amendment, modification,
suspension or termination of the Plan shall in any manner adversely affect
the right of any Participant to receive any amount to which such
Participant has become entitled prior to such amendment, modification,
suspension or termination.
ARTICLE V
DETERMINATION OF BONUS ELIGIBLE POSITIONS, PERFORMANCE GOALS AND TARGETS
5.1 As promptly as practicable but in any event within the first 90 days of
each Plan Year, the Compensation Committee shall determine (i) Bonus
Eligible Positions (which determination may be delegated to management of
the Company or any of its affiliates), (ii) Performance Goals for each
Participant, (iii) the Threshold Level of Performance and the Target Level
of Performance for each Performance Goal of each Participant and (iv) the
Target Percentage for each Participant. The Performance Goals established
by the Compensation Committee for a Plan Year may be based on earnings per
share, stock price, cash flow, gross income, net income, operating income,
inventory shrinkage, expense levels, debt balance, debt ratings, total
stockholder return, return on investment, return on equity, economic value
added, production volumes, gross margin dollars, sales or net asset value
per share. The Performance Goals may be based on (i) the performance of
the Company generally, in the absolute or in relation to its peers, (ii)
the performance of a particular Participant or (iii) the performance of a
particular division, department, branch, subsidiary or other unit to which
a Participant is assigned. If the Compensation Committee determines that
any Participant shall have more than one Performance Goal, each
Performance Goal shall be weighted (expressed as a percentage) to reflect
its relative importance to the Company's business plan for the Plan Year.
The sum of the weightings of the Performance Goals for a Participant for
the Plan Year shall equal 100%.
5.2 In addition to the Performance Goals established by the Compensation
Committee pursuant to Section 5.1, the Compensation Committee may, in its
sole discretion, establish Performance Goals for any Participant or group
of Participants for any Plan Year based on such factors other than those
listed in Section 5.1 as the Compensation Committee determines to be
appropriate for such Plan Year, even though any Award or portion of an
Award paid to a Participant that is based upon a Performance Goal not
listed in Section 5.1 may not qualify for exemption from the deduction
limitations of Section 162(m) of the Internal Revenue Code of 1986.
5.3 At any time during a Plan Year, the Compensation Committee may, in its
sole discretion, but subject to Section 4.2, cancel or revise its
determinations for such Plan Year made with respect to (i) Bonus Eligible
Positions, (ii) Performance Goals for each Participant, (iii) the
Threshold Level of Performance and the Target Level of Performance for
each Performance Goal of each Participant and (iv) the Target Percentage
for each Participant; provided that no revision that might result in an
increase of the amount of a Participant's Award for a Plan Year may be
made after the first 90 days of the Plan Year.
(iii)
<PAGE>
ARTICLE VI
AMOUNT OF AWARDS
6.1 As promptly as practicable but in any event within 75 days after the end
of each Plan Year, a performance score, expressed as a percentage (which
may exceed 100%), shall be determined by management of the Company or any
of its affiliates and certified in writing by the Compensation Committee
for each Performance Goal of each Participant, with the degree of
achievement based upon actual performance compared to the Target Level of
Performance. If the degree of achievement for any Performance Goal is
less than the Threshold Level of Performance for such Performance Goal,
the performance score shall be zero.
6.2 If for any Plan Year a Participant has only one Performance Goal, the
Participant's Award for such Plan Year shall be determined by multiplying
the Participant's Target Award by the performance score applicable to such
Performance Goal as determined pursuant to Section 6.1. If more than one
Performance Goal has been established for a Participant, the amount of the
Participant's Award shall be determined by multiplying the Participant's
Target Award by a cumulative performance score that takes into account the
Participant's degree of achievement of each Performance Goal as well as
the weightings of all Performance Goals. Any provision of the Plan to the
contrary notwithstanding, the maximum Award that may be paid to any
Participant for a Plan Year calculated as described above shall be
$5,000,000.
6.3 In addition to the Awards based upon attainment of Performance Goals as
set forth above, the Compensation Committee may, in its sole discretion,
grant ad hoc bonuses to any Participant or group of Participants in such
amount or amounts as it shall determine to be appropriate based upon such
factors as it shall deem to be relevant. Any such ad hoc bonuses shall be
paid within 75 days following the end of the Plan Year.
ARTICLE VII
FORM AND TIMING OF AWARDS
7.1 Awards under the Plan shall be paid in cash by the Company, or with
respect to a Participant in the employ of an affiliate, by such affiliate,
within 75 days following the end of the Plan Year. Awards shall be
subject to the normal rules and regulations regarding withholding for
taxes and other deductions, if any, as may be in effect from time to time.
ARTICLE VIII
NO RIGHT OF EMPLOYMENT
8.1 Nothing in the Plan, including the employee's eligibility for
participation in the Plan, will confer upon such employee any right with
respect to the continuation of such employee's employment by the Company
or an affiliate thereof or interfere in any way with the right of the
Company or an affiliate thereof at any time to terminate such employment
or to increase or decrease the compensation of the employee.
ARTICLE IX
MISCELLANEOUS
9.1 A Participant shall not have the right to anticipate, alienate, sell,
transfer, assign, pledge, or encumber his or her right to receive any
Award.
9.2 The Plan is intended to constitute an unfunded plan of incentive
compensation. No Participant shall have any lien on or rights with
respect to any assets of the Company or any affiliate thereof that are
greater than those of a general creditor by reason of any rights to any
Award.
9.3 The adoption of the Plan or any modification or amendment hereof does not
imply any commitment to continue or adopt the same plan, or any
modification hereof, or any other plan for incentive compensation for any
succeeding year.
(iv)
<PAGE>
9.4 The internal laws of the State of Texas (and not the principles relating
to conflicts of laws) shall govern the Plan.
9.5 The Plan shall be binding upon and inure to the benefit of the successors
and assigns of the Company and its affiliates.
9.6 The Plan shall be deemed adopted by the Board of Directors as of June 29,
1997. The Plan shall be deemed effective as of that date, provided it is
duly approved by the holders of a majority of the shares of Common Stock
of the Company present, or represented, and entitled to vote at the 1997
annual meeting of stockholders of the Company. If the Plan is not
approved by the stockholders at the 1997 annual meeting of stockholders,
the Plan shall terminate and all actions taken hereunder shall be null and
void.
<PAGE>
EXHIBIT 11
COMPUSA INC.
COMPUTATIONS OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Common shares issued at beginning of year. . . . . . . . . . . . 91,763 90,216 80,932
Weighted average number of common shares issued during the year. 875 790 6,578
Weighted treasury shares during the year . . . . . . . . . . . . (1,269) (171) --
------- ------- -------
Weighted average common shares . . . . . . . . . . . . . . . . . 91,369 90,835 87,510
Incremental shares related to assumed exercise of stock options. 3,247 3,754 3,710
------- ------- -------
Weighted average common shares assuming dilution . . . . . . . . 94,616 94,589 91,220
------- ------- -------
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,543 $93,886 $59,665
------- ------- -------
------- ------- -------
Basic earnings per share . . . . . . . . . . . . . . . . . . . . $ 0.35 $ 1.03 $ 0.68
------- ------- -------
------- ------- -------
Diluted earnings per share . . . . . . . . . . . . . . . . . . . $ 0.33 $ 0.99 $ 0.65
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF COMPUSA INC.
1. CompUSA Stores L.P., a Texas limited partnership.
2. Computer City, Inc., a Delaware corporation.
3. CompTeam Inc., a Delaware corporation.
4. CompUSA Management Company, a Delaware business trust.
5. CompUSA Holdings I Inc., a Delaware corporation.
6. CompUSA Holdings II Inc., a Delaware corporation.
7. CompUSA Holdings Company, a Delaware business trust.
8. PCs Compleat, Inc., a Delaware corporation.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 No. 33-86314 pertaining to the CompSavings Plan for Employees of
CompUSA Inc., Form S-8 No. 33-99280 pertaining to the CompUSA Inc. Deferred
Compensation Plan, Forms S-8 No. 33-45339, No. 33-72718, No. 33-99282, and
No. 333-18033 pertaining to the Long-Term Incentive Plan, and Form S-8 No.
333-06235 pertaining to the PCs Compleat, Inc. 1991 Stock Option Plan, of our
report dated August 12, 1998, except for Note 14, as to which the date is
August 31, 1998, with respect to the consolidated financial statements of
CompUSA Inc. included in this Form 10-K for the fiscal year ended June 27,
1998.
ERNST & YOUNG LLP
Dallas, Texas
September 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE
27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> JUN-27-1998
<CASH> 151,779
<SECURITIES> 0
<RECEIVABLES> 217,608
<ALLOWANCES> (3,524)
<INVENTORY> 520,762
<CURRENT-ASSETS> 922,867
<PP&E> 354,348
<DEPRECIATION> (143,820)
<TOTAL-ASSETS> 1,160,510
<CURRENT-LIABILITIES> 634,000
<BONDS> 110,000
0
0
<COMMON> 934
<OTHER-SE> 413,704
<TOTAL-LIABILITY-AND-EQUITY> 1,160,510
<SALES> 5,286,041
<TOTAL-REVENUES> 5,286,041
<CGS> 4,540,717
<TOTAL-COSTS> 4,540,717
<OTHER-EXPENSES> 688,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,331
<INCOME-PRETAX> 51,288
<INCOME-TAX> 19,745
<INCOME-CONTINUING> 31,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,543
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.33
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEARS ENDED
JUNE 29,1996 AND JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. CERTAIN INFORMATION HAS BEEN RESTATED IN ACCORDANCE
WITH ITEM 601(c)(2)(iii) OF REGULATION S-K, AS DESCRIBED IN FOOTNOTE 1 BELOW.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-28-1997 JUN-29-1996
<PERIOD-START> JUN-30-1996 JUN-25-1995
<PERIOD-END> JUN-28-1997 JUN-29-1996
<CASH> 209,929 207,614
<SECURITIES> 0 0
<RECEIVABLES> 217,451 149,801
<ALLOWANCES> (2,883) (1,692)
<INVENTORY> 501,426 398,841
<CURRENT-ASSETS> 944,444 770,233
<PP&E> 271,919 198,145
<DEPRECIATION> (101,118) (66,961)
<TOTAL-ASSETS> 1,124,592 909,337
<CURRENT-LIABILITIES> 580,481 464,334
<BONDS> 110,000 110,000
0 0
0 0
<COMMON> 918 902
<OTHER-SE> 427,049 325,003
<TOTAL-LIABILITY-AND-EQUITY> 1,124,592 909,337
<SALES> 4,610,523 3,829,786
<TOTAL-REVENUES> 4,610,523 3,829,786
<CGS> 3,953,407 3,311,682
<TOTAL-COSTS> 3,953,407 3,311,682
<OTHER-EXPENSES> 500,125 412,751
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,229 12,487
<INCOME-PRETAX> 152,662 99,849
<INCOME-TAX> 58,776 40,184
<INCOME-CONTINUING> 93,886 59,665
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 93,886 59,665
<EPS-PRIMARY> 1.03<F1> 0.68<F1>
<EPS-DILUTED> 0.99<F1> 0.65<F1>
<FN>
<F1>The Company adopted the provisions of SFAS No. 128 in the preparation of the
financial statements included in the Company's Quarterly Report on Form 10-Q
for the thirteen weeks ended December 27, 1997. In accordance with the
provisions of SFAS No. 128, the Company has restated previously reported
earnings per share amounts to conform to the provisions of SFAS No. 128.
</FN>
</TABLE>
