<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1999
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
------------------------
COMPUSA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2261497
(State of incorporation) (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
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 / /
The registrant had 91,737,451 shares of common stock, $.01 per share par
value, outstanding as of May 6, 1999.
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<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets at March 27, 1999 (unaudited) and June 27, 1998......................... 3
Consolidated Statements of Operations for the thirteen weeks and thirty-nine weeks ended March 27,
1999 and March 28, 1998 (unaudited)............................................................... 4
Consolidated Statements of Cash Flows for the thirty-nine weeks ended March 27, 1999 and March 28,
1998 (unaudited).................................................................................. 5
Notes to Consolidated Financial Statements (unaudited).............................................. 6
</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.
<TABLE>
<CAPTION>
<S> <C>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.................................. 26
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 27
SIGNATURES.......................................................................................... 29
EXHIBITS............................................................................................ 30
</TABLE>
2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
MARCH 27, JUNE 27,
1999 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 241,911 $ 151,779
Accounts receivable, net of allowance for doubtful accounts of
$4,209 and $3,524 at March 27, 1999 and June 27, 1998,
respectively................................................. 251,925 214,084
Merchandise inventories........................................ 802,752 520,762
Deferred income taxes--current................................. 17,570 9,762
Prepaid expenses and other..................................... 25,347 26,480
------------- -----------
Total current assets......................................... 1,339,505 922,867
Property and equipment, net...................................... 232,907 210,528
Deferred income taxes............................................ 5,946 18,076
Costs in excess of net assets of acquired businesses............. 104,872 3,069
Other assets..................................................... 5,651 5,970
------------- -----------
$ 1,688,881 $ 1,160,510
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 820,681 $ 534,620
Accrued liabilities............................................ 181,018 98,714
Current portion of capital lease obligations................... 1,035 666
------------- -----------
Total current liabilities.................................... 1,002,734 634,000
Capital lease obligations........................................ 352 1,872
Senior Subordinated Notes........................................ 110,000 110,000
Note payable to Tandy Corporation................................ 136,000 --
Commitments and contingencies.................................... -- --
Stockholders' equity:
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 94,062,235 and 93,372,545 shares issued at
March 27, 1999 and June 27, 1998, respectively............... 941 934
Paid-in capital................................................ 280,213 278,000
Retained earnings.............................................. 216,816 198,045
------------- -----------
497,970 476,979
Less: Treasury stock, at cost, with 2,339,678 and 2,507,227
shares at March 27, 1999 and June 27, 1998, respectively..... (58,175) (62,341)
------------- -----------
Total stockholders' equity..................................... 439,795 414,638
------------- -----------
$ 1,688,881 $ 1,160,510
------------- -----------
------------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
THIRTEEN WEEKS ENDED ENDED
---------------------- ----------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $1,691,350 $1,451,819 $4,859,864 $4,100,356
Cost of sales and occupancy costs............ 1,474,843 1,246,634 4,207,240 3,504,826
---------- ---------- ---------- ----------
Gross profit............................... 216,507 205,185 652,624 595,530
Operating expenses........................... 168,571 134,190 485,332 369,097
Pre-opening expenses......................... 392 513 3,853 5,993
General and administrative expenses.......... 50,233 27,851 121,228 82,259
---------- ---------- ---------- ----------
Operating (loss) income.................... (2,689) 42,631 42,211 138,181
Other expense (income):
Interest expense........................... 7,187 3,045 18,559 9,141
Other income, net.......................... (1,828) (1,778) (6,872) (5,862)
---------- ---------- ---------- ----------
5,359 1,267 11,687 3,279
---------- ---------- ---------- ----------
(Loss) income before income taxes............ (8,048) 41,364 30,524 134,902
Income tax (benefit) expense................. (3,108) 15,926 11,753 51,938
---------- ---------- ---------- ----------
Net (loss) income............................ $ (4,940) $ 25,438 $ 18,771 $ 82,964
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic (loss) earnings per share.............. $ (0.05) $ 0.28 $ 0.21 $ 0.91
Diluted (loss) earnings per share............ $ (0.05) $ 0.27 $ 0.20 $ 0.87
Weighted average common shares............... 91,553 91,518 91,401 91,527
Weighted average common shares assuming
dilution................................... 91,553 94,692 92,811 95,238
</TABLE>
See accompanying notes.
4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------
MARCH 27, MARCH 28,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities:
Net income.................................................................. $ 18,771 $ 82,964
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 51,173 34,695
Deferred income taxes................................................... 4,888 (1,199)
Other non-cash charges.................................................. 2,410 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................................... 5,535 (21,093)
Merchandise inventories............................................... (134,450) (123,098)
Prepaid expenses and other assets..................................... 4,846 (9,176)
Increase in accounts payable and accrued liabilities.................... 216,006 175,005
----------- -----------
Total adjustments..................................................... 150,408 55,134
----------- -----------
Net cash provided by operating activities............................. 169,179 138,098
Cash (used in) provided by investing activities:
Capital expenditures........................................................ (54,054) (91,455)
Payment for purchase of Computer City, net of cash acquired................. (35,878) --
Proceeds from sale of Canadian stores....................................... 9,609 --
Other....................................................................... 443 145
----------- -----------
Net cash used in investing activities................................. (79,880) (91,310)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock...................................... 1,545 6,949
Purchase of treasury stock.................................................. -- (44,314)
Sale of treasury stock to benefit plan...................................... 1,079 --
Payments under capital lease obligations.................................... (1,791) (2,268)
----------- -----------
Net cash provided by (used in) financing activities................... 833 (39,633)
Net increase in cash and cash equivalents..................................... 90,132 7,155
Cash and cash equivalents at beginning of period.............................. 151,779 209,929
----------- -----------
Cash and cash equivalents at end of period.................................... $ 241,911 $ 217,084
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
5
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CompUSA Inc.
and its wholly-owned subsidiaries (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations, and cash flows of
the Company for the applicable interim periods. The results of operations for
these periods are not necessarily comparable to, or indicative of, results of
any other interim period or for the fiscal year as a whole.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
interim financial statements. Therefore, these financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.
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.
2. ACQUISITION OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City,
Inc. ("Computer City") from Tandy Corporation ("Tandy"), for an aggregate
purchase price of approximately $175 million, subject to certain post-closing
adjustments, payable in a note and cash. The Company expects to finalize the
calculation of the purchase price due Tandy in connection with the acquisition
of Computer City in the fourth quarter of fiscal 1999.
In connection with the acquisition of Computer City, the Company issued a
$136 million subordinated promissory note payable to Tandy (the "Seller Note").
The Seller Note bears interest at a rate of 9.48% per annum and provides for its
repayment in semi-annual installments over a period of ten years. 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 Company's 9 1/2%
Senior Subordinated Notes due 2000 ("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.
Effective November 1, 1998, the Company sold the seven Canadian Computer
City supercenters acquired by the Company to Future Shop Ltd. for approximately
$9.6 million in cash and the assumption of certain liabilities before
post-closing adjustments. In the fourth quarter of fiscal 1999, the Company paid
approximately $2.4 million to Future Shop Ltd. to effect a reduction in the
purchase price due the Company after the finalization of such post-closing
adjustments.
The purchase of Computer City has been accounted for under the purchase
method of accounting. Accordingly, the purchase price paid has been
preliminarily allocated to the acquired assets and liabilities based on
estimated fair values as of the acquisition date. The excess of the purchase
price paid over the
6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITION OF COMPUTER CITY (CONTINUED)
estimated fair values of the acquired assets and liabilities (goodwill) of
approximately $105 million is being amortized over 20 years on a straight-line
basis.
A summary of the purchase price paid to acquire Computer City and the
preliminary allocation of the purchase price to the net assets acquired is as
follows:
<TABLE>
<CAPTION>
AS OF MARCH 27, 1999
--------------------
(IN THOUSANDS)
<S> <C> <C>
Purchase price paid to acquire Computer City:
Cash paid at closing.................................................. $ 36,450
Note issued to Tandy.................................................. 136,000
Transaction costs..................................................... 2,921
---------
Total consideration paid................................................ 175,371
Net assets acquired at net book value................................... 220,851
Adjustments to state net assets acquired at fair value:
Write-down of merchandise inventories............................... (55,517)
Write-down of fixed assets.......................................... (49,946)
Future rental obligations and related carrying costs for closed
stores............................................................ (29,000)
Other............................................................... (16,017)
---------
Estimated fair value of net assets acquired............................. 70,371
---------
Costs in excess of net assets acquired.................................. $ 105,000
---------
---------
</TABLE>
The Company will assess the recoverability of costs in excess of net assets
acquired periodically based on existing facts and circumstances and projected
earnings before interest, depreciation, and amortization, on an undiscounted
basis. Should the Company's assessment indicate an impairment of this asset in
the future, an appropriate write-down will be recorded.
A rollforward of the reserve for future rental obligations and related
carrying costs for closed stores is as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Present value of estimated future rental obligations and related carrying costs for closed
stores........................................................................................... $ 29,000
Payments of rents and other carrying costs......................................................... (10,408)
Cash received upon the assumption of certain leases by a third party............................... 4,066
Accretion of imputed interest at 9.5% per annum.................................................... 1,379
-------------
Balance as of March 27, 1999....................................................................... $ 24,037
-------------
-------------
</TABLE>
The accompanying statements of operations for the thirteen and thirty-nine
weeks ended March 27, 1999 include the results of operations from the
acquisition date for the 37 Computer City stores in the United States that the
Company is operating as CompUSA Computer Superstores(SM) and two former Computer
City "small market" stores. The results of liquidating the 55 Computer City
stores in the United States closed by the Company, and the seven Computer City
supercenters in Canada sold by the Company,
7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITION OF COMPUTER CITY (CONTINUED)
are not included in the accompanying statements of operations, but rather
represent adjustments to the value of the related assets acquired and
liabilities assumed. The following pro forma combined net sales, net income
(loss), and diluted earnings (loss) per share data summarize the results of
operations of the Company for the third quarter of fiscal 1998 and first nine
months of both fiscal 1999 and 1998 as if Computer City had been acquired as of
the beginning of fiscal 1998. The pro forma results given below are not
necessarily indicative of what actually would have occurred if the acquisition
had been in effect during the periods presented, and are not intended to be a
projection of future results or trends.
<TABLE>
<CAPTION>
THIRTEEN THIRTY-NINE WEEKS
WEEKS ENDED ENDED
----------- ----------------------
MARCH 28, MARCH 27, MARCH 28,
1998 1999 1998
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales......................................... $1,658,064 $4,983,131 $4,711,520
Net income (loss)................................. 16,580 (2,080) 53,560
Diluted earnings (loss) per share................. 0.18 (0.02) 0.56
</TABLE>
3. EQUITY
The calculation of basic and diluted earnings (loss) per share is summarized
as follows:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
THIRTEEN WEEKS ENDED
------------------------ ------------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC (LOSS) EARNINGS PER SHARE:
Net (loss) income.................................... $ (4,940) $ 25,438 $ 18,771 $ 82,964
Weighted average common shares outstanding........... 91,553 91,518 91,401 91,527
----------- ----------- ----------- -----------
Basic (loss) earnings per share...................... $ (0.05) $ 0.28 $ 0.21 $ 0.91
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED (LOSS) EARNINGS PER SHARE:
Net (loss) income.................................... $ (4,940) $ 25,438 $ 18,771 $ 82,964
Weighted average common shares outstanding........... 91,553 91,518 91,401 91,527
Incremental shares assuming dilution................. -- 3,174 1,410 3,711
----------- ----------- ----------- -----------
Weighted average common shares assuming dilution..... 91,553 94,692 92,811 95,238
----------- ----------- ----------- -----------
Diluted (loss) earnings per share.................... $ (0.05) $ 0.27 $ 0.20 $ 0.87
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
For the thirteen weeks ended March 27, 1999, the Company's outstanding stock
options have been excluded from the calculation of the diluted loss per share
since they were anti-dilutive.
8
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EQUITY (CONTINUED)
In March 1999, the Company made a cash contribution to the Company's defined
contribution profit-sharing plan to effect the Company's required contribution
to the plan for 1998, which the plan used to purchase from the Company 167,549
shares of its common stock which the Company held in treasury.
4. 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. 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. Among other things, the
plaintiffs allege that in order to halt a decline in the market price of
CompUSA's common stock and to artificially inflate the stock price, CompUSA
insiders falsely reported to the market in early January 1998 that CompUSA was
achieving strong sales of certain types of products. The plaintiffs also allege
that misstatements and omissions by Company personnel related to projected and
historical operating results, sales and other matters involving corporate
operations resulted in an inflation of the stock price. The plaintiffs seek
unspecified compensatory damages, rescissory damages, interest, and attorneys'
fees and costs, as well as certain equitable relief. On September 25, 1998, the
Company filed a Motion to Dismiss together with a brief in support of the
motion. The Court has not ruled on the motion, and all discovery is stayed until
resolution of the Company's Motion to Dismiss. Based on currently available
information, it is not possible to give an estimate of the possible loss or
range of loss that might be incurred by the Company if the plaintiffs in the
Hoeck lawsuit were to prevail in the litigation. The Company believes the
plaintiffs' claims are without merit and intends to vigorously defend against
the charges.
On January 14, 1999, a nonclass lawsuit, Tom Johnson v. Circuit City Stores,
Inc., et al., was filed by plaintiff Tom Johnson on behalf of himself and the
California public against Circuit City Stores, Inc. and seven other computer
products retailers, including the Company. Without identifying any specific acts
by any specific retailers, Johnson's complaint alleges that such retailers have
(1) misrepresented the Year 2000 ("Y2K") compliance of products sold by them,
(2) sold unnecessary Y2K fixes, and/or (3) failed to disclose the need for Y2K
fixes or upgrades. Johnson's complaint requests (1) the freezing of the
retailers' assets, (2) the restitution of all funds acquired by the retailers
since January 15, 1995, by means of the alleged conduct, (3) an injunction
requiring the retailers to disclose the nature of the Y2K problem, a means to
determine Y2K compliance and what fixes are available to all of their customers
who have bought products since January 15, 1995, and (4) attorneys' fees.
Together with the other retailers, the Company has brought a motion to dismiss
the complaint and such motion is currently pending. The Company believes the
claims are without merit and intends to vigorously defend against such charges.
In addition to the matters described above, 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, including the matters described above, 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 results of operations of
the Company for a particular future period. In addition,
9
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Company's estimates of future costs are subject to change as circumstances
change and additional information becomes available during the course of
litigation.
5. SUBSIDIARY GUARANTEES
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
THIRTY-NINE WEEKS
ENDED
--------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Intercompany receivables............................................... $ 260,200 $ 195,216
Other current assets................................................... 612,934 454,756
--------- ---------
Total current assets................................................... 873,134 649,972
Noncurrent assets...................................................... 317,442 190,785
Intercompany payables.................................................. 28,678 17,466
Other current liabilities.............................................. 140,314 275,957
--------- ---------
Total current liabilities.............................................. 168,992 293,423
Long-term debt and liabilities......................................... 319 1,972
Net sales.............................................................. 3,358,911 2,788,990
Intercompany revenues.................................................. 203,454 159,361
Costs and expenses..................................................... 3,351,393 2,701,041
Intercompany expenses.................................................. 139,704 104,925
Net income............................................................. 43,830 87,567
</TABLE>
In the preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated. There are no restrictions that limit the
ability of the Company's subsidiaries to declare and pay dividends to the
Company.
Effective March 28, 1999, the Company completed the formation of its
wholly-owned subsidiary, CompUSA Net.com Inc. ("CompUSA Net.com") by
contributing to it the net assets of CompUSA Direct. CompUSA Net.com offers
desktop and notebook computers, software, printers, scanners, accessories, and
other electronic and digital products via the Internet. Beginning in the fourth
quarter of fiscal 1999, the mail order and other sales operations previously
conducted by CompUSA Direct will be phased out or transferred to the Company.
CompUSA Net.com is not a guarantor of the Senior Subordinated Notes.
10
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
----------------------
MARCH 27, MARCH 28,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash paid (received) during the periods for:
Interest.............................................................. $ 9,887 $ 5,634
Income taxes.......................................................... (7,886) 47,784
Investing activities not affecting cash are as follows:
Additions to property and equipment under capital leases.............. $ 594 $ 95
Financing activities not affecting cash are as follows:
Note payable to Tandy issued in connection with the Computer City
acquisition......................................................... $ 136,000 $ --
</TABLE>
7. NEW ACCOUNTING PRONOUNCEMENTS
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. The provisions of SOP 98-5 were adopted by the
Company in the preparation of the financial statements included in the Quarterly
Report on Form 10-Q for the thirteen weeks ended September 26, 1998. The
adoption of the provisions of SOP 98-5 had no material impact on the Company's
financial statements.
The AICPA has issued 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.
In June 1997, the Financial Accounting Standards Board ("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 in the ordinary course of business.
SFAS No. 130 is effective for financial statements for fiscal years beginning
after December 15, 1997. The provisions of SFAS No. 130 were adopted by the
Company in the preparation of the financial statements included in the Quarterly
Report on Form 10-Q for the thirteen weeks ended September 26, 1998. The
adoption of the provisions of SFAS No. 130 had no impact on the Company's
financial statements.
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
11
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
8. CREDIT AGREEMENT
Effective March 27, 1999, the Company executed an amendment to its credit
agreement with a consortium of banks that expires in March 2001 to provide a
$230 million credit facility under which borrowings are secured by the Company's
accounts receivable and all equity interests in the Company's subsidiaries (the
"Credit Agreement"). Funds borrowed under the Credit Agreement may be used for
any corporate purpose, including purchasing or redeeming the Senior Subordinated
Notes in part or in full subsequent to December 31, 1999. The Credit Agreement
requires that the Company maintain certain financial ratios and a minimum net
worth. The Credit Agreement imposes certain limitations on acquisitions, capital
expenditures, indebtedness, liens, and mergers and consolidations. The Credit
Agreement also prohibits the Company from paying dividends and purchasing shares
of the Company's common stock until the Company has exceeded certain financial
covenants.
The Company's ability to incur borrowings under the Credit Agreement is
reduced by outstanding letters of credit and, in certain circumstances, is
further reduced based upon the amount of the Company's eligible accounts
receivable and the financial covenants contained in the Credit Agreement. Under
the terms of the Credit Agreement, as of March 27, 1999, the Company had
approximately $65 million available for future borrowings under the Credit
Agreement.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either a prime rate (7.8% per annum as of March 27, 1999) or a rate
based on the London Interbank Offering Rate (LIBOR) of 4.9% as of March 27,
1999, plus a specified margin, currently 2.25%. The Credit Agreement also
provides for an increase in the specified margin by .75% should both the Senior
Subordinated Notes be paid in full and borrowings under the Credit Agreement
exceed 40% of the total amount of the Credit Agreement. 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 indebtedness under the Credit Agreement is guaranteed on a full,
unconditional, and joint and several basis by all the subsidiaries of the
Company except CompUSA Net.com. 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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements about
the business, financial condition, and 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 herein and in the Company's
other filings with the Securities and Exchange Commission. The Company's entry
into the build-to-order market with its CompUSA PC(TM) brand of personal
computers in the first quarter of fiscal 1998, the opening of its own
build-to-order manufacturing facility in the second quarter of fiscal 1999, and
the addition of notebook computers and servers to the build-to-order product
line in the third and fourth quarters of fiscal 1999, respectively, involve
significant additional risks, including without limitation failure to achieve
customer acceptance of the new products, substantial dependence on third parties
for quality and reliability of component parts, and the Company's ability to
fulfill customer orders timely. Additionally, the Company's acquisition of
Computer City in the first quarter of fiscal 1999 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, related to Computer City stores
closed, and to retain Computer City's retail and corporate customers. The
Company's focus on its Internet business through CompUSA Net.com involves
significant additional risks, including without limitation failure to achieve
customer acceptance and potential significant capital investments that may be
required to be made by the Company.
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 Quarterly
Report on Form 10-Q, the words "believes," "estimates," "plans," "expects,"
"anticipates," and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
ACQUISITION OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City
from Tandy Corporation ("Tandy") for an aggregate purchase price of
approximately $175 million, subject to certain post-closing adjustments. See
"--Liquidity and Capital Resources." The Company expects to finalize the
calculation of the purchase price due Tandy in connection with the acquisition
of Computer City in the fourth quarter of fiscal 1999. The acquisition was
accounted for under the purchase accounting method.
The Company is operating 37 Computer City stores in the United States as
CompUSA Computer Superstores(SM) and two former Computer City "small market"
stores. Such stores were converted to the CompUSA information systems in
September and October 1998. The Company has initiated certain activities to
reconfigure these stores to the CompUSA format and expects such activities to be
completed over a period of time in fiscal 1999 and fiscal 2000. The Company
identified 55 Computer City stores in the United States for closure. Inventory
liquidation sales were conducted at the majority of such stores through
mid-October, at which time the stores were closed and the remaining merchandise
inventories were transferred to other CompUSA Computer Superstores, including
former Computer City stores, for final liquidation. Effective November 1, 1998,
the Company sold the seven Canadian Computer City supercenters acquired by the
Company to Future Shop Ltd. for approximately $9.6 million in cash and the
assumption of certain liabilities, subject to post-closing adjustments. In the
fourth quarter of fiscal 1999,
13
<PAGE>
the Company paid approximately $2.4 million to Future Shop Ltd. to effect a
reduction in the purchase price due the Company after the finalization of such
post-closing adjustments.
The 55 Computer City stores that the Company closed were generally in closer
proximity to, and therefore the Company believes would have been more directly
competitive with, existing CompUSA Computer Superstores than the 37 Computer
City stores in the United States that have remained open as CompUSA Computer
Superstores. Of the 37 stores acquired from Computer City that have remained
open as CompUSA Computer Superstores, 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 for the CompUSA Computer Superstores already in
operation in such metropolitan areas to be lower than it would have been if
these 29 Computer City stores had been closed due to the transfer of sales from
existing CompUSA Computer Superstores to the former Computer City stores.
COMPUSA NET.COM
Effective March 28, 1999, the Company completed the formation of its wholly-
owned subsidiary, CompUSA Net.com Inc. ("CompUSA Net.com"), by contributing to
it the net assets of CompUSA Direct. CompUSA Net.com offers desktop and notebook
computers, software, printers, scanners, accessories, and other electronic and
digital products via the Internet. Beginning in the fourth quarter of fiscal
1999, the mail order and other sales operations previously conducted by CompUSA
Direct will be phased out or transferred to the Company.
RECENT DEVELOPMENTS
As a result of its recent operating performance and the competitive
environment in which it operates, the Company has initiated a program to review
its core businesses to ensure that each is achieving desired levels of
efficiency, effectiveness, and profitability. Upon finalization of this review,
the Company could decide to exit certain lines of business or to close certain
of the Company's Computer Superstores or other operating facilities in the event
the Company were to conclude that such actions are in the long-term strategic
interest of the Company.
GENERAL
All references herein to "fiscal 1999" relate to the fifty-two weeks ending
June 26, 1999, and references to "fiscal 1998" relate to the fifty-two weeks
ended June 27, 1998. In addition, all references herein to "third quarter of
fiscal 1999" and "first nine months of fiscal 1999" relate to the thirteen weeks
and thirty-nine weeks, respectively, ended March 27, 1999, and all references to
"third quarter of fiscal 1998" and "first nine months of fiscal 1998" relate to
the thirteen weeks and thirty-nine weeks, respectively, ended March 28, 1998.
14
<PAGE>
The following table sets forth certain items expressed as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THIRTY-NINE
THIRTEEN WEEKS ENDED WEEKS ENDED
------------------------ ------------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy costs.................... 87.2 85.9 86.6 85.5
----- ----- ----- -----
Gross profit......................................... 12.8 14.1 13.4 14.5
Operating expenses................................... 10.0 9.2 10.0 9.0
Pre-opening expenses................................. -- 0.1 -- 0.1
General and administrative expenses.................. 3.0 1.9 2.5 2.0
----- ----- ----- -----
Operating (loss) income.............................. (0.2) 2.9 0.9 3.4
Interest expense and other income, net............... 0.3 0.1 0.3 0.1
----- ----- ----- -----
(Loss) income before income taxes.................... (0.5) 2.8 0.6 3.3
Income tax (benefit) expense......................... (0.2) 1.0 0.2 1.3
----- ----- ----- -----
Net (loss) income.................................... (0.3)% 1.8% 0.4% 2.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The following table sets forth certain sales data for the Company:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
THIRTEEN WEEKS ENDED ENDED
---------------------- ----------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product sales................................ $1,556,834 $1,341,256 $4,460,663 $3,793,676
Service sales:
Technical services sales................... 35,882 28,326 103,240 70,806
Training sales............................. 30,384 24,423 83,586 67,533
---------- ---------- ---------- ----------
66,266 52,749 186,826 138,339
Sales of CompUSA Direct...................... 68,250 57,814 212,375 168,341
---------- ---------- ---------- ----------
Total net sales.............................. $1,691,350 $1,451,819 $4,859,864 $4,100,356
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
THIRTY-NINE
THIRTEEN WEEKS ENDED WEEKS ENDED
------------------------ ------------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Stores open at end of period......................... 209 150 209 150
Computer City stores acquired during the period(1)... -- -- 37 --
Stores opened during the period...................... 1 2 12 21
Stores closed during the period(2)................... 2 -- 2 --
Stores relocated during the period................... -- -- 4 2
Average net sales per gross square foot(3):
CompUSA stores..................................... $ 304 $ 341 $ 914 $ 1,021
Former Computer City stores(4)..................... $ 236 N/A $ 500 N/A
Total stores....................................... $ 294 $ 341 $ 884 $ 1,021
Average net sales per Computer Superstore:
CompUSA stores..................................... $ 8,325 $ 9,329 $ 25,102 $ 27,847
Former Computer City stores(4)..................... $ 4,904 N/A $ 12,625 N/A
Total stores....................................... $ 7,719 $ 9,329 $ 23,419 $ 27,847
Comparable store sales (decrease) increase(5)........ (7.2)% 1.2% (4.7)% 5.2%
</TABLE>
- ------------------------
(1) As of August 31, 1998, the Company acquired 37 Computer City stores that the
Company is operating as CompUSA Computer Superstores.
(2) Two CompUSA Computer Superstores were closed in the third quarter of fiscal
1999 in markets where a former Computer City store in close proximity to a
CompUSA Computer Superstore remained open.
(3) Calculated using net sales divided by gross square footage of Computer
Superstores open at the end of the period, weighted by the number of months
open during the period. For purposes of calculating average net sales per
gross square foot, net sales are comprised of net sales generated from the
Company's Computer Superstores as well as the Company's national accounts
group, but exclude sales of CompUSA Direct.
(4) Average net sales per gross square foot and average net sales per store for
the former Computer City stores have been calculated for the period from the
acquisition date of August 31, 1998 to March 27, 1999.
(5) Comparable store sales are net sales for the 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. For purposes of
calculating the change in comparable store sales, net sales are comprised of
net sales generated from the Company's Computer Superstores, as well as the
Company's national accounts group, but exclude sales of CompUSA Direct. The
sales of the 37 former Computer City stores are not included in the
calculation of the change in comparable store sales for the thirteen and
thirty-nine weeks ended March 27, 1999.
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 "--Quarterly Data and Seasonality."
16
<PAGE>
The results of operations of the Company for the third quarter and first
nine months of fiscal 1999 include the results of operations from the
acquisition date of the 37 Computer City stores that the Company is operating as
CompUSA Computer Superstores and two former Computer City "small market" stores.
The results of operations for the third quarter and first nine months of fiscal
1999 exclude the operating results of the 55 Computer City stores in the United
States closed by the Company and the seven Canadian Computer City supercenters
sold by the Company.
THIRD QUARTER ENDED MARCH 27, 1999, COMPARED WITH THE THIRD QUARTER ENDED MARCH
28, 1998
NET SALES--Net sales for the third quarter of fiscal 1999 increased 16.5% to
$1.69 billion from $1.45 billion for the third quarter of fiscal 1998. The
increase in net sales was due to sales of approximately $154.1 million
attributable to the new stores opened subsequent to the third quarter of fiscal
1998 and sales of approximately $180.2 million generated by the former Computer
City stores, partially offset by a decline in comparable store sales. In
addition, sales at CompUSA Direct increased approximately 18% in the third
quarter of fiscal 1999 compared with the third quarter of fiscal 1998.
Despite an increase in overall sales and the number of personal computer
systems sold in the third quarter of fiscal 1999, average net sales per store
for the third quarter of fiscal 1999 decreased approximately 17% from the third
quarter of fiscal 1998. The Company believes average net sales per store 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 and lower sales per store by the 37 former Computer City stores.
Comparable store sales by the CompUSA Computer Superstores decreased 7.2%
from the third quarter of fiscal 1998. The sales of the 37 former Computer City
stores are not included in the calculation of the change in comparable store
sales for the third quarter of fiscal 1999. The Company believes comparable
store sales were negatively impacted by, among other things, declines in average
selling prices. The Company also believes the change in comparable store sales
was negatively impacted by a decline in sales of the CompUSA Computer
Superstores during the third quarter of fiscal 1999 as a result of the transfer
of sales from existing CompUSA Computer Superstores to former Computer City
stores. Of the 37 former Computer City stores that the Company continues to
operate as CompUSA Computer Superstores, 29 are located in metropolitan areas in
which there are existing CompUSA Computer Superstores. The Company believes the
increased number of CompUSA Computer Superstores in the markets previously
served by both CompUSA Computer Superstores and Computer City stores has
resulted in reductions in the comparable store sales growth in the Company's
existing CompUSA Computer Superstores in those markets.
While the Company believes the opening of additional Computer Superstores in
existing markets, as well as the acquisition of 29 Computer City stores in
existing markets, has resulted in some reductions in the rate of comparable
store sales growth, CompUSA has historically opened additional stores in
existing markets largely to increase market penetration and to provide customers
with more convenience and better service, to increase its awareness with local
consumers, to enhance its competitive position in such markets, and to create
efficiencies in advertising and management. Management plans to continue its
strategy of opening additional Computer Superstores in existing markets since it
believes such strategy is in the Company's long-term best interest.
GROSS PROFIT--Gross profit was $216.5 million, or 12.8% of net sales, in the
third quarter of fiscal 1999, compared with $205.2 million, or 14.1% of net
sales, in the third quarter of fiscal 1998. The decline in gross profit as a
percentage of net sales in the third quarter of fiscal 1999 compared with the
third quarter of fiscal 1998 was primarily due to increases in the following
costs as percentages of net sales: (1) product costs, (2) controllable costs,
such as freight and shrink, and (3) occupancy costs.
In the third quarter of fiscal 1999, product costs increased as a percentage
of net sales by approximately 0.72% compared with the third quarter of fiscal
1998. The increase in product costs as a percentage
17
<PAGE>
of net sales was primarily the result of aggressive pricing actions in the third
quarter in reaction to lower than anticipated demand in general and lower
margins realized on direct sales to corporate customers.
In the third quarter of fiscal 1999, freight and shrink expenses increased
approximately 0.40% as a percentage of net sales compared with the third quarter
of fiscal 1998. Freight expense, which is generally a fixed cost based on the
number of units sold, increased as a percentage of net sales primarily due to
the decline in average selling prices. The increase in shrink expense as a
percentage of net sales is primarily attributable to higher expenses as a
percentage of net sales incurred in the operation of the former Computer City
stores.
Occupancy costs increased approximately 0.48% as a percentage of net sales
in the third quarter of fiscal 1999 compared with the third quarter of fiscal
1998. Occupancy costs, which are generally fixed in nature, increased as a
percentage of net sales in the third quarter of fiscal 1999 primarily as a
result of lower average net sales per store compared with the third quarter of
fiscal 1998, particularly at the former Computer City stores.
OPERATING EXPENSES--Operating expenses were $168.6 million, or 10.0% of net
sales, in the third quarter of fiscal 1999, compared with $134.2 million, or
9.2% of net sales, in the third quarter of fiscal 1998. The increase in
operating expenses as a percentage of net sales for the third quarter of fiscal
1999 compared with the third quarter of fiscal 1998 was primarily due to
increases in personnel, facility, and certain selling expenses as percentages of
net sales, partially offset by a decrease in advertising expense as a percentage
of net sales.
Excluding personnel costs incurred in connection with the conversion of the
former Computer City stores, personnel expenses in the third quarter of fiscal
1999 increased as a percentage of net sales by approximately 0.62%. Personnel
costs increased as a percentage of net sales primarily as a result of lower
average net sales per store. In addition, personnel expenses represented a
higher percentage of net sales of the former Computer City stores compared with
the CompUSA Computer Superstores due to the lower net sales of the former
Computer City stores.
Facility expenses increased by approximately 0.25% as a percentage of net
sales in the third quarter of fiscal 1999 compared with the third quarter of
fiscal 1998. Facility expenses, which are generally fixed in nature, increased
as a percentage of net sales primarily as a result of lower average net sales
per store.
The increase in operating expenses in the third quarter of fiscal 1999
compared with the third quarter of fiscal 1998 was also due to an increase in
credit card discount fees and bad debt expenses. Such expenses increased by
approximately 0.22% as a percentage of net sales in the third quarter of fiscal
1999 compared with the third quarter of fiscal 1998.
The Company incurred costs of approximately $488,000 in the third quarter of
fiscal 1999 related to the training of personnel at the former Computer City
stores and other costs necessary to convert the former Computer City stores to
CompUSA Computer Superstores.
The increases described above were partially offset by lower net advertising
expense as a percentage of net sales. Net advertising expense decreased by
approximately 0.39% as a percentage of net sales in the third quarter of fiscal
1999 due to increased vendor participation and advertising economies-of-scale
related to the addition of stores in multi-store markets, primarily as a result
of the acquisition of the Computer City stores.
PRE-OPENING EXPENSES--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 as
incurred. In the third quarter of fiscal 1999, the Company incurred $392,000 in
pre-opening expenses, compared with $513,000 in pre-opening expenses incurred in
the third quarter of fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
were $50.2 million, or 3.0% of net sales, in the third quarter of fiscal 1999,
compared with $27.9 million, or 1.9% of net sales, in
18
<PAGE>
the third quarter of fiscal 1998. The increase in general and administrative
expenses as a percentage of net sales was primarily due to the following: (1) an
increase in personnel expenses as a percentage of net sales, (2) costs incurred
in the third quarter of fiscal 1999 related to the Company's information
technology initiatives and the formation of CompUSA Net.com, and (3) transition
costs and amortization expense related to the Computer City acquisition.
Excluding personnel costs incurred in connection with the Company's
information technology initiatives and the conversion of the former Computer
City stores, personnel expenses in the third quarter of fiscal 1999 increased as
a percentage of net sales by approximately 0.47%. This increase in personnel
expenses as a percentage of net sales is primarily attributable to lower average
net sales per store and lower sales per store by the 37 former Computer City
stores.
In the third quarter of fiscal 1999, the Company incurred expenses of
approximately $3.9 million related to the Company's information technology
initiatives and the formation of CompUSA Net.com.
The Company also incurred costs of approximately $1.3 million in the third
quarter of fiscal 1999 to support the training of personnel at the former
Computer City stores and other costs necessary to convert the former Computer
City stores to CompUSA Computer Superstores. In addition, the Company recorded
approximately $1.8 million of amortization expense in the third quarter of
fiscal 1999 related to the goodwill associated with the acquisition of Computer
City.
INTEREST EXPENSE AND OTHER INCOME, NET--Interest expense and other income,
net, was $5.4 million, or 0.3% of net sales, in the third quarter of fiscal
1999, compared with $1.3 million, or 0.1% of net sales, in the third quarter of
fiscal 1998. The increase in interest expense and other income, net, was
primarily due to interest expense on the $136 million note payable to Tandy
related to the acquisition of Computer City. See "--Liquidity and Capital
Resources."
INCOME TAXES--The Company's effective tax rate was approximately 38.5% for
both the third quarter of fiscal 1999 and the third quarter of fiscal 1998.
NET LOSS--As a result of the above, the net loss for the third quarter of
fiscal 1999 was $4.9 million, or $.05 per diluted share, compared with net
income of $25.4 million, or $.27 per diluted share, for the third quarter of
fiscal 1998.
NINE MONTHS ENDED MARCH 27, 1999, COMPARED WITH THE NINE MONTHS ENDED MARCH 28,
1998
NET SALES--Net sales for the first nine months of fiscal 1999 increased
18.5% to $4.86 billion from $4.10 billion for the first nine months of fiscal
1998. The increase in net sales was due to sales of approximately $521.4 million
attributable to the new stores opened subsequent to the third quarter of fiscal
1998 and sales of approximately $383.8 million generated by the former Computer
City stores subsequent to their acquisition partially offset by a decline in
comparable store sales. In addition, sales at CompUSA Direct increased
approximately 26% during the first nine months of fiscal 1999 compared with the
first nine months of fiscal 1998.
Despite the increases in overall sales and the number of personal computer
systems sold in the first nine months of fiscal 1999, average net sales per
store for the first nine months of fiscal 1999 decreased approximately 16% from
the first nine months of fiscal 1998. The Company believes average net sales per
store were negatively impacted by, among other things, declines in average
selling prices, an increase in sales of lower-end computer systems as a
percentage of total computer systems sold, and lower sales per store by the 37
former Computer City stores.
Comparable store sales by the CompUSA Computer Superstores decreased 4.7%
from the first nine months of fiscal 1998. The sales of the 37 former Computer
City stores are not included in the calculation of the change in comparable
store sales for the first nine months of fiscal 1999. The Company believes
comparable store 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, and increased sales of lower-end
computer systems as a percentage of total computer systems sold. The
19
<PAGE>
Company also believes the change in comparable store sales was negatively
impacted by a decline in sales of the CompUSA Computer Superstores during the
first nine months of fiscal 1999 as a result of (i) the transfer of sales from
existing CompUSA Computer Superstores to the 29 former Computer City stores
located in metropolitan areas in which there are existing CompUSA Computer
Superstores, (ii) inventory liquidation sales conducted at the Computer City
stores closed by the Company in September and October 1998, and (iii)
promotional sales activities conducted in the former Computer City stores in the
second quarter of fiscal 1999.
GROSS PROFIT--Gross profit was $652.6 million, or 13.4% of net sales, in the
first nine months of fiscal 1999, compared with $595.5 million, or 14.5% of net
sales, in the first nine months of fiscal 1998. The decline in gross profit as a
percentage of net sales in the first nine months of fiscal 1999 compared with
the first nine months of fiscal 1998 was primarily due to increases in the
following costs as percentages of net sales: (1) product costs, (2) controllable
costs, such as freight and shrink, and (3) occupancy costs.
In the first nine months of fiscal 1999, product costs increased as a
percentage of net sales by approximately 0.41% compared with the first nine
months of fiscal 1998. The increase in product costs as a percentage of net
sales was due to lower average selling prices in general as well as promotional
sales activities. The Company conducted promotional sales activities in the
former Computer City stores as well as seasonal promotions in the second quarter
of fiscal 1999. In addition, the Company took aggressive pricing actions in the
third quarter of fiscal 1999 in reaction to lower than anticipated demand.
Gross profit also decreased in the first nine months of fiscal 1999 due to
an increase in freight and shrink expenses by approximately 0.26% as a
percentage of net sales compared with the first nine months of fiscal 1998.
Freight expense, which is generally a fixed cost based on the number of units
sold, increased as a percentage of net sales due to the decline in average
selling prices. In addition, freight expense increased as a percentage of net
sales due to the increased use of expedited freight in the second quarter of
fiscal 1999 in order to ensure the timely receipt of merchandise inventories in
the Company's Computer Superstores. The increase in shrink expense is primarily
attributable to higher expenses as a percentage of net sales incurred in the
operation of the former Computer City stores.
Occupancy costs increased by approximately 0.44% as a percentage of net
sales in the first nine months of fiscal 1999 compared with the first nine
months of fiscal 1998. Occupancy costs, which are generally fixed in nature,
increased as a percentage of net sales in the first nine months of fiscal 1999
primarily as a result of lower average net sales per store compared with the
first nine months of fiscal 1998, particularly at the former Computer City
stores.
OPERATING EXPENSES--Operating expenses were $485.3 million, or 10.0% of net
sales, in the first nine months of fiscal 1999, compared with $369.1 million, or
9.0% of net sales, in the first nine months of fiscal 1998. The increase in
operating expenses as a percentage of net sales for the first nine months of
fiscal 1999 compared with the first nine months of fiscal 1998 was due to the
following: (1) increases in personnel, facility, and certain selling expenses as
percentages of net sales, (2) costs incurred to support the conversion of the
former Computer City stores to CompUSA Computer Superstores, and (3) a $2.4
million charge recorded in the first quarter of fiscal 1999 for the anticipated
closure of three CompUSA Computer Superstores. These increases were partially
offset by a decrease in advertising expense as a percentage of net sales.
Excluding personnel costs incurred in connection with the conversion of the
former Computer City stores, personnel expenses in the first nine months of
fiscal 1999 increased as a percentage of net sales by approximately 0.63%.
Personnel costs increased as a percentage of net sales primarily as a result of
lower average net sales per store. In addition, personnel expenses represented a
higher percentage of net sales of the former Computer City stores compared with
the CompUSA Computer Superstores due to the lower net sales of the former
Computer City stores.
Facility expenses increased by approximately 0.23% as a percentage of net
sales in the first nine months of fiscal 1999 compared with the first nine
months of fiscal 1998. Facility expenses, which are
20
<PAGE>
generally fixed in nature, increased as a percentage of net sales in the first
nine months of fiscal 1999, primarily as a result of lower average net sales per
store.
The increase in operating expenses for the first nine months of fiscal 1999
compared with the first nine months of fiscal 1998 was also due to an increase
in credit card discount fees and bad debt expenses. Such costs increased by
approximately 0.15% as a percentage of net sales in the first nine months of
fiscal 1999 compared with the first nine months of fiscal 1998.
The Company incurred costs of approximately $3.2 million in the first nine
months of fiscal 1999 related to the training of personnel at the former
Computer City stores and other costs necessary to convert the former Computer
City stores to CompUSA Computer Superstores.
In the first quarter of fiscal 1999, the Company recorded a $2.4 million
charge for the anticipated closure of three CompUSA Computer Superstores in
markets where a former Computer City store in close proximity to a CompUSA
Computer Superstore remained open. As of the end of the third quarter of fiscal
1999, the Company has closed two such CompUSA Computer Superstores.
The above increases were partially offset by lower net advertising expense
as a percentage of net sales. Net advertising expense decreased by approximately
0.21% as a percentage of net sales in the first nine months of fiscal 1999 due
to increased vendor participation and advertising economies-of-scale related to
the addition of stores in multi-store markets, primarily as a result of the
acquisition of the Computer City stores. This decrease in net advertising
expense was partially offset by advertising expenses related to promotional
sales activities conducted in the former Computer City stores in the second
quarter of fiscal 1999.
PRE-OPENING EXPENSES--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 as
incurred. In the first nine months of fiscal 1999, the Company incurred $3.9
million in pre-opening expenses in connection with the opening of 12 Computer
Superstores and the relocation of four Computer Superstores, compared with $6.0
million in pre-opening expenses incurred in the first nine months of fiscal 1998
in connection with the opening of 21 Computer Superstores and the relocation of
two Computer Superstores.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
were $121.2 million, or 2.5% of net sales, in the first nine months of fiscal
1999, compared with $82.3 million, or 2.0% of net sales, in the first nine
months of fiscal 1998. The increase in general and administrative expenses as a
percentage of net sales was primarily due to the following: (1) increased
personnel and facility expenses as percentages of net sales, (2) costs incurred
in the third quarter of fiscal 1999 related to the Company's information
technology initiatives and the formation of CompUSA Net.com, and (3) costs
incurred in the first nine months of fiscal 1999 related to the conversion of
the former Computer City stores to CompUSA Computer Superstores.
Excluding personnel costs incurred in connection with the Company's
information technology initiatives and the conversion of the former Computer
City stores, personnel expenses in the first nine months of fiscal 1999
increased as a percentage of net sales by approximately 0.16%. This increase in
personnel expenses as a percentage of net sales is primarily attributable to
lower average net sales per store and lower sales per store by the 37 former
Computer City stores. This increase was partially offset by lower incentive
compensation expense.
Facility expenses increased by approximately 0.09% as a percentage of net
sales in the first nine months of fiscal 1999 compared with the first nine
months of fiscal 1998. Facility expenses, which are generally fixed in nature,
increased as a percentage of net sales in the first nine months of fiscal 1999
primarily as a result of lower average net sales per store. In addition,
facility expenses increased in the first nine months of fiscal 1999 as a result
of the expansion of the Company's corporate facilities.
In the third quarter of fiscal 1999, the Company incurred expenses of
approximately $3.9 million related to the Company's information technology
initiatives and the formation of CompUSA Net.com.
21
<PAGE>
The Company incurred costs of approximately $3.3 million in the first nine
months of fiscal 1999 to support the training of personnel at the former
Computer City stores and other costs necessary to convert the former Computer
City stores to CompUSA Computer Superstores. In addition, the Company recorded
approximately $3.1 million of amortization expense in the first nine months of
fiscal 1999 related to the goodwill associated with the acquisition of Computer
City.
INTEREST EXPENSE AND OTHER INCOME, NET--Interest expense and other income,
net, was $11.7 million, or 0.3% of net sales, in the first nine months of fiscal
1999, compared with $3.3 million, or 0.1% of net sales, in the first nine months
of fiscal 1998. The increase in interest expense and other income, net, was
primarily due to interest expense on the $136 million note payable to Tandy
related to the acquisition of Computer City. See "--Liquidity and Capital
Resources."
INCOME TAXES--The Company's effective tax rate was 38.5% for both the first
nine months of fiscal 1999 and the first nine months of fiscal 1998.
NET INCOME--As a result of the above, net income for the first nine months
of fiscal 1999 was $18.8 million, or $.20 per diluted share, compared with net
income of $83.0 million, or $.87 per diluted share, for the first nine months of
fiscal 1998.
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 fiscal quarters than in
the second and third fiscal quarters.
LIQUIDITY AND CAPITAL RESOURCES
At March 27, 1999, total assets were $1.69 billion, $1.34 billion of which
were current assets, including $242 million of cash and cash equivalents. Net
cash provided by operating activities for the first nine months of fiscal 1999
was $169 million, which was primarily attributable to net income for the first
nine months of fiscal 1999 and an increase in accounts payable, partially offset
by an increase in inventory.
Approximately three-fourths of the Company's net sales during the first nine
months of both fiscal 1999 and fiscal 1998 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.
Merchandise inventories increased to $803 million at March 27, 1999, from
$521 million at June 27, 1998. The increase in merchandise inventories is
primarily attributable to inventories at the 12 Computer Superstores opened in
the first nine months of fiscal 1999 and the 37 former Computer City stores and
higher inventories held at the Company's configuration center. At March 27,
1999, inventory per store was approximately $3.6 million, compared with
approximately $4.0 million at March 28, 1998.
22
<PAGE>
Capital expenditures during the first nine months of fiscal 1999 were $54.1
million, compared with $91.5 million of capital expenditures during the first
nine months of fiscal 1998. The following table sets forth the capital
expenditures for the first nine months of fiscal 1999 and fiscal 1998:
<TABLE>
<CAPTION>
FOR THE
THIRTY-NINE WEEKS ENDED
------------------------
MARCH 27, MARCH 28,
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
New stores............................................................... $ 7,013 $ 21,735
Existing stores.......................................................... 12,538 19,061
Computer City store conversions.......................................... 10,248 --
Information technology initiatives....................................... 12,552 24,696
Corporate and other...................................................... 11,703 25,963
----------- -----------
Total capital expenditures............................................... $ 54,054 $ 91,455
----------- -----------
----------- -----------
</TABLE>
The Company plans to open 14 Computer Superstores in fiscal 1999, 12 of
which had opened as of March 27, 1999, and approximately 10 Computer Superstores
in fiscal 2000. 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.
Effective March 27, 1999, the Company executed an amendment to its credit
agreement with a consortium of banks that expires in March 2001 to provide a
$230 million credit facility under which borrowings are secured by the Company's
accounts receivable and all equity interests in the Company's subsidiaries (the
"Credit Agreement"). The Credit Agreement requires that the Company maintain
certain financial ratios and a minimum net worth. The Company's ability to incur
borrowings under the Credit Agreement is reduced by outstanding letters of
credit and, in certain circumstances, is further reduced based upon the amount
of the Company's eligible accounts receivable and the financial covenants
contained in the Credit Agreement. Under the terms of the Credit Agreement, as
of March 27, 1999, the Company had approximately $65 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 (the "Seller Note").
The Seller Note bears interest at a rate of 9.48% per annum and provides for its
repayment in semi-annual installments over a period of ten years. 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 Seller Note may be prepaid, in whole
or in part, at any time at the option of the Company, without premium or
penalty.
The Company is currently completing the business plan and evaluating the
capital requirements of CompUSA Net.com. The Company currently plans to explore
strategic partnerships and/or access the capital markets over the next six to
nine months to fund the growth of CompUSA Net.com. There can be no assurance
that such strategic partnerships can be effected and/or such funding can be
accomplished through the capital markets, on terms acceptable to the Company.
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 through the end of fiscal 1999 to finance its continuing operations
and expansion plans and to make all required payments of interest on the Senior
Subordinated Notes and the
23
<PAGE>
Seller Note. The level of future expansion of both the Company and CompUSA
Net.com will be contingent upon 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 adoption of the disclosure requirements
of SFAS No. 130 in the preparation of the Quarterly Report on Form 10-Q for the
thirteen weeks ended September 26, 1998 had no impact on the Company's financial
statements. The Company will adopt the annual disclosure requirements of SFAS
No. 131 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. 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. The Company adopted the
provisions of SOP 98-5 in the preparation of the Quarterly Report on Form 10-Q
for the thirteen weeks ended September 26, 1998. The adoption of SOP 98-5 had 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. Computer equipment
and software and devices with embedded 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 information
technology ("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, sprinkler 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, 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 it
believes 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 October 31,
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
March 27, 1999, it had completed approximately 65% of the initiatives that it
believes will be necessary to fully address potential Year 2000
24
<PAGE>
issues relating to its computer equipment and software. The projects comprising
the remaining 35% of the initiatives are in process and expected to be completed
by October 31, 1999. As non-IT system issues are identified and assessed,
remediation and testing of the non-IT system issues will be ongoing through
December 31, 1999.
<TABLE>
<CAPTION>
TIME PERCENT
YEAR 2000 INITIATIVE FRAME COMPLETE
- ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
Initial IT systems 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 60%
Remediation and testing regarding store and distribution system
issues................................................................ 8/98-9/99 65%
Upgrades to telephone/PBX and other systems............................. 3/98-3/99 100%
Electronic data interchange trading partner conversions................. 3/98-6/99 85%
Identification, assessment, remediation, and testing regarding desktop
and individual system issues.......................................... 2/98-10/99 15%
Identification and assessment regarding non-IT system issues............ 4/98-6/99 90%
Remediation and testing regarding non-IT system issues.................. 2/99-12/99 50%
</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 March 27, 1999, the Company had received
responses from approximately 56% of such third parties, and 81% 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.
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 $5.0 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 March 27, 1999, the Company had incurred costs of approximately $3.0
million related to its Year 2000 identification, assessment, remediation, and
testing efforts. All of the $3.0 million relates to analysis, repair, or
replacement of existing software, upgrades to 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.
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 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 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
25
<PAGE>
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 imbedded technology, and
similar uncertainties. In addition, some government and large corporate
customers have required the Company to represent and warrant to them that all of
the products the Company sells to them are Year 2000 compliant. The 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 3. 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. The
Company's Credit Agreement provides for borrowings that 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
as of March 27, 1999. The Senior Subordinated Notes require the Company to make
semi-annual interest payments at a fixed interest rate of 9 1/2% per annum. In
addition, the Seller Note requires the Company to make semi-annual installment
payments with a fixed interest rate of 9.48% per annum. The Company believes,
because of the fixed nature of the interest charges of both the Senior
Subordinated Notes and the Seller Note, 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.
26
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Note 4 of the Notes to Consolidated Financial Statements in Part I, Item 1
is incorporated herein by reference as if fully restated herein. Note 4 contains
forward-looking statements that are subject to the risks and uncertainties
discussed in Item 2--"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cautionary Statement Regarding Risks and
Uncertainties That May Affect Future Results."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
3.1 Restated and Amended Certificate of Incorporation. (1)
3.2 Restated and Amended Bylaws. (2)
10.1 Third Amendment to Second Amended and Restated Credit Agreement, dated as of March 27, 1999, among
the Company, certain lenders, and among NationsBank, N.A., as administrative lender. (3)
10.2 Security Agreement, dated as of March 27, 1999, executed by the Company, Computer City, Inc.,
CompUSA Holdings I Inc., CompUSA Holdings II Inc., CompTeam Inc., CompUSA Management Company,
CompUSA Holdings Company and CompUSA Stores L.P., in favor of NationsBank, N.A. for the benefit
of NationsBank, N.A. and certain lenders. (3)
10.3 Promissory Note dated May 5, 1999, in the principal amount of $49,066,666.68, issued in favor of
NationsBank, N.A. (3)
10.4 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
Bank One, Texas, N.A. (3)
10.5 Promissory Note dated May 5, 1999, in the principal amount of $22,233,333.33, issued in favor of
Credit Lyonnais New York Branch. (3)
10.6 Promissory Note dated May 5, 1999, in the principal amount of $23,000,000.00, issued in favor of
Wells Fargo Bank (Texas), N.A. (3)
10.7 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
The Bank of New York. (3)
10.8 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
The Bank of Nova Scotia. (3)
10.9 Promissory Note dated May 5, 1999, in the principal amount of $22,233,333.33, issued in favor of
Fleet National Bank. (3)
10.10 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
Fifth Third Bank. (3)
10.11 Promissory Note dated May 5, 1999, in the principal amount of $22,233,333.33, issued in favor of
Hibernia National Bank. (3)
10.12 Promissory Note dated May 5, 1999, in the principal amount of $22,233,333.33, issued in favor of
Credit Suisse First Boston. (3)
10.13 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
Chase Bank of Texas, National Association. (3)
</TABLE>
27
<PAGE>
<TABLE>
<C> <S>
10.14 Promissory Note dated May 5, 1999, in the principal amount of $11,500,000.00, issued in favor of
First Union National Bank. (3)
10.15 Amendment No. 1 to the CompSavings Plan for Employees of CompUSA Inc. and Trust, dated as of
September 1, 1998. (3)
11 Computation of Income per Common and Common Equivalent Share. (3)
27.1 Financial Data Schedule. (4)
</TABLE>
(b) Reports on Form 8-K.
None.
- ------------------------
(1) 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 and incorporated
herein by reference.
(2) 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.
(3) Filed herewith.
(4) Included with EDGAR version only.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
COMPUSA INC.
Date: May 11, 1999 By: /s/ JAMES E. SKINNER
-----------------------------------------
James E. Skinner
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
</TABLE>
29
<PAGE>
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Third Amendment"), dated effective as of March 27, 1999, 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, and that
certain Second Amendment to Second Amended and Restated Credit Agreement,
dated as of August 31, 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.
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:
<PAGE>
<TABLE>
<CAPTION>
LIBOR
Applicability Basis
------------- ------
<S> <C>
(a) The Leverage Ratio is greater than 3.50 to 1 2.250
(b) The Leverage Ratio is greater than 3.00 to 1 but less than 1.750
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 than or 1.000
equal to 2.00 to 1 but less than 2.25 to 1
(iii) The Fixed Charge Coverage Ratio is greater than or 0.875
equal to 2.25 to 1 but less than 3.00 to 1
(iv) The Fixed Charge Coverage Ratio is greater than or 0.750
equal to 3.00 to 1 but less than 3.75 to 1
(v) The Fixed Charge Coverage Ratio is greater than or 0.625
equal to 3.75 to 1 but less than 4.50 to 1
(vi) The Fixed Charge Coverage Ratio is greater than or 0.500
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. In addition, the
Applicable Margin shall be increased above the per annum percentages set
forth above by 0.750 on each Utilization Premium Date."
(b) The definition of "COMMITMENT" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended to read as follows:
-2-
<PAGE>
"'COMMITMENT' means the commitment of the Lenders, subject to the
terms and conditions hereof, to make Advances or to issue or participate in
Letters of Credit up to an aggregate principal amount of $230,000,000, as
such amount may be reduced pursuant to SECTION 2.6 hereof."
(c) The definition of "DEBT FOR BORROWED MONEY" set forth in SECTION 1.1
of the Credit Agreement is hereby amended to read as follows:
"'DEBT FOR BORROWED MONEY' means all indebtedness, direct or
indirect, whether or not represented by bonds, debentures, notes or other
securities, for the repayment of money borrowed or the deferred purchase
price of property or services, and shall include, without duplication,
Securitization Indebtedness. Debt for Borrowed Money does not include,
without limitation, (a) accounts payable or accrued liabilities incurred in
the ordinary course of business, including advances from customers and
trade payables financed through floor plan arrangements, (b) current or
deferred income taxes, and (c) provided that any applicable Restricted
Subsidiary has executed a Subsidiary Guaranty and a Security Agreement,
(i) Indebtedness owed by a Restricted Subsidiary to the Borrower,
(ii) Indebtedness owed by the Borrower to a Restricted Subsidiary, and
(iii) Indebtedness owed by a Subsidiary to a Restricted Subsidiary."
(d) 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, plus (d) without
duplication, the Approved Restructuring Charges; 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."
(e) 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
-3-
<PAGE>
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, plus (d) Dividends and Treasury Stock Purchases, in each
case for the applicable period immediately 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."
(f) The definition of "INDEBTEDNESS" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended to read as follows:
"'INDEBTEDNESS' means, with respect to any Person, without
duplication, (a) all items, except accounts payable arising in the normal
course of business, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person, (b) all obligations secured by any Lien other than
Permitted Liens on any property or asset owned by such Person (other than
accounts payable arising in the ordinary course of business), whether or
not the obligation secured thereby shall have been assumed, (c) to the
extent not otherwise included, all Capitalized Lease Obligations, all
Guaranties, all reimbursement obligations in respect of letters of credit,
all obligations under Interest Hedge Agreements, and all Securitization
Indebtedness of such Person, and (d) any "withdrawal liability" of such
Person, as such term is defined under Part I of Subtitle E of Title IV of
ERISA."
(g) The definition of "LOAN DOCUMENTS" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended to read as follows:
"'LOAN DOCUMENTS' means this Agreement, the Notes, the Subsidiary
Guaranty, the Fee Letter, each Collateral Document, any Interest Hedge
Agreement entered into with any Lender or any Lender Affiliate, and any
other document or agreement executed or delivered from time to time by an
officer of the Borrower or any Subsidiary in connection herewith or as
security for the Obligations."
(h) The definition of "NET WORTH" set forth in SECTION 1.1 of the Credit
Agreement is hereby amended to read as follows:
"'NET WORTH' means, for the Borrower and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP, the sum of:
(a) capital stock taken at stated or par
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<PAGE>
value, plus (b) paid in capital plus (c) retained earnings, plus (d) the
aggregate amount of Approved Restructuring Charges taken after March 27,
1999, less (e) treasury stock."
(i) The definition of "OBLIGATIONS" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended to read as follows:
"'OBLIGATIONS' means (a) all obligations of any nature (whether
matured or unmatured, fixed or contingent, including the Reimbursement
Obligations) of the Borrower or any Subsidiary to the Lenders or any Lender
Affiliate under the Loan Documents as they may be amended from time to
time, and (b) all obligations of the Borrower or any Subsidiary for losses,
damages, expenses, expenses or any other liabilities of any kind that any
Lender or any Lender Affiliate may suffer by reason of a breach by the
Borrower or any Subsidiary of any obligation, covenant or undertaking with
respect to any Loan Document."
(j) The definition of "PERMITTED LIENS" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended by amending clause (a) thereof to read as
follows:
"(a) Any Lien in favor of the Administrative Lender for the benefit
of the Lenders and any Lender Affiliate to secure the Obligations;"
(k) The definition of "SUBSIDIARY GUARANTY" set forth in SECTION 1.1 of
the Credit Agreement is hereby amended to read as follows:
"'SUBSIDIARY GUARANTY' means the Subsidiary Guaranty, executed by
each Restricted Subsidiary of the Borrower (other than CompUSA Net.com),
guarantying payment and performance of the Obligations, substantially in
the form of EXHIBIT B hereto, as such agreement may be amended, modified,
supplemented or restated from time to time."
(l) SECTION 1.1 of the Credit Agreement is hereby amended by adding the
following defined terms thereto in proper alphabetical order:
"ACCOUNT" has the meaning assigned to such term in the UCC.
"APPROVED RESTRUCTURING CHARGES" means those certain restructuring
charges related to potential closing of distribution warehouse and
write-off of related DCC-OE software, potential store closings,
potential write-off of certain training software in connection with the
restructuring of the Borrower's training business, and other
restructuring charges of a similar nature, the cash charges with respect
to all of which may not exceed $5,000,000 in aggregate amount during the
term of this Agreement and the non-cash charges with respect to all of
which may not exceed $20,000,000 in aggregate amount during the term of
this Agreement; PROVIDED, HOWEVER , Approved Restructuring Charges shall
not include the restructuring charges of Comp USA Net.com and mail order
Subsidiaries in an aggregate amount of $10,000,000.
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<PAGE>
"BORROWING BASE" means, at the time in question, an amount equal to
75% of Eligible Accounts.
"BORROWING BASE CERTIFICATE" means that certain certificate, signed
by an Authorized Signatory, in substantially the form of Exhibit G,
appropriately completed.
"CAPITAL EXPENDITURES" means, for any period, cash expenditures made
by the Borrower and its Subsidiaries to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements
during such period) computed in accordance with GAAP.
"COLLATERAL" means any collateral granted by any Person to the
Administrative Lender to secure the Obligations.
"COLLATERAL DOCUMENT" means any document under which Collateral is
granted and any document related thereto.
"COMPUSA NET.COM" means CompUSA Net.com Inc., a Delaware
corporation, of which 100% of the issued and outstanding capital stock will
be owned by the Borrower on March 28, 1999, and which, until otherwise
designated by the Borrower as an Unrestricted Subsidiary as provided
herein, shall be a Restricted Subsidiary.
"ELIGIBLE ACCOUNTS" means at the time of any determination thereof,
each Account as to which the following requirements have been fulfilled to
the reasonable satisfaction of the Administrative Lender:
(a) The Borrower or any Restricted Subsidiary has lawful and
absolute title to such Account;
(b) Such Account is a valid, legally enforceable obligation of
the Person who is obligated under such Account (the "account debtor") for
goods or services delivered or rendered to such Person;
(c) If such Account and other Accounts are owed by a creditor of
the Borrower or any Restricted Subsidiary, the amount of all such Accounts
included as Eligible Accounts shall be the amount by which all such
Accounts exceeds the aggregate accounts payable owed by the Borrower or
such Restricted Subsidiary to such creditor;
(d) There has been excluded from such Account any portion that is
subject to any asserted dispute, offset, discount, counterclaim or other
claim or defense on the part of the account debtor or to any asserted claim
on the part of the account debtor denying liability under such Account;
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<PAGE>
(e) The Borrower or any Restricted Subsidiary has full and
unqualified right to assign and grant a security interest in such Account
to the Administrative Lender as security for the Obligations;
(f) Such Account is evidenced by an invoice rendered to the
account debtor (and is not evidenced by chattel paper, promissory note or
other instrument payable to the Borrower or any Restricted Subsidiary) and
is not the result of a conditional sales contract or agreement;
(g) Such Account has not been due and payable for more than 90
days from the invoice date; provided, that no Accounts from an account
debtor shall constitute Eligible Accounts if 50% or more of the aggregate
dollar amount of all Accounts owed to the Borrower or any Restricted
Subsidiary by such account debtor have been due and payable for 30 days or
more from their respective invoice dates;
(h) No account debtor in respect of such Account is (i) primarily
conducting business in and organized under the laws of any jurisdiction
located outside the United States of America, (ii) the subject of a
proceeding under any Debtor Relief Laws or (iii) a federal, state or local
governmental body;
(i) No account debtor in respect of such Account is (i) an
Affiliate of the Borrower or any Restricted Subsidiary or (ii) an employee
of the Borrower or any Restricted Subsidiary; and
(j) Such Account is (i) subject to a fully perfected first
priority security interest in favor of Administrative Lender pursuant to
the Loan Documents, prior to the rights of, and enforceable as such
against, any other Person (including holders of a purchase money security
interest) and (ii) not subject to any Lien in favor of any other Person
other than Permitted Liens.
"INTEREST HEDGE AGREEMENTS" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from
the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange transactions,
including, but not limited to, dollar-denominated or cross-currency
interest rate exchange agreements, forward currency exchange agreements,
interest rate cap or collar protection agreements, forward rate current or
interest rate options, puts and warrants, as the same may be amended or
modified and in effect from time to time, and any and all cancellations,
buy backs, reversals, terminations or assignments of any of the foregoing.
"LENDER AFFILIATE" means any Person (a) that, directly or
indirectly, Controls or is Controlled By or Under common Control with, any
Lender and (b) that has entered into an Interest Hedge Agreement with the
Borrower or any of its Subsidiaries.
-7-
<PAGE>
"NON-STOCK ACQUISITION CONSIDERATION" means any Acquisition
Consideration which is not Stock Acquisition Consideration.
"PERMITTED STOCK SALES" means the sale or sales of capital stock of
CompUSA Net.com for fair market value (as determined by the Board of
Directors of the Borrower) pursuant to an initial public offering or any
other sale or sales to Persons who are not Affiliates, such that the public
investors and/or such other investors that are not Affiliates would own in
the aggregate up to 30% of the issued and outstanding capital stock of Comp
USA Net.com.
"SECURITY AGREEMENT" means that certain security agreement executed
by the Borrower and each of its Restricted Subsidiaries, substantially in
the form of EXHIBIT F hereto, as such agreement may be amended, modified,
supplemented or restated from time to time.
"STOCK ACQUISITION CONSIDERATION" means Acquisition Consideration
consisting of capital stock or other equity securities or interests.
"UTILIZATION PREMIUM DATE" means any date (a) on and after which the
Senior Subordinated Notes have been paid in full (other than directly or
indirectly with proceeds of Subordinated Debt) and (b) on which the
Utilization Rate is greater than 4/10.
"UTILIZATION RATE" means, at any date, a fraction (a) the numerator
of which is the aggregate principal amount of all Advances and
Reimbursement Obligations at such date and (b) the denominator of which is
the amount of the Commitment at such date, determined in each case after
giving effect to any transactions at such date.
(m) 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 0.500
(b) The Leverage Ratio is less than or equal to 3.00 to 1
(i) The Fixed Charge Coverage Ratio is less than 0.350
and 2.00 to 1
-8-
<PAGE>
(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
(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."
(n) SECTION 2.4 of the Credit Agreement is hereby further amended by
adding a new clause (d) thereto to read as follows:
"(d) ADDITIONAL FEE. Subject to SECTION 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the account of each Lender,
on the first date, if any, that the Utilization Rate exceeds 4/10 during
the period from and including the date on which the Senior Subordinated
Notes are paid in full through and including the date 90 days after the
Senior Subordinated Notes are paid in full, a fee in an amount equal to the
product of (a) 0.25% multiplied by (b) each Lender's pro rata part of the
Commitment."
(o) SECTION 2.16(f)(i) of the Credit Agreement is hereby amended to read
as follows:
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<PAGE>
"(f) COMPENSATION FOR STANDBY LETTERS OF CREDIT.
(i) CREDIT FEE. Subject to SECTION 11.9 hereof, the
Borrower shall pay to the Administrative Lender for the account of
each Lender a fee (which shall accrue beginning on the Agreement
Date and shall be payable quarterly in arrears on each Quarterly
Date and on the Maturity Date) on the average daily amount available
for drawing under all outstanding Standby Letters of Credit at the
following per annum percentages, applicable in the following
situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) The Leverage Ratio is greater than 3.50 to 1 2.250
(b) The Leverage Ratio is greater than 3.00 to 1 but 1.750
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 0.750
than or equal to 3.00 to 1 but less than
3.75 to 1
(v) The Fixed Charge Coverage Ratio is greater 0.625
than or equal to 3.75 to 1 but less than
4.50 to 1
(vi) The Fixed Charge Coverage Ratio is grater 0.500
than or equal to 4.50 to 1
</TABLE>
The fee payable in respect of the Standby Letters of Credit 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 date required, the fee payable in respect of the
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<PAGE>
Letters of Credit 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. In addition,
the fee payable in respect of Letters of Credit shall be increased
above the per annum percentages set forth above by 0.750 on each
Utilization Premium Date. Subject to SECTION 11.9 hereof, such
fee shall be computed on the basis of a 360-day year for the
actual number of days elapsed."
(p) SECTION 3.2 of the Credit Agreement is hereby amended by
(i) deleting "and" after clause (c) thereof, (ii) deleting "." at the end of
clause (d) thereof and inserting "; and" in lieu thereof and (iii) adding the
following new clause (e) thereto to read as follows:
"(e) The Administrative Lender shall have received a duly executed
Borrowing Base Certificate evidencing that, after giving effect to the
proposed Advance or Letter of Credit, the aggregate Advances and Letters of
Credit do not exceed the Borrowing Base."
(q) SECTION 5.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.9 USE OF PROCEEDS. The Borrower shall use the proceeds
of Advances for general corporate purposes, including, without limitation,
(i) refinancing all outstanding debt (other than in respect of the Existing
Letters of Credit) under the Existing Credit Agreement, (ii) working
capital advances, (iii) capital expenditures, (iv) acquisitions,
(v) funding reimbursements of letter of credit drawings, and
(vi) repurchasing or redeeming the Senior Subordinated Notes in part or in
full after December 31, 1999."
(r) ARTICLE 5 of the Credit Agreement is hereby amended by adding the
following SECTION 5.12 thereto to read as follows:
"Section 5.12 FURTHER ASSURANCES. At any time or from time to
time upon reasonable request by the Administrative Lender, the Borrower or
any of its Subsidiaries shall execute and deliver such further documents
and do such other acts and things as the Administrative Lender may
reasonably request in order to effect fully the purposes of this Agreement
and the other Loan Documents and to provide for payment of the Obligations
in accordance with the terms of this Agreement and the other Loan
Documents. At the time of delivery of the financial statements set forth
in SECTIONS 6.1 and 6.2 hereof, if the information provided therein has
changed since the last delivery thereof, the Borrower agrees to update and
deliver to the Administrative Agent SCHEDULE 4 hereto (with respect to the
identifies, jurisdictions of organizations and ownership of the Borrower's
Subsidiaries). The Borrower further agrees to update the information on
the Schedules to the Security Agreements promptly upon discovery that the
information provided therein is not complete and correct. The Borrower
shall cause each Restricted Subsidiary (other than CompUSA Net.com) to
execute and deliver a Subsidiary Guaranty and shall cause each Restricted
Subsidiary (other than CompUSA Net.com) to execute and deliver a Security
Agreement, together with such board
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<PAGE>
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request related thereto."
(s) ARTICLE 6 of the Credit Agreement is hereby amended by adding the
following SECTION 6.7 thereto to read as follows:
"Section 6.7 COLLATERAL. Within 15 days after the end of any
calendar month in which Advances or Letters of Credit were outstanding on
the last day of such month, a Borrowing Base Certificate, together with an
aging of Accounts in form and substance satisfactory to the Administrative
Lender.
(t) SECTION 7.1 of the Credit Agreement is hereby amended by amending
clause (e) thereto to read as follows:
"(e) Indebtedness of (i) a Restricted Subsidiary to the Borrower,
(ii) a Restricted Subsidiary to a Restricted Subsidiary (other than CompUSA
Net.com), (iii) the Borrower to a Restricted Subsidiary (other than CompUSA
Net.com), (iv) of CompUSA Net.com to one of its subsidiaries, or
(v) indebtedness of subsidiaries of CompUSA Net.com to CompUSA Net.com;"
(u) SECTION 7.3 of the Credit Agreement is hereby amended by amending
clause (b) thereto to read as follows:
"(b) Investments in, or transfer of any assets to, (i) CompUSA
Net.com not to exceed the greater of (A) $60,000,000 in aggregate principal
amount calculated on a net basis (excluding the contribution of assets of
PCs Compleat, Inc. to CompUSA Net.com to be made on March 28, 1999), or
(B) 15% of Net Worth at any time, and provided that if there are any
amounts outstanding under the intercompany loan made by the Borrower to
CompUSA Net.com (the "INTERCOMPANY LOAN") and CompUSA Net.com receives cash
from the issuance of equity or from a contribution from a Person which is
not an Affiliate, CompUSA Net.com must repay the Intercompany Loan in full
to the Borrower if (a) there are Advances outstanding or (b) if there are
no Advances outstanding and the Borrower has less than $12,000,000 in Cash
and Cash Equivalents, (ii) one or more Subsidiaries that (A)(1) are or
immediately become subject to the provisions hereof, and (2) are or
immediately become party to the Subsidiary Guaranty and the Security
Agreement, (iii) have been formed for the sole purpose of engaging in a
securitization permitted by SECTION 7.4(a)(iii) hereof, or
(iv) Unrestricted Subsidiaries; PROVIDED, HOWEVER, the aggregate amount of
Investments in Unrestricted Subsidiaries pursuant to this clause (iv)
(calculated on a net basis by taking into account any proceeds received by
the Borrower or any Restricted Subsidiary on a liquidation or repayment of
any such Investments) shall not exceed, together with other Investments
pursuant to SECTION 7.3(f) hereof and net Investments in CompUSA Net.com
pursuant to clause (i) above, 15% of Net Worth at any time;"
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<PAGE>
(v) SECTION 7.3 of the Credit Agreement is hereby further amended by
amending clause (f) thereto to read as follows:
"(f) Other Investments (calculated on a net basis by taking into
account any proceeds received by the Borrower or any Restricted Subsidiary
on a liquidation or replacement of any such Investment) not to exceed,
together with Investments in Unrestricted Subsidiaries pursuant to
SECTION 7.3(b)(iv) hereof and net Investments in CompUSA Net.com pursuant
to SECTION 7.3(b)(i) hereof, 15% of Net Worth at any time; and"
(w) SECTION 7.4(a) of the Credit Agreement is hereby amended by
(a) deleting "and" after clause (v) thereof and (b) adding an new clause (vi)
thereto to read as follows:
"(vi) Permitted Stock Sales;"
(x) SECTION 7.4(a) of the Credit Agreement is hereby further amended by
redesignating clause "(vi)" thereof as clause "(vii)" and amending such clause
to read as follows:
"(vii) any other sale, lease, abandonment, transfer or disposition
in any Fiscal Year of assets (other than Collateral) for full and fair
consideration and which assets do not in aggregate amount exceed 5% of Net
Worth as of the end of the immediately preceding Fiscal Year;"
(y) SECTION 7.4(b) of the Credit Agreement is hereby amended to read as
follows:
"(b) enter into any merger or consolidation (i) unless with
respect to a merger or consolidation, the Borrower shall be the surviving
corporation, unless the merger or consolidation involves a Restricted
Subsidiary (other than CompUSA Net.com) and the Borrower is not merging or
consolidating with another Person, and either (A) such Restricted
Subsidiary shall be the surviving corporation, (B) the survivor of the
merger becomes a Restricted Subsidiary that becomes a party to the
Subsidiary Guaranty and the Security Agreement, (C) the entity formed in
the consolidation becomes a Restricted Subsidiary that becomes a party to
the Subsidiary Guaranty and the Security Agreement, or (i) the survivor is,
or is properly designated as, an Unrestricted Subsidiary, (ii) if such
transaction is being utilized to circumvent compliance with any term or
provision herein and (iii) unless no Default or Event of Default shall then
be in existence or occur as a result of such transaction; or"
(z) SECTION 7.6 of the Credit Agreement is hereby amended to read as
follows:
"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 (other than CompUSA Net.com), (b) the
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<PAGE>
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 (but not with proceeds of Advances
prior to January 1, 2000), and (d) provided that the Leverage Ratio was
less than 4.00 to 1 and the Fixed Charge Coverage Ratio was greater than
1.50 to 1 for the two consecutive Fiscal Quarters immediately preceding
any proposed Dividend or Treasury Stock Purchase, the Borrower may pay
Dividends and make Treasury Stock Purchases (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) or (d) above unless there shall exist no
Default prior to or after giving effect to any such proposed Restricted
Payment."
(aa) 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>
Third Fiscal Quarter of Fiscal Year 1999 4.85 to 1
Fourth Fiscal Quarter of Fiscal Year 1999 4.55 to 1
First Fiscal Quarter of Fiscal Year 2000 5.25 to 1
Second Fiscal Quarter of Fiscal Year 2000 5.75 to 1
Third Fiscal Quarter of Fiscal Year 2000 5.25 to 1
Fourth Fiscal Quarter of Fiscal Year 2000 5.00 to 1
First Fiscal Quarter of Fiscal Year 2001 4.40 to 1
Second Fiscal Quarter of Fiscal Year 2001 4.10 to 1
Third Fiscal quarter of Fiscal Year 2001 4.00 to 1"
</TABLE>
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<PAGE>
(ab) 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 the ratio set
forth below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
Third Fiscal Quarter of Fiscal Year 1999 1.10 to 1
Fourth Fiscal Quarter of Fiscal Year 1999 1.10 to 1
First Fiscal Quarter of Fiscal Year 2000 1.20 to 1
Second Fiscal Quarter of Fiscal Year 2000 1.00 to 1
Third Fiscal Quarter of Fiscal Year 2000 1.20 to 1
Fourth Fiscal Quarter of Fiscal Year 2000 1.25 to 1
Each Fiscal Quarter thereafter 1.50 to 1"
</TABLE>
(ac) 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 (i) $390,000,000, plus
(ii) 50% of cumulative Net Income for the period from, but not including,
March 27, 1999 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, plus (iv) 75% of the Net Cash Proceeds (but without
duplication to the extent that such Net Cash Proceeds are included in
determining Net Income and accounted for in clause (ii) above) of any
offerings of capital stock or other equity interests of the Borrower or any
of its Subsidiaries 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 March 27, 1999."
(ad) 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
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<PAGE>
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 an Acquisition so long as (i) such Acquisition shall
not be opposed by the board of the directors of the Person being
acquired, (ii) 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, (iii) the assets, property or business
acquired shall be within the description contained in SECTION 4.1(d)
hereof, (iv) if the Acquisition results in a new Restricted Subsidiary,
(A) such Subsidiary shall execute a Subsidiary Guaranty and a Security
Agreement 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, and (v)(A) the Acquisition Consideration for such
Acquisition consists entirely of Stock Acquisition Consideration or (B)
if the Acquisition Consideration for such Acquisition includes Non-Stock
Acquisition Consideration, the Leverage Ratio was less than 4.00 to 1
and the Fixed Charge Coverage Ratio was greater than 1.50 to 1 for the
two consecutive Fiscal Quarters immediately preceding such proposed
Acquisition."
(ae) ARTICLE 7 of the Credit Agreement is hereby amended by adding a new
SECTION 7.17 thereto to read as follows:
"Section 7.17 CAPITAL EXPENDITURES. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly incur
Capital Expenditures in an aggregate amount in excess of (a) $131,000,000
during Fiscal Year 1999, (b) $95,000,000 during Fiscal Year 2000, and
(c) $42,000,000 during Fiscal Year 2001; PROVIDED, HOWEVER, that the
Borrower and the Restricted Subsidiaries may carry forward the amount of
any Capital Expenditures permitted to be made in any Fiscal Year but not
made in such Fiscal Year to the following Fiscal Year, and, if such
carry-forward is made, Capital Expenditures made in such following Fiscal
Year shall be applied first against amounts for such following Fiscal Year
and then against amounts so carried forward from the previous Fiscal Year,
except that no amount of Capital Expenditures permitted to be carried
forward pursuant to this PROVISO may be carried forward more than one
Fiscal Year."
(af) ARTICLE 7 of the Credit Agreement is hereby further amended by
adding a new SECTION 7.18 thereto to read as follows:
"Section 7.18 BORROWING BASE. The Borrower shall not permit the
sum of the aggregate outstanding Advances and Reimbursement Obligations to
exceed the Borrowing Base at any time."
(ag) SECTION 8.1 of the Credit Agreement is hereby amended by
(i) deleting "or" after clause (m) thereof, (ii) deleting "." after the end of
clause (n) thereof and adding "; or" in lieu thereof and (iii) adding the
following new clause (o) thereto to read as follows:
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<PAGE>
"(o) Any Collateral Document shall for any reason cease to create
a valid and perfected first priority Lien in any Collateral subject
thereto, other than as expressly provided or permitted in such Collateral
Document or in this Agreement."
(ah) SECTION 11.11 of the Credit Agreement is hereby amended by
(i) deleting ";" at the end of subclause (vii) of clause (a) thereof and
inserting "," in lieu thereof and (ii) adding a new subclause (viii) to
clause (a) thereof to read as follows:
"(viii) amend the definition of Borrowing Base or Eligible
Receivables or amend SECTION 7.18;"
(ai) EXHIBIT C to the Credit Agreement, the Compliance Certificate, is
hereby amended to be in the form of EXHIBIT C to this Third Amendment.
(aj) EXHIBIT F to the Credit Agreement, the Security Agreement, is hereby
added to the Credit Agreement, to be in the form of EXHIBIT F to this Third
Amendment.
(ak) EXHIBIT G to the Credit Agreement, the Borrowing Base Certificate,
is hereby amended to be in the form of EXHIBIT G to this Third Amendment.
2. 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
Third Amendment, the Collateral Documents, the $49,066,666.68 Promissory Note
payable to the order of NationsBank, N.A., the $23,000,000 Promissory Note
payable to the order of Wells Fargo Bank (Texas), N.A., the $22,233,333.33
Promissory Note payable to the order of Hibernia National Bank, the
$22,233,333.33 Promissory Note payable to the order of Credit Lyonnais New York
Branch, the $22,233,333.33 Promissory Note payable to the order of Credit
Suisse First Boston, the $22,233,333.33 Promissory Note payable to the order of
Fleet National Bank, the $11,500,000 Promissory Note payable to the order of
First Union National Bank, the $11,500,000 Promissory Note payable to the order
of Fifth Third Bank, the $11,500,000 Promissory Note payable to the order of
The Bank of Nova Scotia, the $11,500,000 Promissory Note payable to the order
of Chase Bank of Texas, National Association, the $11,500,000 Promissory Note
payable to the order of The Bank of New York, and the $11,500,000 Promissory
Note payable to the order of Bank One, Texas,
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<PAGE>
N.A. (collectively, the "Replacement Notes", a draft form of which is
attached to this Third Amendment as EXHIBIT A), each Subsidiary executing a
Collateral Document has full power and authority to execute and deliver such
Collateral Document, and the Credit Agreement, as amended hereby, the Third
Amendment, the Replacement Notes and the Collateral Documents, constitute the
legal, valid and binding obligations of the Borrower and each Subsidiary, as
applicable, 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 Third
Amendment, the Replacement Notes, the Collateral Documents 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 or any of its
Subsidiaries of this Third Amendment, the Replacement Notes or the Collateral
Documents, as applicable, or the acknowledgment of this Third Amendment by
any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be
effective as of March 27, 1999 (provided that the reduction of the Commitment
set forth in Section 1(b) of this Third Amendment shall be effective as of
May 5, 1999), subject to the following:
(a) the Administrative Lender shall have received counterparts of this
Third Amendment executed by the Determining Lenders;
(b) the Administrative Lender shall have received counterparts of this
Third Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) the Administrative Lender shall have received from the Borrower,
for the account of each Lender delivering an executed signature page to this
Third Amendment to the Administrative Lender by 5:00 p.m., Dallas time, May
4, 1999, an amount equal to the product of (A) 0.25% multiplied by (B) each
Lender's pro rata part of the Commitment;
(d) the Administrative Lender shall have received for each Lender such
Lender's duly executed Replacement Note;
(e) the Administrative Lender shall have received the duly executed
Security Agreement, together with related UCC financing statements, stock
certificates and stock powers;
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<PAGE>
(f) the Administrative Lender shall have received copies of UCC
searches satisfactory to it;
(g) the Administrative Lender shall have received a certified
resolution of the Board of Directors of the Borrower and each Subsidiary
executing a Collateral Document authorizing the execution, delivery and
performance of this Third Amendment, the Collateral Documents and the
Replacement Notes, as applicable;
(h) the Administrative Lender shall have received an opinion of
counsel to the Borrower, in form and substance satisfactory to the
Administrative Lender, with respect to the matters set forth in Section 2(c),
(d) and (e) of this Third Amendment; and
(i) 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.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the
Guarantors (i) acknowledges, consents and agrees to the execution and
delivery of this Third 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
Third 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 Third 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 Third Amendment.
(b) The Credit Agreement, as amended by this Third Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. 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 Third 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 Third
Amendment).
7. NO OBLIGATIONS OF COMPUSA NET.COM. To the extent that CompUSA
Net.com assumed obligations of PCs Compleat, Inc. ("COMPLEAT"), Comp USA Net.com
shall not
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<PAGE>
be deemed to have assumed the obligations of Compleat under the Subsidiary
Guaranty. Compleat is to be merged into the Borrower as of March 29, 1999.
8. EXECUTION IN COUNTERPARTS. This Third 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.
9. GOVERNING LAW: BINDING EFFECT. This Third 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.
10. HEADINGS. Section headings in this Third Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Third Amendment for any other purpose.
11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as the date first above written.
COMPUSA INC.
By: s/James E. Skinner
--------------------------------------
James E. Skinner
Executive Vice President
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<PAGE>
NATIONSBANK, N.A., as Administrative Lender
and as a Lender
By: s/Kimberley A. Knop
--------------------------------------
Kimberley A. Knop
Vice President
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<PAGE>
WELLS FARGO BANK (TEXAS), N.A., as a Co-Agent
and as a Lender
By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
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<PAGE>
HIBERNIA NATIONAL BANK, as a Co-Agent and as
a Lender
By: s/Angela Bentley
--------------------------------------
Angela Bentley
Portfolio Manager
-24-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a
Co-Agent and as a Lender
By: s/Robert Ivosevich
--------------------------------------
Robert Ivosevich
Senior Vice President
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<PAGE>
CREDIT SUISSE FIRST BOSTON, as a Co-Agent and
as a Lender
By: s/Thomas G. Muoio
--------------------------------------
Thomas G. Muoio
Vice President
By: s/Robert N. Finney
--------------------------------------
Robert N. Finney
Managing Director
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<PAGE>
FLEET NATIONAL BANK, as a Co-Agent and as a
Lender
By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
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<PAGE>
FIRST UNION NATIONAL BANK
By: s/Randal D. Southern
--------------------------------------
Randal D. Southern
Vice President
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<PAGE>
FIFTH THIRD BANK
By: s/Anne Koch
--------------------------------------
Anne Koch
National Accounts Officer
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<PAGE>
THE BANK OF NOVA SCOTIA
By: s/F.C.H. Ashby
--------------------------------------
F.C.H. Ashby
Senior Manager
Loan Operations
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<PAGE>
CHASE BANK OF TEXAS NATIONAL ASSOCIATION
By: s/Todd R. Nordeen
--------------------------------------
Todd R. Nordeen
Vice President
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<PAGE>
THE BANK OF NEW YORK
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE>
BANK ONE, TEXAS, N.A.
By: s/Catherine A. Muszynski
--------------------------------------
Catherine A. Muszynski
Officer
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<PAGE>
ACKNOWLEDGED AND AGREED:
COMPUSA HOLDINGS II INC.
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
COMPUSA HOLDINGS I INC.
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
COMPTEAM INC.
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
COMPUSA MANAGEMENT COMPANY
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
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<PAGE>
COMPUSA STORES L.P.
By: COMPUSA INC., its general partner
By: s/James E. Skinner
------------------------------------
James E. Skinner
Executive Vice President
COMPUSA HOLDINGS COMPANY
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
COMPUTER CITY, INC.
By: s/James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
Dallas, Texas $_____________ May ___, 1999
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of ___________________________________
("Lender"), at the principal office of NationsBank, N.A., in lawful money of
the United States of America, the principal sum of _________________________
__________ DOLLARS ($___________ ), 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, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of ____________, 199___,
payable by the Borrower to the order of the Lender in the principal amount of
$___________.
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:
----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
To: NationsBank, N.A.
From: CompUSA Inc.
Date: _________________, ______
Re: Second Amended and Restated Credit Agreement, dated as of March 12,
1998 ("Credit Agreement"), among CompUSA Inc. ("Borrower"), certain
Lenders, certain Co-Agents and NationsBank, N.A. as administrative
lender
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the
Credit Agreement shall be used herein as so defined. For purposes hereof,
section references herein related to sections of the Credit Agreement, and
bracketed amounts or ratios refer to the maximum or minimum amounts or ratios
required under the relevant sections of the Credit Agreement.
1. FIXED CHARGE COVERAGE RATIO (calculated for the 12 Fiscal Periods
preceding the date of determination)
a. EBITDAR
(1) 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 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)
(2) Interest expense (including but not limited to interest $_____
expense pursuant to Capital Lease Obligations)
(3) Depreciation $_____
(4) Amortization $_____
(5) Lease expense pursuant to Operating Leases $_____
(6) Approved Restructuring Charges $_____
(7) EBITDAR [(1) + (2) + (3) + (4) + (5) + (6)] $_____
<PAGE>
b. Fixed Charges, calculated for the Borrower and its Subsidiaries on a
consolidated basis
(1) Interest expense (including but not limited to $_____
interest expense pursuant to Capitalized Lease
Obligations)
(2) Lease expense under Operating Leases $_____
(3) GAAP interest expense related to Securitizations $_____
(4) Dividends and Treasury Stock Purchases $_____
(5) Fixed Charges [(1) + (2) + (3) + (4)] $_____
c. Fixed Charge Coverage Ratio [a to b] ___ to 1
2. COVENANT CALCULATIONS. [To be completed quarterly] Demonstration
of compliance with certain covenants contained in Article 7 of the Credit
Agreement
a. SECTION 7.1(i) Indebtedness under the Senior
Subordinated Notes and other Subordinated Debt
(1) Maximum in aggregate principal amount outstanding
at any time $260,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
b. SECTION 7.1(j) Other Indebtedness [not otherwise
permitted pursuant to Section 7.1(a) through (i)]
(1) Maximum in aggregate principal amount outstanding
at any time $300,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
c. SECTION 7.1(j)(A) Senior Debt
(1) Maximum in aggregate principal amount $100,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
d. SECTION 7.1(j)(B) Senior Debt with an original maturity
date earlier than 180 days after the Maturity Date
(1) Maximum in aggregate principal amount $ 50,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
2
<PAGE>
e. SECTION 7.3(b)(i) Investments in CompUSA Net.com,
SECTION 7.3(b)(iv) Investments in Unrestricted
Subsidiaries and
SECTION 7.3(f) Other Investments
(1) Net Worth $___________
(2) Maximum in aggregate amount at any time (15%
of Net Worth) $___________
(3) Net Investments in CompUSA Net.com $___________
(4) Actual Investments in Unrestricted Subsidiaries $___________
(5) Actual other Investments under Section 7.3(f) $___________
(6) Total [(3) + (4) + (5)] $___________
(7) Difference [(2) - (6)] $___________
f. SECTION 7.4(a)(iii) Sales or pledges of Accounts or
interests in Accounts pursuant to Securitizations
(1) Maximum in aggregate amount outstanding at any
time $200,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
g. SECTION 7.4(a)(vi) Any other sale, lease,
abandonment, transfer or disposition in any Fiscal
Year of assets (other than Collateral) for full and
fair consideration
(1) Maximum in aggregate amount: 5% of Net Worth as of
the immediately preceding Fiscal Year $___________
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
h. SECTION 7.5(d) Guaranty of Indebtedness of directors,
officers and employees of Borrower and its Subsidiaries
(1) Maximum during any Fiscal Year in aggregate amount,
when combined with the loans to officers and employees
permitted pursuant to Section 7.6 of the Credit
Agreement (calculated net of loan repayment) $1,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
3
<PAGE>
i. SECTION 7.6(b) Loans to directors, officers and employees
of Borrower and its Subsidiaries (calculated net of
loan repayments)
(1) Maximum during any Fiscal Year in aggregate amount,
when combined with Guaranty of Indebtedness of
directors, officers and employees permitted pursuant
to Section 7.5 of the Credit Agreement $1,000,000
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
j. SECTION 7.6(d) Dividends paid and Treasury Stock Purchases
(net of cash proceeds received by the Borrower upon the
reissuance of any treasury stock) other than during
Special Repurchase Period
(1) Maximum in aggregate amount
(a) 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 for which Net
Income was a negative number)
(b) Maximum [(a) + $50,000,000] $___________
(2) Actual (net of Reissuances) $___________
(3) Difference [(1) - (2)] $___________
k. SECTION 7.9 Leverage Ratio (for the preceding 12
Fiscal Periods)
(1) Maximum
(a) For the third Fiscal Quarter of Fiscal Year 1999 4.85 to 1
(b) For the fourth Fiscal Quarter of Fiscal Year 1999 4.55 to 1
(c) For the first Fiscal Quarter of Fiscal Year 2000 5.25 to 1
(d) For the second Fiscal Quarter of Fiscal Year 2000 5.75 to 1
(e) For the third Fiscal Quarter of Fiscal Year 2000 5.25 to 1
(f) For the fourth Fiscal Quarter of Fiscal Year 2000 5.00 to 1
(g) For the first Fiscal Quarter of Fiscal Year 2001 4.40 to 1
(h) For the second Fiscal Quarter of Fiscal Year 2001 4.10 to 1
(i) For the third fiscal Quarter of Fiscal Year 2001 4.00 to 1
4
<PAGE>
(2) Actual
(a) Total Funded Debt as of the date of
determination, calculated for the Borrower
and its Subsidiaries on a consolidated basis
i) Debt for Borrowed Money $____
ii) Capitalized Lease Obligations $____
iii) Total Funded Debt [i) + ii)] $___________
(b) Lease expense pursuant to Operating Leases
for the immediately preceding twelve Fiscal
Periods (multiplied by 6) $___________
(c) EBITDAR (see 1.a.(6) above) $___________
(d) Leverage Ratio [(a) + (b)] to (c) _______ to 1
l. SECTION 7.10 Fixed Charge Coverage Ratio (calculated
for the 12 Fiscal Periods preceding the date of
determination)
(1) Minimum
(a) For the third Fiscal Quarter of Fiscal Year 1999 1.10 to 1
(b) For the fourth Fiscal Quarter of Fiscal Year 1999 1.10 to 1
(c) For the first Fiscal Quarter of Fiscal Year 2000 1.20 to 1
(d) For the second Fiscal Quarter of Fiscal Year 2000 1.00 to 1
(e) For the third Fiscal Quarter of Fiscal Year 2000 1.20 to 1
(f) For the fourth Fiscal Quarter of Fiscal Year 2000 1.25 to 1
(g) Each Fiscal Quarter thereafter 1.50 to 1
(2) Actual (see 1.c. above) _______ to 1
m. SECTION 7.11 Net Worth
(1) Minimum
(a) 50% of cumulative Net Income from, but not $____
including March 27, 1999 through the date
of calculation (excluding the effect, if
any, of any fiscal quarter or portion of
fiscal quarter not then ended for which
Net Income was a negative number)
5
<PAGE>
(b) 75% of net worth of 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 is paid in
equity securities (including the reissuance
of treasury stock during the Special
Repurchase Period)
(c) 75% of Net Cash Proceeds (but without $____
duplication to the extent that such Net
Cash Proceeds are included within Net Income
and accounted for in (a) above) of any
offerings of capital stock or other equity
interests of the Borrower or any of its
Subsidiaries (including the reissuance of
treasury stock 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 March 27, 1999
(d) Minimum Tangible Net Worth [(a) + (b) + (c) + $___________
$390,000,000]
(2) Actual
(a) Capital stock taken at stated or par value $____
(b) Paid in capital $____
(c) Retained earnings $____
(d) Approved Restructuring Charges $____
(e) Treasury stock (net of Reissuances) $____
(f) Net Worth [(a) + (b) + (c) + (d) - (e) $____
(3) Difference [(2) - (1)] $___________
n. SECTION 7.16 Unrestricted Subsidiaries
(1) Maximum aggregate amount of EBITDAR of all
Unrestricted Subsidiaries during any period of
twelve consecutive Fiscal Periods: 10% of
EBITDAR of Borrower and all of its Subsidiaries
during any such period $___________
(2) Actual $___________
(3) Difference [(1) - (2)] $___________
6
<PAGE>
(4) Maximum aggregate amount of assets of all
Unrestricted Subsidiaries as of the end of any
Fiscal Quarter: 10% of assets of Borrower and
all of its Subsidiaries $___________
(5) Actual $___________
(6) Difference [(1) - (2)] $___________
o. SECTION 7.17 Capital Expenditures
(1) (a) Maximum for Fiscal Year 1999 $131,000,000
(b) Actual for Fiscal Year 1999 $___________
(2) (a) Maximum for Fiscal Year 2000 $95,000,000
(plus any
carry-over
from Fiscal
Year 1999)
(b) Actual for Fiscal Year 2000 $___________
(3) (a) Maximum for Fiscal Year 2001 $42,000,000
(plus any
carry-over
from Fiscal
Year 2000)
(b) Actual for Fiscal Year 2001 $___________
3. Approved Restructuring Charges
(1) (a) Maximum cash charges $5,000,000
(b) Actual cash charges through calculation date $___________
(2) (a) Maximum non-cash charges $20,000,000
(b) Actual non-cash charges through calculation date $___________
4. COMPLIANCE CERTIFICATE. [To be completed
quarterly] The undersigned hereby certifies to you
as follows:
(a) I am the duly elected, qualified and acting _______________________ of
Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from ____________, 19___ to ____________, 19___ (the "Reporting
Period") has been made under my supervision with a view toward
determining whether, during the Reporting Period, Borrower has kept,
observed, performed and fulfilled all its obligations under the Credit
Agreement and such Loan Documents.
7
<PAGE>
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and as of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing or is imminent.
This Compliance Certificate is executed and delivered on the _____ day
of _____________, 19___.
____________________________
Name:_______________________
Title:______________________
8
<PAGE>
EXHIBIT F
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITY AGREEMENT
Among
The Grantors Named Herein
as Grantors
and
NATIONSBANK, N.A.,
as Administrative Lender
Dated Effective as of March 27, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
GRANT
Section 1.1 ASSIGNMENT AND GRANT OF SECURITY . . . . . . . . . . . . . 2
Section 1.2 DESCRIPTION OF OBLIGATIONS . . . . . . . . . . . . . . . . 3
Section 1.3 GRANTOR REMAINS LIABLE . . . . . . . . . . . . . . . . . . 4
Section 1.4 DELIVERY OF INSTRUMENTS AND SECURITIES COLLATERAL. . . . . 4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 4
ARTICLE 3
COVENANTS
Section 3.1 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES,
CHATTEL PAPER AND INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 TRANSFERS AND OTHER LIENS. . . . . . . . . . . . . . . . . 8
Section 3.4 RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . 8
Section 3.5 RIGHT OF THE ADMINISTRATIVE LENDER TO NOTIFY ISSUERS . . . 9
Section 3.6 THE ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT . . . 9
ARTICLE 4
RIGHTS AND POWERS OF THE ADMINISTRATIVE LENDER
Section 4.1 THE ADMINISTRATIVE LENDER MAY PERFORM. . . . . . . . . . .10
Section 4.2 THE ADMINISTRATIVE LENDER'S DUTIES . . . . . . . . . . . .10
Section 4.3 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 4.4 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . .13
<PAGE>
ARTICLE 5
MISCELLANEOUS
Section 5.1 CUMULATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . .13
Section 5.2 MODIFICATIONS; AMENDMENTS; ETC.. . . . . . . . . . . . . .13
Section 5.3 CONTINUING SECURITY INTEREST . . . . . . . . . . . . . . .13
Section 5.4 GOVERNING LAW; TERMS . . . . . . . . . . . . . . . . . . .14
Section 5.5 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . .14
Section 5.6 THE ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS. . . . . .14
Section 5.7 WAIVERS OF RIGHTS INHIBITING ENFORCEMENT . . . . . . . . .14
Section 5.8 NOTICES AND DELIVERIES . . . . . . . . . . . . . . . . . .14
Section 5.9 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . .14
Section 5.10 LOAN DOCUMENT. . . . . . . . . . . . . . . . . . . . . . .14
Section 5.11 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. . . . . . .15
Section 5.12 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.13 OBLIGATIONS NOT AFFECTED . . . . . . . . . . . . . . . . .15
Section 5.14 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.15 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . .16
Section 5.16 CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
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<PAGE>
SCHEDULES:
Schedule 1 Chief Place of Business, Chief Executive Office and Location of
Books and Records
Schedule 2 Trade Names
Schedule 3 Restricted Accounts
Schedule 4 Securities Collateral
EXHIBITS:
Exhibit A Instructions for Registration of Pledge of Uncertificated
Securities Collateral
Exhibit B Initial Transaction Statement
Exhibit C Securities Collateral Stop Transfer Letter
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<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "AGREEMENT"), dated effective as of March 27,
1999, made among each of the signatories party hereto (collectively, the
"GRANTORS" and each a "GRANTOR"), and NationsBank, N.A., a national banking
association, in its capacity as Administrative Lender (the "ADMINISTRATIVE
LENDER") for itself and each lender a party to the Credit Agreement defined
below (the "LENDERS") and each Lender Affiliate (as defined in the Credit
Agreement) (each singularly, a "SECURED PARTY", and collectively, the
"SECURED PARTIES").
BACKGROUND
(1) CompUSA Inc., a Delaware corporation (the "BORROWER"), the
Administrative Lender, the Co-Agents (as defined in the Credit Agreement),
and the Lenders entered into 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, and that certain Second Amendment to Second Amended and Restated
Credit Agreement, dated as of August 31, 1998 (said Second Amended and
Restated Credit Agreement, as amended, the "CREDIT AGREEMENT"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
given to them in the Credit Agreement.
(2) The Borrower, the Administrative Lender, the Co-Agents and the
Lenders are entering into that certain Third Amendment to Second Amended and
Restated Credit Agreement, dated as of even date herewith (the "THIRD
AMENDMENT").
(3) It is the intention of the parties hereto that this Agreement
create a first priority security interest in certain property of the Grantors
securing the payment of the obligations set forth in SECTION 1.2 hereof,
subject only to Permitted Liens.
(4) It is a condition precedent to the obligation of the Secured
Parties to enter into the Third Amendment and to, among other things,
continue to make the Advances, and issue, or participate in the issuance of,
Letters of Credit under the Credit Agreement that the Grantors shall have
executed and delivered to the Administrative Lender this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and in order to induce the Secured Parties to
enter into the Third Amendment and to, among other things, continue to make
the Advances and issue, or participate in the issuance of, Letters of Credit
under
<PAGE>
the Credit Agreement, the Grantors hereby agree with the Administrative
Lender for its benefit and the ratable benefit of the other Secured Parties,
as hereinafter set forth.
ARTICLE 1
GRANT
Section 1.1 ASSIGNMENT AND GRANT OF SECURITY. Each Grantor hereby
assigns, pledges, hypothecates and transfers to the Administrative Lender,
for its benefit and the ratable benefit of the other Secured Parties, and
hereby grants to the Administrative Lender, for its benefit and the ratable
benefit of the other Secured Parties, a security interest in, the entire
right, title and interest of such Grantor, in and to the following assets of
such Grantor, whether now owned or hereafter acquired ("COLLATERAL"):
(a) all accounts, contract rights, chattel paper, documents,
instruments, deposit accounts, general intangibles, and other obligations of
any kind owing to such Grantor, now or hereafter existing, in each case
arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and to all
security agreements, leases, and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper, documents,
instruments, deposit accounts, general intangibles or obligations (any and
all such accounts, contract rights, chattel paper, documents, instruments,
deposit accounts, general intangibles and obligations being the
"RECEIVABLES");
(b) all right, title and interest of such Grantor in, to and under
each contract and other agreement relating to the lease, sale or other
disposition of Collateral;
(c) all right, title and interest of such Grantor in and to any
equity interests of each Subsidiary of the such Grantor, including, without
limitation, the shares of each class of capital stock in any Person that is a
corporation, each class of partnership interests in any Person that is a
partnership, and each class of membership interests in any Person that is a
limited liability company, together with all dividends, increases, case,
proceeds, profits, instruments, distributions and other property from time to
time distributed in respect thereof and any rights to acquire or convertible
into any such equity interests, whether by purchase, exercise of any type of
options, warrants, conversion of debt or otherwise; provided, however,
notwithstanding anything herein to the contrary, the amount of equity
interests of any direct Foreign Subsidiary pledged by such Grantor hereunder
shall be limited to 65% of the issued and outstanding equity interests of
such direct Foreign Subsidiary ("SECURITIES COLLATERAL");
(d) all insurance policies and bonds and claims and payments under
any Collateral; and
(e) all accessions to, substitutions for and replacements, proceeds
and products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property
-2-
<PAGE>
of the types described in this SECTION 1.1) and, to the extent not otherwise
included, all (i) payments under insurance (whether or not the Administrative
Lender is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral and (ii) cash.
Section 1.2 DESCRIPTION OF OBLIGATIONS. This Agreement creates an
enforceable security interest in the Collateral, subject only to Permitted
Liens, to secure the payment and performance of any and all obligations now
or hereafter existing of the Grantors under the Credit Agreement and the
other Loan Documents, including any extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal, interest, fees,
premium, expenses, reimbursement obligations, indemnification or otherwise
(all such obligations of the Grantors being the "OBLIGATIONS"). Without
limiting the generality of the foregoing, this Agreement secures the payment
of all amounts which constitute part of the Obligations and would be owed by
the Grantors to the Administrative Lender or any other Secured Party under
any Loan Document, but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding under any Debtor Relief Law involving any Grantor (including all
such amounts which would become due or would be secured but for the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of any Grantor under any Debtor Relief
Law). With respect to each Grantor other than the Borrower, notwithstanding
anything herein to the contrary, in any action or proceeding involving any
state corporate law, or any state or federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally if
the Liens granted by any such Grantor herein shall be held void, invalid or
unenforceable, or subordinated to the liens or claims of any other creditors,
on account of the amount of the Obligations secured by such Liens, then, the
amount of the Obligations secured by such Liens shall, without any action by
such Grantor, the Administrative Lender, any other Secured Party or any other
Persons, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors
as determined in such action or proceeding.
Section 1.3 GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Grantors shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Lender of any of the rights hereunder shall not release any Grantor from any
of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither the Administrative Lender nor any other
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
the Administrative Lender or any other Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
Section 1.4 DELIVERY OF INSTRUMENTS AND SECURITIES COLLATERAL. All
certificates or instruments representing or evidencing the Collateral shall
be delivered to and held by or on behalf of the Administrative Lender
pursuant hereto and shall be in suitable form for transfer by delivery,
-3-
<PAGE>
or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Administrative Lender. The Administrative Lender shall have the right, as
provided in SECTION 3.4, and during the continuance, of an Event of Default,
but without any requirement for prior written notice to any Grantor, to
transfer to or to register in the name of the Administrative Lender or any of
its nominees any or all of the Securities Collateral. Except as provided in
SECTION 3.6(C), the Grantors maintain the voting rights in the Securities
Collateral.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES. Each Grantor represents
and warrants to the Administrative Lender and each other Secured Party, with
respect to itself and the Collateral, as follows:
(a) The chief place of business and chief executive office of such
Grantor and the office where such Grantor keeps all of its records concerning
the Receivables, are located at the place specified on SCHEDULE 1 hereto.
Collateral consisting of instruments and chattel paper shall be delivered and
pledged to the Administrative Lender duly endorsed and accompanied by such
duly executed instruments of transfer or assignment as are necessary for such
pledge, to be held as pledged Collateral.
(b) Such Grantor is the legal and beneficial owner of the Collateral
pledged by it free and clear of any Lien, except for Permitted Liens. No
effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction covering all
or any part of the Collateral is on file in any recording office, except such
as may have been filed (i) in favor of the Administrative Lender relating to
this Agreement and (ii) in respect of other Permitted Liens. As of the date
of this Agreement, such Grantor has the trade names set forth on SCHEDULE 2
(and no others). Such Grantor (including any corporate or partnership
predecessor) has not existed or operated under any name other than as stated
on SCHEDULE 2 since the date one year preceding the date of this Agreement.
(c) This Agreement and the pledge of the Collateral pursuant hereto,
together with the filing of financing statements containing the description
of the Collateral in the jurisdictions set forth on SCHEDULE 1, which will be
made immediately following the date of closing, creates a valid and perfected
first priority security interest in the Collateral in which a security
interest can be perfected by filing a UCC financing statement, securing the
payment of the Obligations; PROVIDED that additional actions may be required
with respect to the perfection of proceeds of the Collateral; and FURTHER
PROVIDED that the Administrative Lender retains physical possession of any
Collateral, the possession of which is required for perfection.
-4-
<PAGE>
(d) No consent of or registration with any Person is required (i) for
the pledge by such Grantor of the Collateral pledged by it hereunder, for the
grant by such Grantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by such Grantor, (ii)
for the perfection or maintenance of the pledge, assignment and security
interest created hereby (including the first priority nature (subject to
Permitted Liens) of such pledge, assignment and security interest as provided
herein) (except for the filing of financing and continuation statements under
the UCC) or (iii) for the exercise by the Administrative Lender of the rights
provided for in this Agreement (except as otherwise required by law,
including pursuant to SECTION 4.3 of this Agreement), except, in each case,
for such Necessary Authorizations that already have been obtained by such
Grantor.
(e) None of the Securities Collateral is subject to any unpaid
capital call or dispute, any buy-sell, voting trust, transfer restriction,
preferential right to purchase or similar agreement or any option, warrant,
put or call or similar agreement or other rights or restrictions in favor of
third Persons. All of the Securities Collateral are duly authorized, validly
issued and non-assessable and were not issued in violation of the rights of
any Person. No Securities Collateral obligates such Grantor to make any
additional capital contributions with respect thereto. SCHEDULE 4 accurately
describes, as of the date of this Agreement, the Securities Collateral owned
by such Grantor, the issuer, the percentage owned by such Grantor, the nature
of equity interest owned, and, if applicable, the number and type of shares
of capital stock owned.
ARTICLE 3
COVENANTS
Section 3.1 FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense of
such Grantor, such Grantor will promptly execute and deliver all further
instruments and documents (including supplements to all schedules), and take
all further action, that may be necessary, and that the Administrative Lender
may reasonably request, in order to perfect and protect any pledge,
assignment or security interest granted or purported to be granted hereby,
and the priority thereof, or to enable the Administrative Lender to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, such Grantor will: (i)
mark conspicuously each chattel paper included in Receivables, and each of
its records pertaining to the Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED EFFECTIVE AS OF MARCH 27, 1999 (AS THE SAME
HAS BEEN AND MAY HEREAFTER BE AMENDED, MODIFIED OR RESTATED) MADE BY
GRANTOR IN FAVOR
-5-
<PAGE>
OF NATIONSBANK, N.A., AS ADMINISTRATIVE LENDER FOR THE BENEFIT OF
THE SECURED PARTIES NAMED THEREIN.
or such other legend, in form and substance reasonably satisfactory to and as
specified by the Administrative Lender, indicating that such chattel paper or
Collateral is subject to the pledge, assignment and security interest granted
hereby; (ii) if any Collateral shall be evidenced by an instrument, deliver
and pledge to the Administrative Lender hereunder each such Instrument duly
indorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to the
Administrative Lender; (iii) if any Collateral shall be evidenced by chattel
paper, during the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), deliver to the Administrative
Lender such chattel paper duly endorsed and accompanied by duly executed
instrument of transfer or assignment, all in form and substance reasonably
satisfactory to the Administrative Lender; and (iv) execute and file such
financing or continuation statements, or amendments thereto, and such other
registrations, instruments or notices, as may be necessary, or as the
Administrative Lender may reasonably request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported to
be granted hereby.
(b) In addition to such other information as shall be specifically
provided for herein, the Grantors will furnish to the Administrative Lender
upon the written request of the Administrative Lender statements and
schedules further identifying and describing the Collateral and such other
lists, documents, reports, and product, service and sales documents in
connection with the Collateral as the Administrative Lender may reasonably
request, all in reasonable detail. Subject to the confidentiality provisions
of the Credit Agreement, in connection with its enforcement of the security
interest, the Administrative Lender may use such information or transfer it
to any Assignee permitted under the Credit Agreement for such Assignee's use.
(c) Each Grantor hereby authorizes the Administrative Lender to file
one or more continuation statements and during the continuance of an Event of
Default, financing statements, relating to all or any part of the Collateral
without the signature of such Grantor where permitted by Applicable Law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Applicable Law.
(d) If any Securities Collateral are "uncertificated securities"
within the meaning of the UCC or are otherwise not evidenced by any stock
certificate or similar certificate or instrument, such Grantor agrees to
promptly notify the Administrative Lender and take all actions required to
perfect the security interest of the Administrative Lender under Applicable
Law, including, as applicable, under Article 8 or 9 of the UCC, and, without
limitation of the foregoing, prior to or concurrently with the pledge
hereunder of any Securities Collateral to which this section applies, (i)
where deemed applicable by the Administrative Lender, deliver to the relevant
corporation, partnership, limited liability company, joint venture or other
Person a fully completed and duly executed letter in the form of EXHIBIT A
hereto, and use commercially reasonable efforts to obtain from such
-6-
<PAGE>
corporation, partnership, limited liability company, joint venture or other
Person, and deliver to the Administrative Lender, promptly upon registration
of such pledge on the books of the issuer, a fully completed and duly
executed letter in the form of EXHIBIT B hereto, and (ii) where deemed
applicable by the Administrative Lender, deliver to the Administrative Lender
a fully completed and duly executed "Securities Collateral Stop Transfer
Letter" in the form of EXHIBIT C hereto.
Section 3.2 PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES,
CHATTEL PAPER AND INSTRUMENTS.
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all chattel paper and instruments, at the
location therefor specified in SECTION 2.1(A), in each case which may be
changed upon written notice to the Administrative Lender at least 30 days
prior to such change.
(b) Except as otherwise provided in this SECTION 3.2(B), each Grantor
shall continue to collect, at its own expense, all amounts due or to become
due such Grantor under the Receivables. In connection with such collections,
such Grantor may take (and, during the continuance of an Event of Default at
the Administrative Lender's direction, shall take) such action as such
Grantor or, during the continuance of an Event of Default, the Administrative
Lender, may deem reasonably necessary to enforce collection of the
Receivables; PROVIDED, HOWEVER, that the Administrative Lender shall have the
right (during the continuance of an Event of Default and provided that any
Advances or Letters of Credit are outstanding) to notify the account debtors
or obligors under any Receivables of the assignment of such Receivables to
the Administrative Lender and to direct such account debtors or obligors to
make payment of all amounts due or to become due to such Grantor thereunder
directly to the Administrative Lender and, upon such notification at the
expense of such Grantor, to enforce collection of any such Receivables, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done or as the
Administrative Lender deems reasonably necessary. During the continuance of
an Event of Default (provided that any Advances or Letters of Credit are
outstanding), all amounts and proceeds (including Instruments) received by
such Grantor in respect of the Receivables shall be received in trust for the
benefit of the Administrative Lender hereunder, shall be segregated from
other funds of such Grantor and, after receipt of written notice from the
Administrative Lender, shall be forthwith paid over to the Administrative
Lender in the same form as so received (with any necessary indorsement).
During the continuation of an Event of Default (provided that any Advances or
Letters of Credit are outstanding), such Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount
thereon, in each case, other than those made in the ordinary course of
business. To the extent that the Administrative Lender has notified any
account debtor or obligor under any Receivables of an Event of Default and
such Event of Default is cured or otherwise waived, the Administrative Lender
shall promptly notify such account holder or obligor of such fact.
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<PAGE>
Section 3.3 TRANSFERS AND OTHER LIENS. No Grantor shall (a) sell,
assign (by operation of Applicable Law or otherwise) or otherwise dispose of,
or grant any option with respect to, any of the Collateral, except as
permitted under the Credit Agreement, or (b) create or permit to exist any
Lien upon any of the Collateral, except Permitted Liens.
Section 3.4 RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. With respect to
any Securities Collateral, the Administrative Lender shall have authority
during the continuance of an Event of Default, either to have the same
registered in the Administrative Lender's name or in the name of a nominee.
If any Grantor shall become entitled to receive or shall receive any
certificate (including, without limitation, any certificate in connection
with any reclassification, increase, reduction of capital, or
reorganization), or any option or rights arising from or relating to any of
the Collateral that is evidenced by a certificate or other instrument or
security, whether as an addition to, in substitution of, as a conversion of,
or in exchange for any of the Collateral, or otherwise, such Grantor agrees
to accept the same as the Administrative Lender's agent and to hold the same
in trust on behalf of and for the benefit of the Administrative Lender, and,
after receipt of written notice from the Administrative Lender, to deliver
the same immediately to the Administrative Lender in the exact form received,
with appropriate undated stock or similar powers, duly executed in blank, to
be held by the Administrative Lender, subject to the terms hereof, as
Collateral. Unless an Event of Default is in existence, such Grantor shall
be entitled to receive all cash Dividends paid in respect of any of the
Collateral. During the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), the Administrative Lender
shall be entitled to all Dividends, and to any sums paid upon or in respect
of any Collateral, and to any additional securities issued in respect of the
Securities Collateral, upon the liquidation, dissolution, or reorganization
of the issuer thereof, all of which shall be paid to the Administrative
Lender to be held by it as additional Collateral.
Section 3.5 RIGHT OF THE ADMINISTRATIVE LENDER TO NOTIFY ISSUERS. At
any time during the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), the Administrative Lender may
notify issuers of the Securities Collateral to make payments of all Dividends
directly to the Administrative Lender and the Administrative Lender may take
control of all proceeds of any Securities Collateral. To the extent that the
Administrative Lender has notified any issuer of Securities Collateral of an
Event of Default and such Event of Default is cured or otherwise waived, the
Administrative Lender shall promptly notify such issuer of such fact.
Section 3.6 THE ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT.
Each Grantor hereby irrevocably appoints the Administrative Lender such
Grantor's attorney-in-fact (exercisable during the continuance of an Event of
Default), with full authority in the place and stead of such Grantor and in
the name of such Grantor or otherwise to take any action and to execute any
instrument (in accordance with this Agreement, including without limitation,
SECTION 4.2 hereof) which the Administrative Lender may deem reasonably
necessary to accomplish the purposes of this Agreement, including, without
limitation:
-8-
<PAGE>
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due or to become due
under or in connection with the Collateral,
(b) to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any
proceedings which the Administrative Lender may deem reasonably necessary for
the collection of any of the Collateral or otherwise to enforce compliance
with the terms and conditions of any Collateral or the rights of the
Administrative Lender with respect to any of the Collateral. EACH GRANTOR
HEREBY IRREVOCABLY GRANTS TO THE ADMINISTRATIVE LENDER SUCH GRANTOR'S PROXY
(EXERCISABLE DURING THE CONTINUANCE OF AN EVENT OF DEFAULT) TO VOTE ANY
SECURITIES COLLATERAL AND APPOINTS THE ADMINISTRATIVE LENDER SUCH GRANTOR'S
ATTORNEY-IN-FACT (EXERCISABLE DURING THE CONTINUANCE OF AN EVENT OF DEFAULT)
TO PERFORM ALL OBLIGATIONS OF SUCH GRANTOR UNDER THIS AGREEMENT. THE PROXY
AND EACH POWER OF ATTORNEY HEREIN GRANTED ARE COUPLED WITH AN INTEREST AND
ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
This appointment as attorney-in-fact and this proxy shall terminate upon
the termination of this Agreement pursuant to SECTION 5.3 hereof.
ARTICLE 4
RIGHTS AND POWERS OF THE ADMINISTRATIVE LENDER
Section 4.1 THE ADMINISTRATIVE LENDER MAY PERFORM. If any Grantor
fails to perform any agreement contained herein, the Administrative Lender
may itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Administrative Lender incurred in connection
therewith shall be payable by such Grantor under SECTION 4.4.
Section 4.2 THE ADMINISTRATIVE LENDER'S DUTIES. The powers conferred
on the Administrative Lender hereunder are solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the duty to exercise reasonable care in respect of any
Collateral in its possession and the accounting for moneys actually received
by it hereunder, the Administrative Lender shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Administrative Lender has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties. The Administrative Lender shall be
deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Administrative Lender accords its own
property. Except as
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<PAGE>
provided in this SECTION 4.2 and except to the extent of any gross negligence
or willful misconduct of the Administrative Lender or the other Secured
Parties, the Administrative Lender shall not have any duty or liability to
protect or preserve any Collateral or to preserve rights pertaining thereto.
Nothing contained in this Agreement shall be construed as requiring or
obligating the Administrative Lender, and the Administrative Lender shall not
be required or obligated, to (i) present or file any claim or notice or take
any action, with respect to any Collateral or in connection therewith or (ii)
notify any Grantor of any decline in the value of any Collateral.
Section 4.3 REMEDIES. If any Event of Default shall have occurred
and be continuing (provided that any Advances or Letters of Credit are
outstanding):
(a) The Administrative Lender may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of Texas at
that time (the "UCC") (whether or not the UCC applies to the affected
Collateral), and also may (i) require any Grantor to, and each Grantor hereby
agrees that it will at its expense and upon request of the Administrative
Lender forthwith, assemble all or part of the Collateral which is capable of
being assembled as directed by the Administrative Lender and make it
available to the Administrative Lender at a place to be designated by the
Administrative Lender which is reasonably convenient to both parties or (ii)
without notice, except as specified below, sell the Collateral or any portion
thereof in one or more parcels at public or private sale, at any of the
Administrative Lender's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Administrative Lender may
reasonably deem commercially reasonable. Each Grantor agrees that, to the
extent notice of sale shall be required by Applicable Law, ten days' written
notice to such Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification, provided that ten days' written notice does not violate any
Applicable Law. The Administrative Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Administrative Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Administrative Lender upon any
sale of, collection of, or other realization upon, all or any part of the
Collateral shall be applied as follows:
FIRST: To the payment of all reasonable out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including reasonable attorneys' fees and disbursements;
SECOND: To the payment of the Obligations to be distributed pro rata to
each Secured Party based on the percentage that the Obligations owed to
each Secured Party bears to the aggregate outstanding Obligations owed to
all Secured Parties (with such Grantor remaining liable for any
deficiency); and
-10-
<PAGE>
THIRD: To the extent of the balance (if any) of such proceeds, to the
payment to such Grantor or other Person legally entitled thereto.
(c) All payments received by such Grantor under or in connection with
any Collateral shall be received in trust for the benefit of the
Administrative Lender, shall be segregated from other funds of such Grantor
and, after receipt of written notice from the Administrative Lender, shall be
forthwith paid over to the Administrative Lender in the same form as so
received (with any necessary indorsement).
(d) Because of the Securities Act of 1933, as amended ("SECURITIES
ACT"), and other Applicable Laws, including without limitation state "blue
sky" laws, or contractual restrictions or agreements, there may be legal
restrictions or limitations affecting the Administrative Lender in any
attempts to dispose of the Collateral and the enforcement of its rights
hereunder. For these reasons, the Administrative Lender is hereby authorized
by each Grantor, but not obligated, during the continuance of any Event of
Default, to sell or otherwise dispose of any of the Collateral at private
sale, subject to an investment letter, or in any other manner which will not
require the Collateral, or any part thereof, to be registered in accordance
with the Securities Act, or the rules and regulations promulgated thereunder,
or any other Applicable Law. Each Grantor clearly understands that the
Administrative Lender may in its discretion approach a restricted number of
potential purchasers and that a sale under such circumstances may yield a
lower price for the Collateral than would otherwise be obtainable if same
were registered and sold in the open market. No sale so made in good faith
by the Administrative Lender shall be deemed to be not "commercially
reasonable" because so made. Each Grantor agrees that in the event the
Administrative Lender shall, during the continuance of an Event of Default,
sell the Collateral or any portion thereof at any private sale or sales, the
Administrative Lender shall have the right to rely upon the advice and
opinion of independent appraisers and other Persons, which appraisers and
other Persons are acceptable to the Administrative Lender, as to the best
price reasonably obtainable upon such a private sale thereof.
(e) If the Administrative Lender shall determine to exercise its
right to sell any or all of the Collateral, and if in the opinion of counsel
for the Administrative Lender it is necessary, or if in the opinion of the
Administrative Lender it is advisable, to have the Collateral or that portion
thereof to be sold, registered under the provisions of the Securities Act,
each Grantor (subject to any restrictions in any agreements with
non-Affiliates of such Grantor regarding the registration thereof) will use
commercially reasonable efforts to cause the issuers of the Collateral
contemplated to be sold to execute and deliver, and cause the directors and
officers of each thereof to execute and deliver, all at such Grantor's
reasonable expense, all such instruments and documents, and to do or cause to
be done all such other acts and things, as may be necessary or, in the
opinion of the Administrative Lender, advisable to register the Collateral or
that portion thereof to be sold, under the provisions of the Securities Act
and to cause the registration statement relating thereto to become effective
and to remain effective for a period of one year from the date of the first
public offering of the Collateral or that portion thereof to be sold, and to
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Administrative Lender, are reasonably necessary, all in
conformity with the requirements of the Securities Act. Each Grantor shall
use commercially
-11-
<PAGE>
reasonable efforts to cause each issuer of Collateral to comply with the
provisions of the securities or "blue sky" laws of any jurisdiction which the
Administrative Lender shall designate and to cause each issuer to make
available to its security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of the Securities Act and
applicable "blue sky" laws.
(f) (i) Each Grantor will maintain the accounts listed as restricted
and blocked accounts on SCHEDULE 3 (the "RESTRICTED ACCOUNTS") with the
Administrative Lender, in the name of such Grantor, but such Restricted
Accounts shall be under the sole control and dominion of the Administrative
Lender.
(ii) It shall be a term and condition of each Restricted Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to such Restricted Account (other than the Credit
Agreement), that no amount (including interest and other proceeds of the
cash and other property in the Restricted Account) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
such Grantor or any other Person from such Restricted Account.
(iii) At the request of the Administrative Lender, such Grantor
will promptly instruct each account debtor in respect of Receivables
arising from any sale of Inventory in the ordinary course of business to
make payment to the Restricted Accounts.
Each Grantor understands and acknowledges that the Administrative Lender may
and permits the Administrative Lender to remove amounts from the Restricted
Accounts from time to time and use the amounts to reduce the Obligations.
Section 4.4 INDEMNITY AND EXPENSES. THE GRANTORS JOINTLY AND
SEVERALLY AGREE TO INDEMNIFY THE ADMINISTRATIVE LENDER AND EACH OTHER SECURED
PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES (INCLUDING
REASONABLE ATTORNEYS' FEES) ARISING OR RESULTING FROM THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS AGREEMENT), TO THE EXTENT
THE BORROWER IS REQUIRED TO DO SO UNDER SECTION 5.10 OF THE CREDIT AGREEMENT.
ARTICLE 5
MISCELLANEOUS
Section 5.1 CUMULATIVE RIGHTS. All rights of the Administrative
Lender and each other Secured Party under the Loan Documents are cumulative
of each other and of every other right which the Administrative Lender and
each other Secured Party may otherwise have at law or in equity or under any
other contract or other writing for the enforcement of the security interest
herein
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<PAGE>
or the collection of the Obligations. The exercise of one or more rights
shall not prejudice or impair the concurrent or subsequent exercise of other
rights.
Section 5.2 MODIFICATIONS; AMENDMENTS; ETC. No amendment or waiver
of any provision of this Agreement, and no consent to any departure by any
Grantor here from, shall in any event be effective unless the same shall be
in writing and signed by the Administrative Lender (and such Grantor, in case
of amendment), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 5.3 CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until the Release Date (except to the extent that
the release of any Collateral is otherwise permitted pursuant to the terms of
the Loan Documents), (b) be binding upon each Grantor, its successors and
assigns, and (c) inure to the benefit of, and be enforceable by, the
Administrative Lender and its successors, transferee and assigns. Upon any
such termination, the Administrative Lender will, at such Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination. Each Grantor agrees that to
the extent that the Administrative Lender or any other Secured Party receives
any payment or benefit and such payment or benefit, or any part thereof, is
subsequently invalidated, declared to be fraudulent or preferential, set
aside or is required to be repaid to a trustee, receiver, or any other party
under any Debtor Relief Law, then to the extent of such payment or benefit,
the Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not been
made and, further, any such repayment by the Administrative Lender or any
other Secured Party, to the extent that the Administrative Lender or any
other Secured Party did not directly receive a corresponding cash payment,
shall be added to and be additional Obligations payable upon demand by the
Administrative Lender or any other Secured Party and secured hereby, and, if
the lien and security interest hereof shall have been released, such lien and
security interest shall be reinstated with the same effect and priority as on
the date of execution hereof all as if no release of such lien or security
interest had ever occurred, to the extent not prohibited by Applicable Law.
Section 5.4 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW) AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS.
Section 5.5 WAIVER OF JURY TRIAL. THE ADMINISTRATIVE LENDER, THE
SECURED PARTIES AND EACH GRANTOR HEREBY WAIVE, TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY JUDICIAL
PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY
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<PAGE>
MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 5.6 THE ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS. The
Administrative Lender may exercise its rights under this Agreement through an
agent or other designee.
Section 5.7 WAIVERS OF RIGHTS INHIBITING ENFORCEMENT. To the extent
not prohibited by Applicable Law, each Grantor waives all rights of
redemption, appraisal, valuation or to the marshaling of assets.
Section 5.8 NOTICES AND DELIVERIES. All notices and other
communications provided for hereunder shall be effectuated in the manner
provided for in SECTION 11.1 of the Credit Agreement, and to the extent that
a notice or communication is sent to a Grantor other than the Borrower, said
notice shall be addressed to such Grantor, in care of the Borrower.
Section 5.9 SUCCESSORS AND ASSIGNS. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; PROVIDED, HOWEVER, no
Grantor may assign its liabilities and obligations under this Agreement
without the prior written consent of all Secured Parties.
Section 5.10 LOAN DOCUMENT. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
Section 5.11 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES.
(a) Each Grantor and the Administrative Lender each hereby
irrevocably submits to the non-exclusive jurisdiction of any United States
Federal or Texas State courts sitting in Dallas, Texas in any action or
proceeding arising out of or relating to this Agreement, and each Grantor and
the Administrative Lender each hereby irrevocably waives any objection it may
now or hereafter have as to the venue of any such suit, action or proceeding
brought in such court or that such court is an inconvenient forum.
(b) Nothing in this section shall limit the right of any Grantor, the
Administrative Lender or any other Secured Party to bring any action or
proceeding against any other party or its property in the courts of any other
jurisdictions.
Section 5.12 SEVERABILITY. Any provision of this Agreement 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.
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<PAGE>
Section 5.13 OBLIGATIONS NOT AFFECTED. To the fullest extent
permitted by Applicable Law, the obligations of each Grantor under this
Agreement shall remain in full force and effect without regard to, and shall
not be impaired or affected by:
(a) any amendment, modification, addition or supplement to any other
Loan Document, any instrument delivered in connection therewith, or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by the Administrative
Lender or any other Secured Party of any right, remedy, power or privilege
under or in respect of, or any release of any guaranty, any collateral or the
Collateral or any part thereof provided pursuant to, this Agreement or any
other Loan Document;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any other Loan Document or any
assignment or transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Grantor or any
other Person, whether or not such Grantor shall have notice or knowledge of
any of the foregoing.
Section 5.14 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument.
Section 5.15 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH
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 OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
Section 5.16 CONFLICTS. In the event of a conflict between the terms
and conditions of this Agreement and the terms and conditions of the Credit
Agreement, the terms and conditions of the Credit Agreement shall control.
===============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
===============================================================================
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
date first above written.
GRANTORS:
[GRANTORS]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
ADMINISTRATIVE LENDER:
NATIONSBANK, N.A.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE>
Schedule 1
Chief Place of Business, Chief Executive Office and
Location of Books and Records
The Chief Place of Business, Chief Executive Office and the Location of Books
and Records for each Grantor is:
14951 North Dallas Parkway
Dallas, Texas 75240
<PAGE>
Schedule 2
Trade Names
CompUSA Inc.
(1) CompUSA Direct, (2) CompUSA PC
Computer City, Inc.
(1) CompUSA, (2) US Logic
CompUSA Stores L.P.
CompUSA
<PAGE>
Schedule 3
Restricted Accounts
NONE.
<PAGE>
Schedule 4
Securities Collateral
Corporate and Business Trust Securities Pledged:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ISSUER NUMBER OF SHARES HOLDER CERTIFICATE NUMBER
------ ---------------- ------ ------------------
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CompUSA Holdings II Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompUSA Holdings I Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompTeam Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompUSA Management
Company 1,000 CompUSA Inc. A1
- -----------------------------------------------------------------------------------
CompUSA Holdings Company 1,000 CompUSA Inc. 1
- -----------------------------------------------------------------------------------
Computer City, Inc. 1,000 CompUSA Inc. CS-1
- -----------------------------------------------------------------------------------
CompUSA Net.com Inc. 100 CompUSA Inc. CS-2
- -----------------------------------------------------------------------------------
</TABLE>
Partnership Interests Pledged:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
NAME PERCENTAGE OWNERSHIP OWNER
---- -------------------- -----
- -----------------------------------------------------------------------------------
<S> <C> <C>
CompUSA Stores L.P. 1% general partner interest CompUSA Inc.
- -----------------------------------------------------------------------------------
CompUSA Stores L.P. 99% limited partner interest CompUSA Holdings Company
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
INSTRUCTIONS FOR REGISTRATION OF PLEDGE
OF
UNCERTIFICATED SECURITIES
Date: ___________________
To: [NAME OF CORPORATION, PARTNERSHIP, JOINT VENTURE OR OTHER PERSON]
You are hereby instructed to register the pledge of the following
uncertificated securities to NationsBank, N.A., as Administrative Lender:
(a) A [insert written percentage of interest] (_____%)
[insert description of interest, e.g. General Partnership Interest];
(b) [insert similar description of any other interests].
This being all of the interest of [INSERT NAME OF PLEDGOR] in
[name of corporation, partnership, joint venture or other Person].
Very truly yours,
[GRANTOR]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT B
INITIAL TRANSACTION STATEMENT
Date: _______________
To: CompUSA Inc.
NationsBank, N.A., as Administrative Lender
This is to advise you that a pledge to NationsBank, N.A., as
Administrative Lender, of the following uncertificated securities owned by
[INSERT NAME OF PLEDGOR], a [______________] corporation has been registered
on the books of
[name of corporation, partnership, joint venture or other Person]:
(c) A [insert written percentage of interest] (_____%)
[insert description of interest, e.g. General Partnership Interest];
(d) [insert similar description of any other interests].
This being all of the interest of [INSERT NAME OF PLEDGOR] in, as shown
on books and records of,
[name of corporation, partnership, joint venture or other Person].
There are no liens or restrictions of the undersigned, nor any adverse
claims, in each case registered on the books of the undersigned, to which the
interests described hereinabove are subject.
The pledge referred to above was registered on ______________, _____.
THIS STATEMENT IS MERELY A RECORD OF THE REGISTRATION OF THE PLEDGE OF
THE ADDRESSEES AS OF THE TIME OF THE ISSUANCE HEREOF. DELIVERY OF THIS
STATEMENT, IN ITSELF, CONFERS NO RIGHTS ON THE RECIPIENT. THIS STATEMENT IS
NEITHER A NEGOTIABLE INSTRUMENT NOR A SECURITY.
Very truly yours,
[NAME OF CORPORATION, PARTNERSHIP, JOINT
VENTURE OR OTHER PERSON]
[By:____________________________________]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT C
__________, 1999
- --------------------------------
- --------------------------------
- --------------------------------
Ladies and Gentlemen:
This is to advise you that CompUSA Inc., a ____________ corporation
("PLEDGOR"), has granted to NationsBank, N.A., as Administrative Lender
("ADMINISTRATIVE LENDER") a security interest in [DESCRIBE AMOUNT AND
DESCRIPTION OF INTEREST, E.G. SHARES OF THE COMMON CAPITAL STOCK]
of _____________________________________________________ (the "COMPANY"),
and all other [REPEAT DESCRIPTION OF INTEREST] of the Company now owned as
well as hereafter acquired by Pledgor (together with any distributions,
interests, stock, liquidating dividends, stock dividends, preemptive rights,
dividends paid in cash or securities, or other properties to which Pledgor
may hereafter be entitled to receive on account of such [REPEAT DESCRIPTION
OF INTEREST]), which [REPEAT DESCRIPTION OF INTEREST] presently constitutes
_____% of the issued and outstanding [REPEAT DESCRIPTION OF INTEREST] of the
Company, any other equity interest or right to acquire any equity interest in
Company now owned as well as hereafter acquired by Pledgor, and all proceeds
and products of the foregoing ("PLEDGED RIGHTS").
Until notified otherwise in writing by an authorized officer of
Administrative Lender, you are hereby directed (and you hereby agree) to
deliver after the date hereof all non-cash dividends and other distributions
and any and all other shares of stock, warrants or other property (other than
cash) in which Administrative Lender has a security interest to
Administrative Lender, NationsBank Plaza, 901 Main Street, 67th Floor,
Dallas, Texas 75202, Attention: Kim Knop. Upon written notice from an
authorized officer of Administrative Lender, you are directed (and you hereby
agree) to deliver after the date of such notice, all dividends, distributions
and other property in the form of cash directly to Administrative Lender at
the address mentioned in the preceding sentence. Unless notified otherwise
in writing by an authorized officer of Administrative Lender, you are hereby
directed (and you hereby agree) to not acknowledge any encumbrance in favor
of any party other than Administrative Lender with respect to the Pledged
Rights, assign any interest in, encumber, subdivide, issue additional or
different certificates for or otherwise transfer any interest in the Pledged
Rights.
<PAGE>
Very truly yours,
CompUSA Inc.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
NATIONSBANK, N.A., as Administrative Lender
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Accepted and Agreed this ____ day of ________________, ____
---------------------------------------
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT G
BORROWING BASE CERTIFICATE
TO: NationsBank, N.A., ________, _____
FROM: CompUSA Inc.
Re: Second Amended and Restated Credit Agreement, dated as of March 12,
1998 ('Credit Agreement") among CompUSA Inc. ("Borrower"), certain
Lenders, certain Co-Agents and NationsBank, N.A. as Administrative
Lender
This Borrowing Base Certificate is made as of , . The
undersigned certifies that the calculations set forth herein are true,
accurate, and complete, and are made in accordance with the provisions of the
Credit Agreement. All defined terms used herein but not specifically defined
shall have the meanings set forth in the Credit Agreement.
1. BORROWING BASE. [to be completed for each Advance or Letter of Credit and
monthly if Advances or Letters of Credit are outstanding]
Borrower hereby represents and warrants that the following Borrowing Base
Report is true and correct in all respects as of ___________, _____ (the
"Reporting Date"). The Borrowing Base is determined as follows:
A. ELIGIBLE ACCOUNTS
1. All Accounts $______
2. Less ineligible Accounts (without duplication)
a. Accounts to which Borrower or a Restricted Subsidiary $______
does not have lawful and absolute title
b. Accounts which are not the valid, legally enforceable $______
obligation of the account debtor for goods or services
delivered or rendered to such Person
c. Accounts owed by a creditor of Borrower or a $______
Restricted Subsidiary to the extent that such Account
equals the amount owed to such creditor
d. Portion of Accounts subject to any asserted dispute, $______
offset, discount, counterclaim, or other claim or
defense of account debtor or to any asserted claim on
the part of the account debtor denying liability under
such Account
e. Accounts which Borrower or any Restricted Subsidiary $______
may not assign or grant a security interest to
Administrative Lender
<PAGE>
f. Accounts not evidenced by an invoice rendered to the $______
account debtor
g. Accounts evidenced by chattel paper, promissory notes,$______
or other instruments or the result of a conditional
sales agreement
h. Accounts subject to a Lien in favor of any Person $______
other than Administrative Lender other than Permitted
Liens
i. Accounts due and payable for more than 90 days from $______
invoice date
j. Accounts of account debtors primarily conducting $______
business in and organized under a jurisdiction outside
the United States
k. Accounts where the account debtor is a federal, state $______
or local governmental body
l. Accounts where the account debtor is the subject of a $______
proceeding under a Debtor Relief Law
m. Accounts of account debtors who have more than 50% of $______
accounts due and payable for more than 30 days from
invoice date
n. Accounts not subject to a fully perfected first $______
priority security interest in favor of Administrative
Lender
o. Accounts where the account debtor is an Affiliate or $______
employee
Ineligible Accounts $______
3. Eligible Accounts [(1) - (2)] $______
4. Eligible Accounts included in Borrowing Base [75%x(3)] $______
COMPUSA INC.
By:___________________________
Name:____________________
Title:___________________
2
<PAGE>
===============================================================================
SECURITY AGREEMENT
Among
The Grantors Named Herein
as Grantors
and
NATIONSBANK, N.A.,
as Administrative Lender
Dated Effective as of March 27, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1
GRANT
Section 1.1 ASSIGNMENT AND GRANT OF SECURITY . . . . . . . . . . . . . . 2
Section 1.2 DESCRIPTION OF OBLIGATIONS . . . . . . . . . . . . . . . . . 3
Section 1.3 GRANTOR REMAINS LIABLE . . . . . . . . . . . . . . . . . . . 3
Section 1.4 DELIVERY OF INSTRUMENTS AND SECURITIES COLLATERAL. . . . . . 3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 4
ARTICLE 3
COVENANTS
Section 3.1 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES,
CHATTEL PAPER AND INSTRUMENTS. . . . . . . . . . . . . . . . 7
Section 3.3 TRANSFERS AND OTHER LIENS. . . . . . . . . . . . . . . . . . 8
Section 3.4 RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . 8
Section 3.5 RIGHT OF THE ADMINISTRATIVE LENDER TO NOTIFY ISSUERS . . . . 8
Section 3.6 THE ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT . . . . 8
ARTICLE 4
RIGHTS AND POWERS OF THE ADMINISTRATIVE LENDER
Section 4.1 THE ADMINISTRATIVE LENDER MAY PERFORM. . . . . . . . . . . . 9
Section 4.2 THE ADMINISTRATIVE LENDER'S DUTIES . . . . . . . . . . . . . 9
Section 4.3 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 4.4 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . .12
<PAGE>
ARTICLE 5
MISCELLANEOUS
Section 5.1 CUMULATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . .12
Section 5.2 MODIFICATIONS; AMENDMENTS; ETC.. . . . . . . . . . . . . . .13
Section 5.3 CONTINUING SECURITY INTEREST . . . . . . . . . . . . . . . .13
Section 5.4 GOVERNING LAW; TERMS . . . . . . . . . . . . . . . . . . . .13
Section 5.5 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . .13
Section 5.6 THE ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS. . . . . . .14
Section 5.7 WAIVERS OF RIGHTS INHIBITING ENFORCEMENT . . . . . . . . . .14
Section 5.8 NOTICES AND DELIVERIES . . . . . . . . . . . . . . . . . . .14
Section 5.9 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . .14
Section 5.10 LOAN DOCUMENT. . . . . . . . . . . . . . . . . . . . . . . .14
Section 5.11 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. . . . . . . .14
Section 5.12 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . .14
Section 5.13 OBLIGATIONS NOT AFFECTED . . . . . . . . . . . . . . . . . .15
Section 5.14 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.15 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . .15
Section 5.16 CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
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<PAGE>
SCHEDULES:
Schedule 1 Chief Place of Business, Chief Executive Office and Location of
Books and Records
Schedule 2 Trade Names
Schedule 3 Restricted Accounts
Schedule 4 Securities Collateral
EXHIBITS:
Exhibit A Instructions for Registration of Pledge of Uncertificated
Securities Collateral
Exhibit B Initial Transaction Statement
Exhibit C Securities Collateral Stop Transfer Letter
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<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "AGREEMENT"), dated effective as of March 27
1999, made among each of the signatories party hereto (collectively, the
"GRANTORS" and each a "GRANTOR"), and NationsBank, N.A., a national banking
association, in its capacity as Administrative Lender (the "ADMINISTRATIVE
LENDER") for itself and each lender a party to the Credit Agreement defined
below (the "LENDERS") and each Lender Affiliate (as defined in the Credit
Agreement) (each singularly, a "SECURED PARTY", and collectively, the
"SECURED PARTIES").
BACKGROUND
(1) CompUSA Inc., a Delaware corporation (the "BORROWER"), the
Administrative Lender, the Co-Agents (as defined in the Credit Agreement),
and the Lenders entered into 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, and that certain Second Amendment to Second Amended and Restated
Credit Agreement, dated as of August 31, 1998 (said Second Amended and
Restated Credit Agreement, as amended, the "CREDIT AGREEMENT"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
given to them in the Credit Agreement.
(2) The Borrower, the Administrative Lender, the Co-Agents and the
Lenders are entering into that certain Third Amendment to Second Amended and
Restated Credit Agreement, dated as of even date herewith (the "THIRD
AMENDMENT").
(3) It is the intention of the parties hereto that this Agreement
create a first priority security interest in certain property of the Grantors
securing the payment of the obligations set forth in SECTION 1.2 hereof,
subject only to Permitted Liens.
(4) It is a condition precedent to the obligation of the Secured
Parties to enter into the Third Amendment and to, among other things,
continue to make the Advances, and issue, or participate in the issuance of,
Letters of Credit under the Credit Agreement that the Grantors shall have
executed and delivered to the Administrative Lender this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and in order to induce the Secured Parties to
enter into the Third Amendment and to, among other things, continue to make
the Advances and issue, or participate in the issuance of, Letters of Credit
under
<PAGE>
the Credit Agreement, the Grantors hereby agree with the Administrative
Lender for its benefit and the ratable benefit of the other Secured Parties,
as hereinafter set forth.
ARTICLE 1
GRANT
Section 1.1 ASSIGNMENT AND GRANT OF SECURITY. Each Grantor hereby
assigns, pledges, hypothecates and transfers to the Administrative Lender,
for its benefit and the ratable benefit of the other Secured Parties, and
hereby grants to the Administrative Lender, for its benefit and the ratable
benefit of the other Secured Parties, a security interest in, the entire
right, title and interest of such Grantor, in and to the following assets of
such Grantor, whether now owned or hereafter acquired ("COLLATERAL"):
(a) all accounts, contract rights, chattel paper, documents,
instruments, deposit accounts, general intangibles, and other obligations of
any kind owing to such Grantor, now or hereafter existing, in each case
arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and to all
security agreements, leases, and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper, documents,
instruments, deposit accounts, general intangibles or obligations (any and
all such accounts, contract rights, chattel paper, documents, instruments,
deposit accounts, general intangibles and obligations being the
"RECEIVABLES");
(b) all right, title and interest of such Grantor in, to and under each
contract and other agreement relating to the lease, sale or other disposition
of Collateral;
(c) all right, title and interest of such Grantor in and to any equity
interests of each Subsidiary of the such Grantor, including, without
limitation, the shares of each class of capital stock in any Person that is a
corporation, each class of partnership interests in any Person that is a
partnership, and each class of membership interests in any Person that is a
limited liability company, together with all dividends, increases, case,
proceeds, profits, instruments, distributions and other property from time to
time distributed in respect thereof and any rights to acquire or convertible
into any such equity interests, whether by purchase, exercise of any type of
options, warrants, conversion of debt or otherwise; provided, however,
notwithstanding anything herein to the contrary, the amount of equity
interests of any direct Foreign Subsidiary pledged by such Grantor hereunder
shall be limited to 65% of the issued and outstanding equity interests of
such direct Foreign Subsidiary ("SECURITIES COLLATERAL");
(d) all insurance policies and bonds and claims and payments under any
Collateral; and
(e) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property
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<PAGE>
of the types described in this SECTION 1.1) and, to the extent not otherwise
included, all (i) payments under insurance (whether or not the Administrative
Lender is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral and (ii) cash.
Section 1.2 DESCRIPTION OF OBLIGATIONS. This Agreement creates an
enforceable security interest in the Collateral, subject only to Permitted
Liens, to secure the payment and performance of any and all obligations now
or hereafter existing of the Grantors under the Credit Agreement and the
other Loan Documents, including any extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal, interest, fees,
premium, expenses, reimbursement obligations, indemnification or otherwise
(all such obligations of the Grantors being the "OBLIGATIONS"). Without
limiting the generality of the foregoing, this Agreement secures the payment
of all amounts which constitute part of the Obligations and would be owed by
the Grantors to the Administrative Lender or any other Secured Party under
any Loan Document, but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding under any Debtor Relief Law involving any Grantor (including all
such amounts which would become due or would be secured but for the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of any Grantor under any Debtor Relief
Law). With respect to each Grantor other than the Borrower, notwithstanding
anything herein to the contrary, in any action or proceeding involving any
state corporate law, or any state or federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally if
the Liens granted by any such Grantor herein shall be held void, invalid or
unenforceable, or subordinated to the liens or claims of any other creditors,
on account of the amount of the Obligations secured by such Liens, then, the
amount of the Obligations secured by such Liens shall, without any action by
such Grantor, the Administrative Lender, any other Secured Party or any other
Persons, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors
as determined in such action or proceeding.
Section 1.3 GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Grantors shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Lender of any of the rights hereunder shall not release any Grantor from any
of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither the Administrative Lender nor any other
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
the Administrative Lender or any other Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
Section 1.4 DELIVERY OF INSTRUMENTS AND SECURITIES COLLATERAL. All
certificates or instruments representing or evidencing the Collateral shall
be delivered to and held by or on behalf of the Administrative Lender
pursuant hereto and shall be in suitable form for transfer by delivery,
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<PAGE>
or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Administrative Lender. The Administrative Lender shall have the right, as
provided in SECTION 3.4, and during the continuance, of an Event of Default,
but without any requirement for prior written notice to any Grantor, to
transfer to or to register in the name of the Administrative Lender or any of
its nominees any or all of the Securities Collateral. Except as provided in
SECTION 3.6(C), the Grantors maintain the voting rights in the Securities
Collateral.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES. Each Grantor represents
and warrants to the Administrative Lender and each other Secured Party, with
respect to itself and the Collateral, as follows:
(a) The chief place of business and chief executive office of such
Grantor and the office where such Grantor keeps all of its records concerning
the Receivables, are located at the place specified on SCHEDULE 1 hereto.
Collateral consisting of instruments and chattel paper shall be delivered and
pledged to the Administrative Lender duly endorsed and accompanied by such
duly executed instruments of transfer or assignment as are necessary for such
pledge, to be held as pledged Collateral.
(b) Such Grantor is the legal and beneficial owner of the Collateral
pledged by it free and clear of any Lien, except for Permitted Liens. No
effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction covering all
or any part of the Collateral is on file in any recording office, except such
as may have been filed (i) in favor of the Administrative Lender relating to
this Agreement and (ii) in respect of other Permitted Liens. As of the date
of this Agreement, such Grantor has the trade names set forth on SCHEDULE 2
(and no others). Such Grantor (including any corporate or partnership
predecessor) has not existed or operated under any name other than as stated
on SCHEDULE 2 since the date one year preceding the date of this Agreement.
(c) This Agreement and the pledge of the Collateral pursuant hereto,
together with the filing of financing statements containing the description
of the Collateral in the jurisdictions set forth on SCHEDULE 1, which will be
made immediately following the date of closing, creates a valid and perfected
first priority security interest in the Collateral in which a security
interest can be perfected by filing a UCC financing statement, securing the
payment of the Obligations; PROVIDED that additional actions may be required
with respect to the perfection of proceeds of the Collateral; and FURTHER
PROVIDED that the Administrative Lender retains physical possession of any
Collateral, the possession of which is required for perfection.
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<PAGE>
(d) No consent of or registration with any Person is required (i) for
the pledge by such Grantor of the Collateral pledged by it hereunder, for the
grant by such Grantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by such Grantor, (ii)
for the perfection or maintenance of the pledge, assignment and security
interest created hereby (including the first priority nature (subject to
Permitted Liens) of such pledge, assignment and security interest as provided
herein) (except for the filing of financing and continuation statements under
the UCC) or (iii) for the exercise by the Administrative Lender of the rights
provided for in this Agreement (except as otherwise required by law,
including pursuant to SECTION 4.3 of this Agreement), except, in each case,
for such Necessary Authorizations that already have been obtained by such
Grantor.
(e) None of the Securities Collateral is subject to any unpaid capital
call or dispute, any buy-sell, voting trust, transfer restriction,
preferential right to purchase or similar agreement or any option, warrant,
put or call or similar agreement or other rights or restrictions in favor of
third Persons. All of the Securities Collateral are duly authorized, validly
issued and non-assessable and were not issued in violation of the rights of
any Person. No Securities Collateral obligates such Grantor to make any
additional capital contributions with respect thereto. SCHEDULE 4 accurately
describes, as of the date of this Agreement, the Securities Collateral owned
by such Grantor, the issuer, the percentage owned by such Grantor, the nature
of equity interest owned, and, if applicable, the number and type of shares
of capital stock owned.
ARTICLE 3
COVENANTS
Section 3.1 FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense of such
Grantor, such Grantor will promptly execute and deliver all further
instruments and documents (including supplements to all schedules), and take
all further action, that may be necessary, and that the Administrative Lender
may reasonably request, in order to perfect and protect any pledge,
assignment or security interest granted or purported to be granted hereby,
and the priority thereof, or to enable the Administrative Lender to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, such Grantor will: (i)
mark conspicuously each chattel paper included in Receivables, and each of
its records pertaining to the Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED EFFECTIVE AS OF MARCH 27, 1999 (AS THE SAME
HAS BEEN AND MAY HEREAFTER BE AMENDED, MODIFIED OR RESTATED) MADE BY
GRANTOR IN FAVOR
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<PAGE>
OF NATIONSBANK, N.A., AS ADMINISTRATIVE LENDER FOR THE BENEFIT OF THE
SECURED PARTIES NAMED THEREIN.
or such other legend, in form and substance reasonably satisfactory to and as
specified by the Administrative Lender, indicating that such chattel paper or
Collateral is subject to the pledge, assignment and security interest granted
hereby; (ii) if any Collateral shall be evidenced by an instrument, deliver
and pledge to the Administrative Lender hereunder each such Instrument duly
indorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to the
Administrative Lender; (iii) if any Collateral shall be evidenced by chattel
paper, during the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), deliver to the Administrative
Lender such chattel paper duly endorsed and accompanied by duly executed
instrument of transfer or assignment, all in form and substance reasonably
satisfactory to the Administrative Lender; and (iv) execute and file such
financing or continuation statements, or amendments thereto, and such other
registrations, instruments or notices, as may be necessary, or as the
Administrative Lender may reasonably request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported to
be granted hereby.
(b) In addition to such other information as shall be specifically
provided for herein, the Grantors will furnish to the Administrative Lender
upon the written request of the Administrative Lender statements and
schedules further identifying and describing the Collateral and such other
lists, documents, reports, and product, service and sales documents in
connection with the Collateral as the Administrative Lender may reasonably
request, all in reasonable detail. Subject to the confidentiality provisions
of the Credit Agreement, in connection with its enforcement of the security
interest, the Administrative Lender may use such information or transfer it
to any Assignee permitted under the Credit Agreement for such Assignee's use.
(c) Each Grantor hereby authorizes the Administrative Lender to file
one or more continuation statements and during the continuance of an Event of
Default, financing statements, relating to all or any part of the Collateral
without the signature of such Grantor where permitted by Applicable Law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Applicable Law.
(d) If any Securities Collateral are "uncertificated securities" within
the meaning of the UCC or are otherwise not evidenced by any stock
certificate or similar certificate or instrument, such Grantor agrees to
promptly notify the Administrative Lender and take all actions required to
perfect the security interest of the Administrative Lender under Applicable
Law, including, as applicable, under Article 8 or 9 of the UCC, and, without
limitation of the foregoing, prior to or concurrently with the pledge
hereunder of any Securities Collateral to which this section applies, (i)
where deemed applicable by the Administrative Lender, deliver to the relevant
corporation, partnership, limited liability company, joint venture or other
Person a fully completed and duly executed letter in the form of EXHIBIT A
hereto, and use commercially reasonable efforts to obtain from such
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<PAGE>
corporation, partnership, limited liability company, joint venture or other
Person, and deliver to the Administrative Lender, promptly upon registration
of such pledge on the books of the issuer, a fully completed and duly
executed letter in the form of EXHIBIT B hereto, and (ii) where deemed
applicable by the Administrative Lender, deliver to the Administrative Lender
a fully completed and duly executed "Securities Collateral Stop Transfer
Letter" in the form of EXHIBIT C hereto.
Section 3.2 PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES,
CHATTEL PAPER AND INSTRUMENTS.
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all chattel paper and instruments, at the
location therefor specified in SECTION 2.1(A), in each case which may be
changed upon written notice to the Administrative Lender at least 30 days
prior to such change.
(b) Except as otherwise provided in this SECTION 3.2(B), each Grantor
shall continue to collect, at its own expense, all amounts due or to become
due such Grantor under the Receivables. In connection with such collections,
such Grantor may take (and, during the continuance of an Event of Default at
the Administrative Lender's direction, shall take) such action as such
Grantor or, during the continuance of an Event of Default, the Administrative
Lender, may deem reasonably necessary to enforce collection of the
Receivables; PROVIDED, HOWEVER, that the Administrative Lender shall have the
right (during the continuance of an Event of Default and provided that any
Advances or Letters of Credit are outstanding) to notify the account debtors
or obligors under any Receivables of the assignment of such Receivables to
the Administrative Lender and to direct such account debtors or obligors to
make payment of all amounts due or to become due to such Grantor thereunder
directly to the Administrative Lender and, upon such notification at the
expense of such Grantor, to enforce collection of any such Receivables, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done or as the
Administrative Lender deems reasonably necessary. During the continuance of
an Event of Default (provided that any Advances or Letters of Credit are
outstanding), all amounts and proceeds (including Instruments) received by
such Grantor in respect of the Receivables shall be received in trust for the
benefit of the Administrative Lender hereunder, shall be segregated from
other funds of such Grantor and, after receipt of written notice from the
Administrative Lender, shall be forthwith paid over to the Administrative
Lender in the same form as so received (with any necessary indorsement).
During the continuation of an Event of Default (provided that any Advances or
Letters of Credit are outstanding), such Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount
thereon, in each case, other than those made in the ordinary course of
business. To the extent that the Administrative Lender has notified any
account debtor or obligor under any Receivables of an Event of Default and
such Event of Default is cured or otherwise waived, the Administrative Lender
shall promptly notify such account holder or obligor of such fact.
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<PAGE>
Section 3.3 TRANSFERS AND OTHER LIENS. No Grantor shall (a) sell,
assign (by operation of Applicable Law or otherwise) or otherwise dispose of,
or grant any option with respect to, any of the Collateral, except as
permitted under the Credit Agreement, or (b) create or permit to exist any
Lien upon any of the Collateral, except Permitted Liens.
Section 3.4 RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. With respect to
any Securities Collateral, the Administrative Lender shall have authority
during the continuance of an Event of Default, either to have the same
registered in the Administrative Lender's name or in the name of a nominee.
If any Grantor shall become entitled to receive or shall receive any
certificate (including, without limitation, any certificate in connection
with any reclassification, increase, reduction of capital, or
reorganization), or any option or rights arising from or relating to any of
the Collateral that is evidenced by a certificate or other instrument or
security, whether as an addition to, in substitution of, as a conversion of,
or in exchange for any of the Collateral, or otherwise, such Grantor agrees
to accept the same as the Administrative Lender's agent and to hold the same
in trust on behalf of and for the benefit of the Administrative Lender, and,
after receipt of written notice from the Administrative Lender, to deliver
the same immediately to the Administrative Lender in the exact form received,
with appropriate undated stock or similar powers, duly executed in blank, to
be held by the Administrative Lender, subject to the terms hereof, as
Collateral. Unless an Event of Default is in existence, such Grantor shall
be entitled to receive all cash Dividends paid in respect of any of the
Collateral. During the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), the Administrative Lender
shall be entitled to all Dividends, and to any sums paid upon or in respect
of any Collateral, and to any additional securities issued in respect of the
Securities Collateral, upon the liquidation, dissolution, or reorganization
of the issuer thereof, all of which shall be paid to the Administrative
Lender to be held by it as additional Collateral.
Section 3.5 RIGHT OF THE ADMINISTRATIVE LENDER TO NOTIFY ISSUERS. At
any time during the continuance of an Event of Default (provided that any
Advances or Letters of Credit are outstanding), the Administrative Lender may
notify issuers of the Securities Collateral to make payments of all Dividends
directly to the Administrative Lender and the Administrative Lender may take
control of all proceeds of any Securities Collateral. To the extent that the
Administrative Lender has notified any issuer of Securities Collateral of an
Event of Default and such Event of Default is cured or otherwise waived, the
Administrative Lender shall promptly notify such issuer of such fact.
Section 3.6 THE ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT.
Each Grantor hereby irrevocably appoints the Administrative Lender such
Grantor's attorney-in-fact (exercisable during the continuance of an Event of
Default), with full authority in the place and stead of such Grantor and in
the name of such Grantor or otherwise to take any action and to execute any
instrument (in accordance with this Agreement, including without limitation,
SECTION 4.2 hereof) which the Administrative Lender may deem reasonably
necessary to accomplish the purposes of this Agreement, including, without
limitation:
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<PAGE>
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due or to become due under or in
connection with the Collateral,
(b) to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceedings
which the Administrative Lender may deem reasonably necessary for the
collection of any of the Collateral or otherwise to enforce compliance with
the terms and conditions of any Collateral or the rights of the
Administrative Lender with respect to any of the Collateral. EACH GRANTOR
HEREBY IRREVOCABLY GRANTS TO THE ADMINISTRATIVE LENDER SUCH GRANTOR'S PROXY
(EXERCISABLE DURING THE CONTINUANCE OF AN EVENT OF DEFAULT) TO VOTE ANY
SECURITIES COLLATERAL AND APPOINTS THE ADMINISTRATIVE LENDER SUCH GRANTOR'S
ATTORNEY-IN-FACT (EXERCISABLE DURING THE CONTINUANCE OF AN EVENT OF DEFAULT)
TO PERFORM ALL OBLIGATIONS OF SUCH GRANTOR UNDER THIS AGREEMENT. THE PROXY
AND EACH POWER OF ATTORNEY HEREIN GRANTED ARE COUPLED WITH AN INTEREST AND
ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
This appointment as attorney-in-fact and this proxy shall terminate upon
the termination of this Agreement pursuant to SECTION 5.3 hereof.
ARTICLE 4
RIGHTS AND POWERS OF THE ADMINISTRATIVE LENDER
Section 4.1 THE ADMINISTRATIVE LENDER MAY PERFORM. If any Grantor
fails to perform any agreement contained herein, the Administrative Lender
may itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Administrative Lender incurred in connection
therewith shall be payable by such Grantor under SECTION 4.4.
Section 4.2 THE ADMINISTRATIVE LENDER'S DUTIES. The powers conferred
on the Administrative Lender hereunder are solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the duty to exercise reasonable care in respect of any
Collateral in its possession and the accounting for moneys actually received
by it hereunder, the Administrative Lender shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Administrative Lender has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties. The Administrative Lender shall be
deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Administrative Lender accords its own
property. Except as
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<PAGE>
provided in this SECTION 4.2 and except to the extent of any gross negligence
or willful misconduct of the Administrative Lender or the other Secured
Parties, the Administrative Lender shall not have any duty or liability to
protect or preserve any Collateral or to preserve rights pertaining thereto.
Nothing contained in this Agreement shall be construed as requiring or
obligating the Administrative Lender, and the Administrative Lender shall not
be required or obligated, to (i) present or file any claim or notice or take
any action, with respect to any Collateral or in connection therewith or (ii)
notify any Grantor of any decline in the value of any Collateral.
Section 4.3 REMEDIES. If any Event of Default shall have occurred
and be continuing (provided that any Advances or Letters of Credit are
outstanding):
(a) The Administrative Lender may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of Texas at
that time (the "UCC") (whether or not the UCC applies to the affected
Collateral), and also may (i) require any Grantor to, and each Grantor hereby
agrees that it will at its expense and upon request of the Administrative
Lender forthwith, assemble all or part of the Collateral which is capable of
being assembled as directed by the Administrative Lender and make it
available to the Administrative Lender at a place to be designated by the
Administrative Lender which is reasonably convenient to both parties or (ii)
without notice, except as specified below, sell the Collateral or any portion
thereof in one or more parcels at public or private sale, at any of the
Administrative Lender's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Administrative Lender may
reasonably deem commercially reasonable. Each Grantor agrees that, to the
extent notice of sale shall be required by Applicable Law, ten days' written
notice to such Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification, provided that ten days' written notice does not violate any
Applicable Law. The Administrative Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Administrative Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Administrative Lender upon any
sale of, collection of, or other realization upon, all or any part of the
Collateral shall be applied as follows:
FIRST: To the payment of all reasonable out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including reasonable attorneys' fees and disbursements;
SECOND: To the payment of the Obligations to be distributed pro rata to
each Secured Party based on the percentage that the Obligations owed to
each Secured Party bears to the aggregate outstanding Obligations owed to
all Secured Parties (with such Grantor remaining liable for any
deficiency); and
-10-
<PAGE>
THIRD: To the extent of the balance (if any) of such proceeds, to the
payment to such Grantor or other Person legally entitled thereto.
(c) All payments received by such Grantor under or in connection with
any Collateral shall be received in trust for the benefit of the
Administrative Lender, shall be segregated from other funds of such Grantor
and, after receipt of written notice from the Administrative Lender, shall be
forthwith paid over to the Administrative Lender in the same form as so
received (with any necessary indorsement).
(d) Because of the Securities Act of 1933, as amended ("SECURITIES
ACT"), and other Applicable Laws, including without limitation state "blue
sky" laws, or contractual restrictions or agreements, there may be legal
restrictions or limitations affecting the Administrative Lender in any
attempts to dispose of the Collateral and the enforcement of its rights
hereunder. For these reasons, the Administrative Lender is hereby authorized
by each Grantor, but not obligated, during the continuance of any Event of
Default, to sell or otherwise dispose of any of the Collateral at private
sale, subject to an investment letter, or in any other manner which will not
require the Collateral, or any part thereof, to be registered in accordance
with the Securities Act, or the rules and regulations promulgated thereunder,
or any other Applicable Law. Each Grantor clearly understands that the
Administrative Lender may in its discretion approach a restricted number of
potential purchasers and that a sale under such circumstances may yield a
lower price for the Collateral than would otherwise be obtainable if same
were registered and sold in the open market. No sale so made in good faith
by the Administrative Lender shall be deemed to be not "commercially
reasonable" because so made. Each Grantor agrees that in the event the
Administrative Lender shall, during the continuance of an Event of Default,
sell the Collateral or any portion thereof at any private sale or sales, the
Administrative Lender shall have the right to rely upon the advice and
opinion of independent appraisers and other Persons, which appraisers and
other Persons are acceptable to the Administrative Lender, as to the best
price reasonably obtainable upon such a private sale thereof.
(e) If the Administrative Lender shall determine to exercise its right
to sell any or all of the Collateral, and if in the opinion of counsel for
the Administrative Lender it is necessary, or if in the opinion of the
Administrative Lender it is advisable, to have the Collateral or that portion
thereof to be sold, registered under the provisions of the Securities Act,
each Grantor (subject to any restrictions in any agreements with
non-Affiliates of such Grantor regarding the registration thereof) will use
commercially reasonable efforts to cause the issuers of the Collateral
contemplated to be sold to execute and deliver, and cause the directors and
officers of each thereof to execute and deliver, all at such Grantor's
reasonable expense, all such instruments and documents, and to do or cause to
be done all such other acts and things, as may be necessary or, in the
opinion of the Administrative Lender, advisable to register the Collateral or
that portion thereof to be sold, under the provisions of the Securities Act
and to cause the registration statement relating thereto to become effective
and to remain effective for a period of one year from the date of the first
public offering of the Collateral or that portion thereof to be sold, and to
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Administrative Lender, are reasonably necessary, all in
conformity with the requirements of the Securities Act. Each Grantor shall
use commercially
-11-
<PAGE>
reasonable efforts to cause each issuer of Collateral to comply with the
provisions of the securities or "blue sky" laws of any jurisdiction which the
Administrative Lender shall designate and to cause each issuer to make
available to its security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of the Securities Act and
applicable "blue sky" laws.
(f) (i) Each Grantor will maintain the accounts listed as restricted and
blocked accounts on SCHEDULE 3 (the "RESTRICTED ACCOUNTS") with the
Administrative Lender, in the name of such Grantor, but such Restricted
Accounts shall be under the sole control and dominion of the Administrative
Lender.
(ii) It shall be a term and condition of each Restricted Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to such Restricted Account (other than the Credit
Agreement), that no amount (including interest and other proceeds of the
cash and other property in the Restricted Account) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
such Grantor or any other Person from such Restricted Account.
(iii) At the request of the Administrative Lender, such Grantor will
promptly instruct each account debtor in respect of Receivables arising
from any sale of Inventory in the ordinary course of business to make
payment to the Restricted Accounts.
Each Grantor understands and acknowledges that the Administrative Lender may
and permits the Administrative Lender to remove amounts from the Restricted
Accounts from time to time and use the amounts to reduce the Obligations.
Section 4.4 INDEMNITY AND EXPENSES. THE GRANTORS JOINTLY AND
SEVERALLY AGREE TO INDEMNIFY THE ADMINISTRATIVE LENDER AND EACH OTHER SECURED
PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES (INCLUDING
REASONABLE ATTORNEYS' FEES) ARISING OR RESULTING FROM THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS AGREEMENT), TO THE EXTENT
THE BORROWER IS REQUIRED TO DO SO UNDER SECTION 5.10 OF THE CREDIT AGREEMENT.
ARTICLE 5
MISCELLANEOUS
Section 5.1 CUMULATIVE RIGHTS. All rights of the Administrative
Lender and each other Secured Party under the Loan Documents are cumulative
of each other and of every other right which the Administrative Lender and
each other Secured Party may otherwise have at law or in equity or under any
other contract or other writing for the enforcement of the security interest
herein
-12-
<PAGE>
or the collection of the Obligations. The exercise of one or more rights
shall not prejudice or impair the concurrent or subsequent exercise of other
rights.
Section 5.2 MODIFICATIONS; AMENDMENTS; ETC. No amendment or waiver
of any provision of this Agreement, and no consent to any departure by any
Grantor here from, shall in any event be effective unless the same shall be
in writing and signed by the Administrative Lender (and such Grantor, in case
of amendment), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 5.3 CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until the Release Date (except to the extent that
the release of any Collateral is otherwise permitted pursuant to the terms of
the Loan Documents), (b) be binding upon each Grantor, its successors and
assigns, and (c) inure to the benefit of, and be enforceable by, the
Administrative Lender and its successors, transferee and assigns. Upon any
such termination, the Administrative Lender will, at such Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination. Each Grantor agrees that to
the extent that the Administrative Lender or any other Secured Party receives
any payment or benefit and such payment or benefit, or any part thereof, is
subsequently invalidated, declared to be fraudulent or preferential, set
aside or is required to be repaid to a trustee, receiver, or any other party
under any Debtor Relief Law, then to the extent of such payment or benefit,
the Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not been
made and, further, any such repayment by the Administrative Lender or any
other Secured Party, to the extent that the Administrative Lender or any
other Secured Party did not directly receive a corresponding cash payment,
shall be added to and be additional Obligations payable upon demand by the
Administrative Lender or any other Secured Party and secured hereby, and, if
the lien and security interest hereof shall have been released, such lien and
security interest shall be reinstated with the same effect and priority as on
the date of execution hereof all as if no release of such lien or security
interest had ever occurred, to the extent not prohibited by Applicable Law.
Section 5.4 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW) AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS.
Section 5.5 WAIVER OF JURY TRIAL. THE ADMINISTRATIVE LENDER, THE
SECURED PARTIES AND EACH GRANTOR HEREBY WAIVE, TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY JUDICIAL
PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY
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<PAGE>
MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 5.6 THE ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS. The
Administrative Lender may exercise its rights under this Agreement through an
agent or other designee.
Section 5.7 WAIVERS OF RIGHTS INHIBITING ENFORCEMENT. To the extent
not prohibited by Applicable Law, each Grantor waives all rights of
redemption, appraisal, valuation or to the marshaling of assets.
Section 5.8 NOTICES AND DELIVERIES. All notices and other
communications provided for hereunder shall be effectuated in the manner
provided for in SECTION 11.1 of the Credit Agreement, and to the extent that
a notice or communication is sent to a Grantor other than the Borrower, said
notice shall be addressed to such Grantor, in care of the Borrower.
Section 5.9 SUCCESSORS AND ASSIGNS. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; PROVIDED, HOWEVER, no
Grantor may assign its liabilities and obligations under this Agreement
without the prior written consent of all Secured Parties.
Section 5.10 LOAN DOCUMENT. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
Section 5.11 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES.
(a) Each Grantor and the Administrative Lender each hereby irrevocably
submits to the non-exclusive jurisdiction of any United States Federal or
Texas State courts sitting in Dallas, Texas in any action or proceeding
arising out of or relating to this Agreement, and each Grantor and the
Administrative Lender each hereby irrevocably waives any objection it may now
or hereafter have as to the venue of any such suit, action or proceeding
brought in such court or that such court is an inconvenient forum.
(b) Nothing in this section shall limit the right of any Grantor, the
Administrative Lender or any other Secured Party to bring any action or
proceeding against any other party or its property in the courts of any other
jurisdictions.
Section 5.12 SEVERABILITY. Any provision of this Agreement 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.
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<PAGE>
Section 5.13 OBLIGATIONS NOT AFFECTED. To the fullest extent
permitted by Applicable Law, the obligations of each Grantor under this
Agreement shall remain in full force and effect without regard to, and shall
not be impaired or affected by:
(a) any amendment, modification, addition or supplement to any other
Loan Document, any instrument delivered in connection therewith, or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by the Administrative Lender
or any other Secured Party of any right, remedy, power or privilege under or
in respect of, or any release of any guaranty, any collateral or the
Collateral or any part thereof provided pursuant to, this Agreement or any
other Loan Document;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any other Loan Document or any
assignment or transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Grantor or any
other Person, whether or not such Grantor shall have notice or knowledge of
any of the foregoing.
Section 5.14 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument.
Section 5.15 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH
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 OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
Section 5.16 CONFLICTS. In the event of a conflict between the terms
and conditions of this Agreement and the terms and conditions of the Credit
Agreement, the terms and conditions of the Credit Agreement shall control.
===============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
===============================================================================
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
date first above written.
GRANTORS:
COMPUSA INC.
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPUSA HOLDINGS II INC.
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPUSA HOLDINGS I INC.
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPTEAM INC.
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-16-
<PAGE>
COMPUSA MANAGEMENT COMPANY
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPUSA STORES L.P.
By: COMPUSA INC., its general partner
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPUSA HOLDINGS COMPANY
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
COMPUTER CITY, INC.
By: s/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-17-
<PAGE>
ADMINISTRATIVE LENDER:
NATIONSBANK, N.A.
By: s/Kimberley A. Knop
-----------------------------------
Kimberley A. Knop
Vice President
-18-
<PAGE>
Schedule 1
Chief Place of Business, Chief Executive Office and
Location of Books and Records
The Chief Place of Business, Chief Executive Office and the Location of Books
and Records for each Grantor is:
14951 North Dallas Parkway
Dallas, Texas 75240
<PAGE>
Schedule 2
Trade Names
CompUSA Inc.
(1) CompUSA Direct, (2) CompUSA PC
Computer City, Inc.
(1) CompUSA, (2) US Logic
CompUSA Stores L.P.
CompUSA
<PAGE>
Schedule 3
Restricted Accounts
NONE.
<PAGE>
Schedule 4
Securities Collateral
Corporate and Business Trust Securities Pledged:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ISSUER NUMBER OF SHARES HOLDER CERTIFICATE NUMBER
------ ---------------- ------ ------------------
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CompUSA Holdings II Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompUSA Holdings I Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompTeam Inc. 1,000 CompUSA Inc. 001
- -----------------------------------------------------------------------------------
CompUSA Management
Company 1,000 CompUSA Inc. A1
- -----------------------------------------------------------------------------------
CompUSA Holdings Company 1,000 CompUSA Inc. 1
- -----------------------------------------------------------------------------------
Computer City, Inc. 1,000 CompUSA Inc. CS-1
- -----------------------------------------------------------------------------------
CompUSA Net.com Inc. 100 CompUSA Inc. CS-2
- -----------------------------------------------------------------------------------
</TABLE>
Partnership Interests Pledged:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
NAME PERCENTAGE OWNERSHIP OWNER
---- -------------------- -----
- -----------------------------------------------------------------------------------
<S> <C> <C>
CompUSA Stores L.P. 1% general partner interest CompUSA Inc.
- -----------------------------------------------------------------------------------
CompUSA Stores L.P. 99% limited partner interest CompUSA Holdings Company
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
INSTRUCTIONS FOR REGISTRATION OF PLEDGE
OF
UNCERTIFICATED SECURITIES
Date: ___________________
To: [NAME OF CORPORATION, PARTNERSHIP, JOINT VENTURE OR OTHER PERSON]
You are hereby instructed to register the pledge of the following
uncertificated securities to NationsBank, N.A., as Administrative Lender:
(a) A [insert written percentage of interest] (_____%) [insert
description of interest, e.g. General Partnership Interest];
(b) [insert similar description of any other interests].
This being all of the interest of [INSERT NAME OF PLEDGOR] in
[name of corporation, partnership, joint venture or other Person].
Very truly yours,
[GRANTOR]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT B
INITIAL TRANSACTION STATEMENT
Date: _______________
To: CompUSA Inc.
NationsBank, N.A., as Administrative Lender
This is to advise you that a pledge to NationsBank, N.A., as
Administrative Lender, of the following uncertificated securities owned by
[INSERT NAME OF PLEDGOR], a [______________] corporation has been registered
on the books of [name of corporation, partnership, joint venture or other
Person]:
(c) A [insert written percentage of interest] (_____%)
[insert description of interest, e.g. General Partnership Interest];
(d) [insert similar description of any other interests].
This being all of the interest of [INSERT NAME OF PLEDGOR] in, as shown
on books and records of, [name of corporation, partnership, joint venture or
other Person].
There are no liens or restrictions of the undersigned, nor any adverse
claims, in each case registered on the books of the undersigned, to which the
interests described hereinabove are subject.
The pledge referred to above was registered on ______________, _____.
THIS STATEMENT IS MERELY A RECORD OF THE REGISTRATION OF THE PLEDGE OF
THE ADDRESSEES AS OF THE TIME OF THE ISSUANCE HEREOF. DELIVERY OF THIS
STATEMENT, IN ITSELF, CONFERS NO RIGHTS ON THE RECIPIENT. THIS STATEMENT IS
NEITHER A NEGOTIABLE INSTRUMENT NOR A SECURITY.
Very truly yours,
[NAME OF CORPORATION, PARTNERSHIP, JOINT VENTURE
OR OTHER PERSON]
[By:___________________________________________]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT C
__________, 1999
- --------------------------
- --------------------------
- --------------------------
Ladies and Gentlemen:
This is to advise you that CompUSA Inc., a ____________ corporation
("PLEDGOR"), has granted to NationsBank, N.A., as Administrative Lender
("ADMINISTRATIVE LENDER") a security interest in [DESCRIBE AMOUNT AND
DESCRIPTION OF INTEREST, E.G. SHARES OF THE COMMON CAPITAL STOCK]
of _____________________________________________________ (the "COMPANY"),
and all other [REPEAT DESCRIPTION OF INTEREST] of the Company now owned as
well as hereafter acquired by Pledgor (together with any distributions,
interests, stock, liquidating dividends, stock dividends, preemptive rights,
dividends paid in cash or securities, or other properties to which Pledgor
may hereafter be entitled to receive on account of such [REPEAT DESCRIPTION
OF INTEREST]), which [REPEAT DESCRIPTION OF INTEREST] presently constitutes
_____% of the issued and outstanding [REPEAT DESCRIPTION OF INTEREST] of the
Company, any other equity interest or right to acquire any equity interest in
Company now owned as well as hereafter acquired by Pledgor, and all proceeds
and products of the foregoing ("PLEDGED RIGHTS").
Until notified otherwise in writing by an authorized officer of
Administrative Lender, you are hereby directed (and you hereby agree) to
deliver after the date hereof all non-cash dividends and other distributions
and any and all other shares of stock, warrants or other property (other than
cash) in which Administrative Lender has a security interest to
Administrative Lender, NationsBank Plaza, 901 Main Street, 67th Floor,
Dallas, Texas 75202, Attention: Kim Knop. Upon written notice from an
authorized officer of Administrative Lender, you are directed (and you hereby
agree) to deliver after the date of such notice, all dividends, distributions
and other property in the form of cash directly to Administrative Lender at
the address mentioned in the preceding sentence. Unless notified otherwise
in writing by an authorized officer of Administrative Lender, you are hereby
directed (and you hereby agree) to not acknowledge any encumbrance in favor
of any party other than Administrative Lender with respect to the Pledged
Rights, assign any interest in, encumber, subdivide, issue additional or
different certificates for or otherwise transfer any interest in the Pledged
Rights.
<PAGE>
Very truly yours,
CompUSA Inc.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
NATIONSBANK, N.A., as Administrative Lender
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Accepted and Agreed this ____ day of ________________, ____
---------------------------------------
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
PROMISSORY NOTE
Dallas, Texas $49,066,666.68 May 5, 1999
CompUSA Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of NATIONSBANK, N.A.("Lender"), at the
principal office of NationsBank, N.A., in lawful money of the United States
of America, the principal sum of FORTY-NINE MILLION SIXTY-SIX THOUSAND SIX
HUNDRED SIXTY-SIX AND 68/100 DOLLARS ($49,066,666.68), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of (a) that certain Promissory Note, dated as of March 12, 1998,
payable by the Borrower to the order of the Lender in the principal amount of
$35,000,000 and (b) that certain Promissory Note, dated as of March 12, 1998,
payable by the Borrower to the order of Bank of America NT&SA in the
principal amount of $29,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in lawful money of the United
States of America, the principal sum ELEVEN MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $22,233,333.33 May 5, 1999
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, N.A., in lawful money of
the United States of America, the principal sum TWENTY-TWO MILLION TWO
HUNDRED THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 DOLLARS
($22,233,333.33), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$29,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $23,000,000.00 May 5, 1999
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, N.A., in lawful money of
the United States of America, the principal sum of TWENTY-THREE MILLION AND
NO/100 DOLLARS ($23,000,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$30,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in lawful money of the United
States of America, the principal sum ELEVEN MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in lawful money of the United
States of America, the principal sum ELEVEN MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $22,233,333.33 May 5, 1999
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, N.A., in lawful money of the United
States of America, the principal sum TWENTY-TWO MILLION TWO HUNDRED
THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 DOLLARS
($22,233,333.33), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$29,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in lawful money of the United States
of America, the principal sum ELEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $22,233,333.33 May 5, 1999
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, N.A., in lawful money of the United
States of America, the principal sum TWENTY-TWO MILLION TWO HUNDRED
THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 DOLLARS
($22,233,333.33), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$29,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $22,233,333.33 May 5, 1999
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, N.A., in lawful money of
the United States of America, the principal sum TWENTY-TWO MILLION TWO
HUNDRED THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 DOLLARS
($22,233,333.33), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$29,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-----------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in
lawful money of the United States of America, the principal sum ELEVEN
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
PROMISSORY NOTE
Dallas, Texas $11,500,000.00 May 5, 1999
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, N.A., in lawful money of
the United States of America, the principal sum ELEVEN MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($11,500,000.00), 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 14, 1998, among the
Borrower, NationsBank, N.A. (successor by merger to 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. This Note is a
replacement and modification (but not a novation of the debt evidenced
thereby) of that certain Promissory Note, dated as of March 12, 1998, payable
by the Borrower to the order of the Lender in the principal amount of
$15,000,000.
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.
<PAGE>
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT 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/James E. Skinner
-------------------------------------
James E. Skinner
Executive Vice President
-2-
<PAGE>
AMENDMENT NO. 1
TO THE
COMPSAVINGS PLAN FOR EMPLOYEES OF COMPUSA INC. AND TRUST
WHEREAS, CompUSA Inc. (the "Company") is the employer and sponsor of the
CompSavings Plan for Employees of CompUSA Inc. (the "Plan"); and
WHEREAS, pursuant to Section 19.1 of the Plan, the Company has reserved the
right to amend the Plan from time to time;
NOW, THEREFORE, the Plan is hereby amended by adding a new Appendix D thereto to
read as follows:
APPENDIX D - SPECIAL PROVISIONS RELATED TO CERTAIN 1998 TRANSACTIONS
1. PROVISIONS APPLICABLE TO EMPLOYEES TRANSFERRED TO IBM GLOBAL SERVICES.
(a) IN GENERAL. On a date or dates to be determined by the Company's
Senior Vice President - Human Resources, CompTeam Inc., a participating
employer in the Plan, will transfer certain employees designated by the
Company's Senior Vice President - Human Resources to IBM Global Services
(the "Transferred Employees"). The Transferred Employees will be
ineligible to participate in the Plan following the date of the transfer.
The transfer, however, will not constitute a separation from service
(within the meaning of the second paragraph of Section 11.1 of the Plan)
with respect to the Transferred Employees. This amendment provides rules
applicable to matching contributions, vesting and account balance transfers
for Transferred Employees.
(b) COMPANY MATCH CONTRIBUTIONS. The Employer shall make a basic Company
Match Contribution, as described in Section 5.1(b) of the Plan, on behalf
of each Transferred Employee who contributed to the Plan during the 1998
Plan Year. The basic Company Match Contribution on behalf of Transferred
Employees shall be made without regard to the requirements set forth in
Section 5.1(a)(1) (relating to employment on the last day of the Plan Year)
and Section 5.1(a)(2) (relating to completion of 1,000 Hours of Service for
the Plan Year). The Employer shall make the basic Company Match
Contribution as soon as administratively feasible following the last date
that the Transferred Employees are eligible to make Pre-Tax Contributions
to the Plan. All other provisions of the Plan applicable to basic Company
Match Contributions shall apply to the basic Company Match Contributions on
behalf of Transferred Employees.
Transferred Employees shall be ineligible to receive an allocation of
supplemental Company Match Contributions (as described in the second
paragraph of Section 5.1(a)), if any, with respect to contributions made by
them during the 1998 Plan Year.
<PAGE>
(c) VESTING. Notwithstanding the vesting schedule in Section 8.3 of the
Plan, the Company Match Cash Account and Company Match Stock Account
(including additions thereto resulting from basic Company Match
Contributions under subsection (b) above) maintained under the Plan for
each of the Transferred Employees shall be 100% vested as of the last date
that the Transferred Employees are eligible to make Pre-Tax Contributions
to the Plan.
(d) ACCOUNT BALANCE TRANSFER. At such time as the Company's Senior Vice
President - Human Resources may direct, the Trustee shall transfer the
Accounts of the Transferred Employees to the trustee of the defined
contribution plan which covers the Transferred Employees as employees of
IBM Global Services. Such transfer shall comply with Section 19.2 of the
Plan and other applicable law. As soon as administratively feasible
following such transfer, the Committee shall cause a final Account
statement to be issued to each of the Transferred Employees.
2. PROVISIONS APPLICABLE TO EMPLOYEES TRANSFERRED FROM COMPUTER CITY,
INC..
(a) IN GENERAL. On or about September 1, 1998, CompTeam Inc. will become
the employer of certain employees previously employed by Computer City,
Inc. in connection with the the Company's acquisition of Computer City,
Inc. from Tandy Corporation. The class of individuals to whom this
amendment applies includes only those Employees who were both employed by
Computer City, Inc. on the day immediately prior to the commencement of
such person's employment with CompTeam Inc. and commenced employment with
CompTeam Inc. in connection with the Company's acquisition of Computer
City, Inc. from Tandy Corporation (the "Former Computer City Employees").
This amendment provides vesting and eligibility rules applicable to Former
Computer City Employees.
(b) VESTING; PERIOD OF EMPLOYMENT. Notwithstanding any provision of the
Plan to the contrary, a Former Computer City Employee's service with
Computer City, Inc. recognized for purposes of the Tandy Plan (a tax
qualified defined contribution plan sponsored by Tandy Corporation for the
benefit of employees of Tandy Corporation and certain of its subsidiaries
and other affiliates, including Computer City, Inc.) shall be included in
the determination of his or her Period of Employment for eligibility and
vesting purposes of the Plan.
(c) ELIGIBILITY. Notwithstanding any provision of the Plan to the
contrary, Former Computer City Employees shall become Participants in the
Plan on the date of acquisition by the Company of Computer City, Inc. from
Tandy Corporation or such other date as may be determined by the Company's
Senior Vice President - Human Resources to be administratively feasible.
2
<PAGE>
3. In all other respects, the Plan remains unamended and in full force
and effect.
Date: September 1, 1998 COMPUSA INC.
---------------------------
By:Mel McCall
-------------------------------------------
Senior Vice President -
Title: Human Resources
---------------------------------
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: October 21, 1998 MERRILL LYNCH TRUST COMPANY, FSB
---------------------------
By: Roger T. Meyer
-------------------------------------------
Title: Vice President
----------------------------------
3
<PAGE>
EXHIBIT 11
COMPUSA INC.
COMPUTATION OF
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE
THIRTEEN WEEKS ENDED WEEKS ENDED
------------------------ ------------------------
<S> <C> <C> <C> <C>
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Common shares issued at beginning of period........................ 93,943 92,478 93,373 91,763
Weighted average number of common shares issued during the
period........................................................... 88 421 525 645
Weighted treasury shares during the period......................... (2,478) (1,381) (2,497) (881)
----------- ----------- ----------- -----------
Weighted average common shares..................................... 91,553 91,518 91,401 91,527
Incremental shares related to assumed exercise of stock options.... -- 3,174 1,410 3,711
----------- ----------- ----------- -----------
Weighted average common shares assuming dilution................... 91,553 94,692 92,811 95,238
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net (loss) income.................................................. $ (4,940) $ 25,438 $ 18,771 $ 82,964
Basic (loss) earnings per share.................................... $ (0.05) $ 0.28 $ 0.21 $ 0.91
Diluted (loss) earnings per share.................................. $ (0.05) $ 0.27 $ 0.20 $ 0.87
</TABLE>
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE THIRTEEN AND
THIRTY-NINE WEEKS ENDED MARCH 27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> MAR-27-1999
<CASH> 241,911
<SECURITIES> 0
<RECEIVABLES> 256,134
<ALLOWANCES> (4,209)
<INVENTORY> 802,752
<CURRENT-ASSETS> 1,339,505
<PP&E> 418,939
<DEPRECIATION> (186,032)
<TOTAL-ASSETS> 1,688,881
<CURRENT-LIABILITIES> 1,002,734
<BONDS> 110,000
0
0
<COMMON> 941
<OTHER-SE> 438,854
<TOTAL-LIABILITY-AND-EQUITY> 1,688,881
<SALES> 4,859,864
<TOTAL-REVENUES> 4,859,864
<CGS> 4,207,240
<TOTAL-COSTS> 4,207,240
<OTHER-EXPENSES> 610,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,559
<INCOME-PRETAX> 30,524
<INCOME-TAX> 11,753
<INCOME-CONTINUING> 18,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,771
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
