<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-11566
------------------------
COMPUSA INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2261497
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
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 92,712,054 shares of common stock, $.01 per share par
value, outstanding as of November 9, 1999.
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<PAGE>
PART I--FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 25, 1999
(unaudited) and June 26, 1999............................... 3
Consolidated Statements of Operations for the thirteen weeks
ended September 25, 1999 and September 26, 1998
(unaudited)................................................. 4
Consolidated Statements of Cash Flows for the thirteen weeks
ended September 25, 1999 and September 26, 1998
(unaudited)................................................. 5
Notes to Consolidated Financial Statements (unaudited)...... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 36
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 37
SIGNATURES........................................................... 38
</TABLE>
2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 25, JUNE 26,
1999 1999
-------------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 128,322 $ 173,350
Accounts receivable, net of allowance for doubtful
accounts of $4,697 at September 25, 1999 and $4,317 at
June 26, 1999........................................... 145,682 214,960
Merchandise inventories................................... 675,508 667,514
Deferred income taxes..................................... 33,301 32,106
Prepaid expenses and other................................ 13,637 20,607
---------- ----------
Total current assets.................................... 996,450 1,108,537
Property and equipment, net................................. 253,367 227,113
Deferred income taxes....................................... 38,059 37,520
Costs in excess of net assets of acquired businesses, net... 102,158 103,515
Other assets................................................ 9,513 5,030
---------- ----------
$1,399,547 $1,481,715
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 647,666 $ 645,067
Accrued liabilities....................................... 177,381 188,936
Deferred revenue.......................................... 20,854 21,595
Senior Subordinated Notes................................. -- 110,000
Current portion of capital lease obligations.............. 741 828
---------- ----------
Total current liabilities............................... 846,642 966,426
Deferred revenue............................................ 29,268 28,644
Note payable to Tandy Corporation........................... 136,000 136,000
Borrowings under the Credit Agreement....................... 50,000 --
Capital lease obligations................................... 66 169
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 shares issued of 94,107,509 at
September 25, 1999 and 94,105,525 at June 26, 1999...... 941 941
Paid-in capital........................................... 257,586 281,056
Retained earnings......................................... 113,746 126,654
---------- ----------
372,273 408,651
Less: Treasury stock, at cost, 1,395,643 shares at
September 25, 1999 and 2,339,678 shares at June 26,
1999...................................................... (34,702) (58,175)
---------- ----------
Total stockholders' equity.............................. 337,571 350,476
---------- ----------
$1,399,547 $1,481,715
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
-------------- --------------
<S> <C> <C>
Net sales................................................... $1,347,246 $1,375,439
Cost of sales and occupancy costs........................... 1,143,850 1,182,823
---------- ----------
Gross profit.............................................. 203,396 192,616
Operating expenses.......................................... 171,858 145,664
Pre-opening expenses........................................ 1,679 1,366
General and administrative expenses......................... 46,749 32,637
Restructuring charges....................................... (2,176) --
---------- ----------
Operating income (loss)................................... (14,714) 12,949
Other expense (income):
Interest expense.......................................... 6,752 4,383
Other expense (income), net............................... (814) (1,540)
---------- ----------
5,938 2,843
---------- ----------
Income (loss) before income taxes........................... (20,652) 10,106
Income tax expense (benefit)................................ (7,744) 3,874
---------- ----------
Net income (loss)........................................... $ (12,908) $ 6,232
========== ==========
Basic earnings (loss) per share............................. $ (0.14) $ 0.07
Diluted earnings (loss) per share........................... $ (0.14) $ 0.07
Weighted average common shares.............................. 92,700 91,243
Weighted average common shares assuming dilution............ 92,700 93,041
</TABLE>
See accompanying notes.
4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ (12,908) $ 6,232
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 19,138 15,435
Non-cash restructuring and non-recurring charges...... 9,455 --
Deferred revenue...................................... (117) 3,181
Deferred income taxes................................. (1,734) 5,013
Other non-cash charges................................ -- 2,410
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................. 64,118 2,859
Merchandise inventories............................. (11,364) (81,407)
Prepaid expenses and other assets................... 6,970 6,498
Other assets........................................ 93 --
Increase (decrease) in accounts payable and accrued
liabilities......................................... (8,956) 124,380
--------- --------
Total adjustments................................. 77,603 78,369
--------- --------
Net cash provided by operating activities......... 64,695 84,601
Cash flows provided by (used in) investing activities:
Capital expenditures...................................... (44,051) (12,713)
Payment for purchase of Computer City, net of cash
acquired................................................ -- (73,341)
Other..................................................... (172) 1,152
--------- --------
Net cash used in investing activities............. (44,223) (84,902)
Cash flows provided by (used in) financing activities:
Payment of Senior Subordinated Notes...................... (110,000) --
Fees paid for Credit Agreement............................ (5,257) --
Borrowings under Credit Agreement......................... 50,000 --
Payments under capital lease obligations.................. (246) (733)
Proceeds from issuance of common stock.................... 3 384
--------- --------
Net cash used in financing activities............. (65,500) (349)
Net decrease in cash and cash equivalents................... (45,028) (650)
Cash and cash equivalents at beginning of period............ 173,350 151,779
--------- --------
Cash and cash equivalents at end of period.................. $ 128,322 $151,129
========= ========
</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 26, 1999.
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. CHANGE IN ACCOUNTING POLICY--EXTENDED SERVICE PLANS
The Company sells extended service plans on behalf of unrelated third
parties ("Non-Obligor Contracts") and, to a lesser extent, sells its own
extended service plans ("Obligor Contracts") in those states in which
third-party service plan sales are not permitted. In either case, the extended
service plans are administered by a third party ("Administrator") and all
performance obligations and risk of loss with respect to such contracts are
economically transferred to the Administrator and other parties at the time the
contracts are sold by the Company.
Effective as of the beginning of fiscal 2000, the Company has changed its
accounting policy with respect to the recognition of revenues from the sale of
Obligor Contracts. Pursuant to the Company's new policy, the Company recognizes
revenues, net of direct selling expenses (consisting primarily of a lump sum
payment due to the Administrator at the time of sale), ratably over the terms of
the Obligor Contracts sold, generally two to five years. Previously, the Company
recognized substantially all revenues, net of direct selling expenses, for the
sale of Obligor Contracts at the time of sale. Such policy was adopted in fiscal
1996 concurrent with the consummation of an agreement with a new Administrator.
The Company has given retroactive effect to this new accounting policy by
restatement of the Company's previously published financial statements beginning
with fiscal 1996. The impact of the restatement on the consolidated
6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. CHANGE IN ACCOUNTING POLICY--EXTENDED SERVICE PLANS (CONTINUED)
statement of operations for the three months ended September 26, 1998, is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED RESTATED
------------- ----------
<S> <C> <C>
Net sales................................................... $1,392,140 $1,375,439
Cost of sales and occupancy costs........................... 1,195,786 1,182,823
Operating expenses.......................................... 146,300 145,664
Income tax expense.......................................... 5,068 3,874
Net income.................................................. 8,140 6,232
Basic earnings per share.................................... 0.09 0.07
Diluted earnings per share.................................. 0.09 0.07
</TABLE>
In addition, the impact of the restatement also resulted in changes to the
consolidated balance sheet as of June 26, 1999, and the statement of cash flows
for the three months ended September 26, 1998.
The Company has and will continue to recognize revenues from the sale of
Non-Obligor Contracts at the time of sale. However, the Company has also
reclassified its previously published financial statements to show the net
commission income from the sale of Non-Obligor Contracts (retail price less the
lump sum payment due to the Administrator at the time of sale) as a component of
net sales. Previously, the Company reflected the full retail price of the
Non-Obligor Contracts as a component of net sales and the amount paid to the
Administrator as a component of cost of sales and occupancy costs.
3. FISCAL 1999 INITIATIVES
In fiscal 1999, the Company implemented various programs and initiatives
(collectively, the "Fiscal 1999 Initiatives") that included (1) initiatives
announced in the fourth quarter of fiscal 1999 as a result of the Company's
extensive evaluation of its core businesses (the "Fourth Quarter Initiatives"),
(2) the formation of CompUSA Net.com Inc. ("CompUSA Net.com") and its transition
to an Internet-only business (the "CompUSA Net.com Realignment"), which business
was transferred to cozone.com in October 1999, and (3) information technology
initiatives (the "IT Initiatives"). Non-recurring and restructuring charges
incurred in connection with these initiatives aggregated approximately
$84.0 million in fiscal 1999 and approximately $16.7 million in the first
quarter of fiscal 2000.
7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
The following table summarizes the financial statement classification of the
non-recurring and restructuring charges incurred:
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 25, 1999
------------------------------------------------------
FOURTH COMPUSA
QUARTER NET.COM
INITIATIVES REALIGNMENT IT INITIATIVES TOTAL
----------- ----------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of sales and occupancy
costs............................ $ 1,853 $1,530 $ -- $ 3,383
Operating expenses................. 13,182 -- -- 13,182
General and administrative
expenses......................... -- -- 2,282 2,282
Restructuring charges.............. (2,176) -- -- (2,176)
------- ------ ------ -------
$12,859 $1,530 $2,282 $16,671
======= ====== ====== =======
</TABLE>
The following table summarizes the nature of the non-recurring and
restructuring charges incurred:
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 25, 1999
------------------------------------------------------
FOURTH COMPUSA
QUARTER NET.COM
INITIATIVES REALIGNMENT IT INITIATIVES TOTAL
----------- ----------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-cash charges for asset write-downs, primarily
inventory and estimated losses related to the
change in the extended service plan provider..... $ 6,000 $1,530 $ -- $ 7,530
Write-down of fixed assets with no future
utility.......................................... 3,722 -- -- 3,722
Personnel costs and professional fees.............. -- -- 2,282 2,282
Transition expenses related to the implementation
of the Fourth Quarter Initiatives................ 5,313 -- -- 5,313
------- ------ ------ -------
15,035 1,530 2,282 18,847
Amounts included in restructuring charges:
Adjustments to previously recorded restructuring
charges:
Exit costs related to the write-down of fixed
assets and the accrual of future rental
obligations of the Company's fulfillment and
configuration facility....................... (5,011) -- -- (5,011)
Reserves for future rental obligations for
closed stores and related lease carrying
costs and other closing costs................ 183 -- -- 183
Severance and other personnel costs.............. 2,652 -- -- 2,652
------- ------ ------ -------
(2,176) -- -- (2,176)
------- ------ ------ -------
$12,859 $1,530 $2,282 $16,671
======= ====== ====== =======
</TABLE>
8
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
FOURTH QUARTER INITIATIVES--The Fourth Quarter Initiatives were announced by
the Company on June 24, 1999, as a result of the Company's extensive evaluation
of its core businesses. The Fourth Quarter Initiatives were designed to increase
gross margins, reduce operating costs, improve customer service, and position
the Company to take advantage of additional strategic opportunities. The Company
recorded charges related to the Fourth Quarter Initiatives of approximately
$67.5 million in the fourth quarter of fiscal 1999 and $12.9 million in the
first quarter of fiscal 2000.
Charges recorded in connection with the Fourth Quarter Initiatives were
related to (1) the streamlining of the Company's training business, (2) the
reorganization of the Company's technical services business, (3) the redesign of
the Company's direct sales fulfillment and configuration activities for
corporate, government, and education customers, (4) the evaluation of the
profitability of the Company's stores, and (5) the change in the third-party
provider of the extended service plans sold by the Company after June 1999.
STREAMLINING OF TRAINING BUSINESS--In connection with the redesign of the
Company's training business, the Company implemented a vertical, market-based
organizational structure in the fourth quarter of fiscal 1999. Previously, each
store operated as an independent training organization with a local focus.
Costs incurred in connection with the streamlining of the training business
are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Termination of approximately 160 employees and other
personnel costs...................................... $ 33 $640
Transition expenses related to the implementation of a
new structure, primarily advertising and marketing... 174 --
---- ----
$207 $640
==== ====
</TABLE>
REORGANIZATION OF TECHNICAL SERVICES BUSINESS--As a result of the evaluation
of its technical services business, the Company implemented a strategy to focus
on high-volume technical service opportunities, including "break-fix" and
on-site warranty and technical services. In addition, the Company outsourced
networking and systems configuration services to third-party providers.
9
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
Costs incurred in connection with the reorganization of the technical
services business are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Termination of approximately 150 employees and other
personnel costs...................................... $ 9 $643
Transition expenses related to the implementation of a
new structure, primarily advertising and marketing... 20 --
--- ----
$29 $643
=== ====
</TABLE>
REDESIGN OF DIRECT SALES FULFILLMENT AND CONFIGURATION ACTIVITIES--As part
of the Fourth Quarter Initiatives, the Company also committed to a plan to
redesign its direct sales fulfillment and configuration activities for
corporate, government, and education customers by (1) outsourcing the direct
sales fulfillment and configuration operations and (2) consolidating the
Company's direct sales organization to a regional sales force and central sales
support.
Costs incurred in connection with the redesign of direct sales fulfillment
and configuration activities are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Outsourcing of direct sales fulfillment and
configuration operations:
Costs of liquidating commercial inventories......... $1,500 $37,000
Termination of approximately 225 employees and other
personnel costs................................... 52 385
Exit costs related to the write-down of fixed assets
and accrual of future rental obligations of the
Company's fulfillment and configuration
facility.......................................... (5,011) 13,813
Write-down of fixed assets with no future utility... 3,722 --
Other............................................... 64 --
Consolidation of the Company's direct sales
organization:
Write-down of fixed assets.......................... -- 1,623
Termination of approximately 1,370 employees and
other personnel costs............................. 2,363 --
Transition expenses related to the start-up of the
Company's new centralized sales and support
facility, primarily personnel and facility
costs............................................. 4,307 --
------ -------
$6,997 $52,821
====== =======
</TABLE>
10
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
In connection with the outsourcing of the fulfillment of purchase orders
from corporate, government, and education customers, the Company has implemented
a plan to liquidate the related commercial inventories in its fulfillment and
configuration facility and its retail stores. As a result, the Company wrote
down the carrying values of such inventories by approximately $37.0 million in
the fourth quarter of fiscal 1999 to management's estimates of the net
realizable value of such inventories to be generated from vendor returns,
liquidation through third parties, and promotional activities in the Company's
stores. Based upon the costs of liquidating certain of such inventories in the
first quarter of fiscal 2000 and its estimates of the costs to liquidate the
remaining inventories, the Company increased its previous estimate of the
write-down of its commercial inventories by $1.5 million in the first quarter of
fiscal 2000.
In August 1999, the Company discontinued the fulfillment and configuration
activities previously conducted in its Dallas/Fort Worth-area fulfillment and
configuration facility. At that time, purchase orders from corporate,
government, and education customers began to be fulfilled by Ingram Micro Inc.
("Ingram Micro"). Based upon its outsourcing of its direct sales fulfillment and
configuration operations to Ingram Micro, the Company believed it would abandon
its centralized fulfillment and configuration facility. Accordingly, the Company
recorded a charge in the fourth quarter of fiscal 1999 of approximately
$11.6 million to write down the carrying value of those fixed assets it believed
would be abandoned and had no future utility to the Company and a charge of
approximately $2.2 million for the estimated remaining lease rental obligations
and other carrying costs, net of subrental income, associated with that facility
prior to the expiration of the lease term in 2008. In the first quarter of
fiscal 2000, the Company determined that it would be able to redeploy certain
portions of the centralized fulfillment and configuration facility in its
ongoing operating activities, primarily the Company's call center operations. As
a result, the Company reversed the previously recorded charge of $2.2 million
for estimated remaining net lease rental obligations and reduced the previously
recorded estimate of the exit costs related to the fixed assets to be abandoned
by $2.8 million. The Company plans to redeploy certain of the assets located in
the former centralized fulfillment and configuration facility for its ongoing
operating activities. The Company recorded a $3.7 million write-down of the
assets in the facility that had no future utility for the Company's ongoing
activities.
In August 1999, the Company organized a regional sales force and central
sales support function and opened a new 80,000 square-foot call center in the
Dallas/Fort Worth area to accommodate this function. Previously, each store
maintained a separate direct sales force. As a result of the consolidation of
the direct sales organization and the outsourcing of its direct sales
fulfillment and configuration operations, the Company terminated approximately
1,595 employees in August 1999 who were previously responsible for the direct
sales activities conducted through the Company's stores and the Company's
centralized fulfillment and configuration facility. Costs incurred in connection
with these termination actions and other personnel costs related to the redesign
of the Company's direct sales fulfillment and configuration activities to its
corporate, government, and education customers aggregated approximately $385,000
in the fourth quarter of fiscal 1999 and approximately $2.4 million in the first
quarter of fiscal 2000.
In connection with the implementation of its plan to redesign its direct
sales fulfillment and configuration activities to corporate, government, and
education customers, the Company incurred costs of approximately $4.3 million in
the first quarter of fiscal 2000, primarily related to start-up personnel,
training, and facilities costs related to the Company's new centralized direct
sales and support facility located in the Dallas/Fort Worth area.
11
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
EVALUATION OF THE COMPANY'S STORES--In connection with the Fourth Quarter
Initiatives, the Company analyzed each of its retail stores in terms of
profitability and growth potential and closed four stores in July 1999.
Costs incurred in connection with the evaluation of the Company's stores are
as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs related to store closings:
Write-down of fixed assets and inventories and other
closing costs...................................... $523 $2,615
Termination of approximately 145 employees........... 195 --
Impairment charge for on-going stores.................. -- 6,512
---- ------
$718 $9,127
==== ======
</TABLE>
CHANGE IN EXTENDED SERVICE PLAN PROVIDER--In June 1999, in response to a
proposed premium rate increase related to the then-current extended service plan
program (the "Prior ESP Program"), the Company terminated the Prior ESP Program.
In July 1999, the Company implemented a new extended service plan program
utilizing new administration and insurance companies. As a result of the
foregoing, the Company provided for estimated losses of $2.0 million in the
fourth quarter of fiscal 1999 and $4.2 million in the first quarter of fiscal
2000 associated with certain unresolved issues with the administrator of the
Prior ESP Program, primarily related to repair services provided by the Company
to the administrator of the Prior ESP Program.
The administration of the extended service plans sold pursuant to the Prior
ESP Program is the responsibility of the administrator of the Prior ESP Program
and/or the insurance companies that insured the administration obligations of
the Prior ESP Program. In July 1999, the Company elected, for business and
customer relations reasons, to provide supplemental administrative services to
purchasers of extended service plans sold pursuant to the Prior ESP Program who
experienced difficulty in obtaining services from the administrator of the Prior
ESP Program. In the first quarter of fiscal 2000, the Company incurred and
expensed costs of approximately $748,000 in connection with providing these
supplemental administrative services. However, the Company is currently seeking
reimbursement from the insurance companies of the costs incurred by the Company
in fiscal 2000 in providing these supplemental services. The Company believes it
is entitled to full reimbursement of such costs and, during the second quarter
of fiscal 2000, the Company expects to consummate an arrangement with the
insurance companies for the reimbursement of such costs. In addition, the
Company expects, during the second quarter of fiscal 2000, to reach an agreement
with the insurance companies regarding the future administration of the Prior
ESP Program. Depending upon the outcome of these negotiations, the Company may
(1) record a charge for the estimated additional costs related to the
supplemental and future administration of the Prior ESP Program, to the extent
such costs are not reimbursed by the insurance companies or (2) reverse
previously recorded expenses related to supplemental administrative services in
the event such expenses are subsequently reimbursed.
12
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
COMPUSA NET.COM REALIGNMENT--In March 1999, the Company completed the
formation of CompUSA Net.com by contributing to it the net assets of the
Company's CompUSA Direct division. Prior to the formation of CompUSA Net.com,
the Company conducted its mail order, fulfillment, and retail Internet sales
operations through CompUSA Direct. Concurrent with the formation of CompUSA
Net.com, the Company announced plans to change the operations of CompUSA Net.com
to an Internet-only business. Beginning in the fourth quarter of fiscal 1999,
the mail order and other non-Internet sales operations previously conducted by
CompUSA Direct were phased out or transferred to the Company. In October 1999,
the Company transferred CompUSA Net.com's Internet business to cozone.com
l.l.c., an indirect subsidiary of the Company. Another indirect subsidiary,
cozone.com inc., is the sole manager of cozone.com l.l.c. These two subsidiaries
are collectively referred to in this report as "cozone.com."
The Company incurred costs of approximately $1.5 million in the first
quarter of fiscal 2000 related to the implementation of its Internet-only
strategy, primarily the write-down of inventories not consistent with the
Internet-only strategy to their estimated net realizable value upon liquidation
with a third party.
IT INITIATIVES--In the fourth quarter of fiscal 1998, the Company committed
to a new IT strategy. Pursuant to this strategy, the Company outsourced
substantially all of its IT processes to a third-party service provider. In
addition, the Company selected an Enterprise Resource Management ("ERM") system
in fiscal 1999 to replace a substantial portion of the Company's existing IT
systems. The Company implemented the first phases of the ERM system in July and
August 1999 and expects to complete the final implementation of the ERM system
in fiscal 2000. In the first quarter of fiscal 2000, the Company incurred
non-recurring charges of approximately $2.3 million related to the outsourcing
of its IT operations and training and other non-capitalizable costs incurred in
connection with the implementation of the ERM system.
FISCAL 1999 INITIATIVES RESERVES--In connection with the Fiscal 1999
Initiatives, the Company recorded charges in the fourth quarter of fiscal 1999
and the first quarter of fiscal 2000 to create reserves related to (1) the
future rental obligations and other lease carrying costs for (i) the
discontinued fulfillment and configuration activities previously conducted in
the Company's Dallas/Fort Worth-area fulfillment and configuration center and
(ii) the four stores closed in July 1999 and (2) future severance payments to be
made to employees terminated in connection with these initiatives.
A rollforward of the reserve for future rental obligations and other lease
carrying costs is as follows (in thousands):
<TABLE>
<S> <C>
Balance at June 26, 1999.................................... $ 3,479
Payments.................................................... (345)
Reversals and other adjustments............................. (2,031)
-------
Balance at September 25, 1999............................... $ 1,103
=======
</TABLE>
13
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. FISCAL 1999 INITIATIVES (CONTINUED)
A rollforward of the reserve for future severance payments is as follows (in
thousands):
<TABLE>
<S> <C>
Balance at June 26, 1999.................................... $ 647
Payments.................................................... (3,059)
Severance charges related to first quarter terminations..... 2,652
-------
Balance at September 25, 1999............................... $ 240
=======
</TABLE>
4. PURCHASE OF COMPUTER CITY
On August 31, 1998, the Company completed the acquisition of Computer
City, Inc. ("Computer City") from Tandy Corporation ("Tandy"). The purchase of
Computer City was accounted for under the purchase method of accounting. The
accompanying statement of operations for the first quarter of fiscal 1999
includes the results of operations from the date of acquisition for the former
Computer City stores in the United States that the Company operates as CompUSA
Computer Superstores. 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, are not included in the accompanying
statements of operations for the first quarter of fiscal 1999, but rather
represent adjustments to the value of the related assets acquired and
liabilities assumed. The following pro forma net sales, net loss, and diluted
loss per share data summarize the results of operations of the Company for the
first quarter of fiscal 1999 as if Computer City had been acquired as of the
beginning of fiscal 1999. 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 WEEKS ENDED
---------------------
SEPTEMBER 26,
1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net sales................................................ $1,498,706
Net loss................................................. (14,619)
Diluted loss per share................................... (0.16)
</TABLE>
5. EQUITY
Basic earnings (loss) per share has been computed using the weighted average
number of shares of common stock of the Company ("Common Stock") outstanding for
each period presented. The dilutive effect of stock options and other common
stock equivalents is included in the calculation of diluted earnings per share
using the treasury stock method.
14
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. EQUITY (CONTINUED)
The calculation of basic and diluted earnings (loss) per share is summarized
as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss).................................. $(12,908) $ 6,232
Weighted average common shares outstanding......... 92,700 91,243
-------- -------
Basic earnings (loss) per share.................... $ (0.14) $ 0.07
======== =======
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss).................................. $(12,908) $ 6,232
Weighted average common shares outstanding......... 92,700 91,243
Incremental shares assuming dilution............... -- 1,798
-------- -------
Weighted average common shares assuming dilution... 92,700 93,041
-------- -------
Diluted earnings (loss) per share.................. $ (0.14) $ 0.07
======== =======
</TABLE>
For the first quarter of fiscal 2000, approximately 444,000 incremental
shares of Common Stock assuming dilution related to the Company's outstanding
stock options were excluded from the calculation of the diluted loss per share
because the impact was anti-dilutive.
15
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. 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 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 Common Stock and
to artificially inflate the stock price, CompUSA insiders falsely reported to
the market in early January 1998 that the Company 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, recissory 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. On August 30, 1999, the
Court granted the Company's motion and dismissed the complaint, but granted
leave to the plaintiffs to replead. The plaintiffs filed a second amended
complaint on September 20, 1999, in which they attempted to address the
deficiencies noted in the Court's order of dismissal and reasserted
substantially the same allegations and sought the same relief. On October 14,
1999, the Company filed a Motion to Dismiss the second amended complaint and
supporting brief, and final briefing will be completed in November 1999. 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 these lawsuits were to prevail in the litigation. The Company
believes the plaintiffs' claims are without merit and intends to vigorously
defend against such charges.
On January 14, 1999, Tom Johnson, on behalf of himself and the California
public, filed a lawsuit in the Superior Court of California for the County of
Contra Costa commencing the action entitled JOHNSON V. CIRCUIT CITY STORES,
INC., Contra Costa Superior Court case No. c99-00054 (the "Action"). By the
Action, the plaintiff alleges that the Company and six other retailers of
computer hardware and software products violated California Business and
Professions Code Sections 17200 and 17500 by, among other things,
(1) misrepresenting the Year 2000 ("Y2K") compliance of products sold by them,
(2) selling unnecessary Y2K fixes, and/or (3) failing to disclose the need for
Y2K fixes or upgrades. Johnson's complaint requests (1) freezing of the
retailers' assets, (2) 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 among other things 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. 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 plaintiff in this lawsuit were to prevail in the litigation. 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 the results of operations
of the Company for a particular future period. In addition, the Company's
estimates of future costs are subject to change as circumstances change and
additional information becomes available during the course of litigation.
16
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash paid (received) during the periods for:
Interest.................................................. $ 8,036 $ 253
Income taxes.............................................. (1,433) (7,662)
Investing activities not affecting cash are as follows:
Additions to property and equipment under capital
leases.................................................. $ 56 $ 471
Financing activities not affecting cash are as follows:
Subordinated promissory note payable to Tandy issued in
connection with the Computer City acquisition........... $ -- $136,000
</TABLE>
8. CREDIT AGREEMENT
Effective June 30, 1999, the Company entered into a three-year secured
revolving credit agreement (the "Credit Agreement") with a consortium of banks
and financial institutions that provides for borrowings and letters of credit up
to a maximum of $500 million, with letters of credit not to exceed
$100 million. Borrowings under the Credit Agreement are subject to a borrowing
base (the "Borrowing Base") that is equal to the sum of (a) 85% of eligible
accounts receivable, as defined, and (b) an amount equal to the lowest of
(i) 65% of the lower of cost or market value of eligible inventory, as defined,
(ii) 85% of appraised liquidation value, as defined, of eligible inventory, or
(iii) $400 million, less (c) outstanding letters of credit. The Borrowing Base
may also be reduced by certain reserves provided for in the Credit Agreement in
the event borrowings and letters of credit under the Credit Agreement exceed 50%
of the Borrowing Base without reduction for letters of credit or such reserves.
Borrowings under the Credit Agreement are secured by substantially all of the
Company's assets, excluding those of CompUSA Net.com and cozone.com. The funds
available under the Credit Agreement may be used for any corporate purpose. As
of September 25, 1999, the Company had approximately $456.6 million of total
availability under the Credit Agreement, against which the Company had
$50.0 million of outstanding borrowings and $13.5 million of outstanding letters
of credit.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either a prime rate of 8.25% per annum as of September 25, 1999, or a
rate based on the London Interbank Offering Rate (LIBOR) of 5.4% as of September
25, 1999 plus a specified margin, which interest rate was 7.4% as of
September 25, 1999. 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 lenders' approval.
The Credit Agreement requires the Company to maintain a minimum fixed charge
coverage ratio in the event the amount available for future borrowings under the
Credit Agreement is less than $75 million. The Credit Agreement imposes certain
limitations on indebtedness, investments, purchases of Common Stock, prepayment
of subordinate debt, mergers and consolidations, acquisitions, liens and capital
expenditures, and prohibits the payment of dividends (other than stock
dividends). 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 and cozone.com.
17
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. SEGMENT REPORTING
The Company's operations are conducted through four segments: Retail,
Direct, CompUSA PC-TM-, and CompUSA Net.com. These segments were determined
based on criteria consistent with those used by management of the Company in
evaluating its various businesses and allocating resources between businesses. A
summary description of the operations conducted by each segment is as follows:
RETAIL--The Retail segment is comprised of the sales of products and
services to retail customers, primarily through the Company's Computer
Superstores.
DIRECT--The Direct segment is comprised of the sales of products and
services to corporate, government, and education customers. Beginning in fiscal
2000, the Company began the operation of its direct sales fulfillment and
configuration activities pursuant to the plans announced in connection with the
Fourth Quarter Initiatives. Prior to fiscal 2000, such sales were fulfilled from
either the Company's distribution and configuration facility in the Dallas/Fort
Worth area or from the Company's Computer Superstores.
COMPUSA PC--The CompUSA PC segment is comprised of the Company's assembly
operations related to its CompUSA PC brand of desktop and notebook personal
computers and servers. The CompUSA PC segment sells build-to-order products
directly to consumers and assembles pre-configured products for sale in the
Company's Computer Superstores.
COMPUSA NET.COM--The CompUSA Net.com segment consists of the Internet sales
operations conducted by CompUSA Net.com, the Company's Internet-only subsidiary.
As a result of the Company's initiatives to make CompUSA Net.com an
Internet-only business, the mail order and other non-Internet sales operations
previously conducted by CompUSA Net.com were phased out or transferred to the
Company beginning in the fourth quarter of fiscal 1999. Effective as of
October 1999, the Internet business previously conducted by CompUSA Net.com is
being conducted by cozone.com, an indirect subsidiary of the Company.
The accounting policies for each of the Company's segments are the same as
those used by the Company in the preparation of its consolidated financial
statements. Intersegment sales and profits are eliminated in the preparation of
the Company's consolidated financial statements.
Net sales for training and technical services aggregated $57.8 million in
the first quarter of fiscal 2000, compared with $61.7 million in the first
quarter of fiscal 1999. Such sales are included in the sales of the Company's
segments shown below.
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED
-------------------------------------------------------
SEPTEMBER 25, 1999 SEPTEMBER 26, 1998
-------------------------- --------------------------
OPERATING OPERATING
NET SALES INCOME (LOSS) NET SALES INCOME (LOSS)
---------- ------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Retail................................. $ 931,711 $ 58,386 $ 858,359 $ 42,708
Direct................................. 411,700 (6,447) 457,475 5,436
CompUSA PC............................. 34,317 319 29,028 (1,545)
CompUSA Net.com........................ 7,932 (5,188) 61,315 1,581
---------- -------- ---------- --------
1,385,660 47,070 1,406,177 48,180
Intersegment sales..................... (38,414) -- (30,738) --
Intersegment operating income.......... -- (646) -- --
Unallocated:
General and administrative expenses
excluding IT Initiatives........... -- (44,467) -- (32,591)
Non-recurring and restructuring
charges............................ -- (16,671) -- (2,640)
---------- -------- ---------- --------
$1,347,246 $(14,714) $1,375,439 $ 12,949
========== ======== ========== ========
</TABLE>
18
<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 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 personal computers in
the first quarter of fiscal 1998, the opening of its own build-to-order assembly
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 mitigate the financial impact of future lease commitments related to Computer
City stores closed, and to retain Computer City's retail and direct customers.
The Company's focus on its Internet retailing business through cozone.com
involves significant additional risks, including without limitation failure to
achieve customer acceptance and potential significant operating and/or capital
investments that may be required to be made by the Company. The Fiscal 1999
Initiatives, as defined and discussed below, involve certain risks and
uncertainties, including without limitation failure to achieve customer
acceptance, substantial dependence on a third party for timely fulfillment of
orders received from the Company's direct sales customers, failure to retain
established direct sales customers, as well as costs to be incurred in
connection with the store closures and the exiting of direct sales, fulfillment,
and configuration activities. The Company's information technology initiatives
involve additional risks, including deviations in scheduled installation dates,
implementation costs, projected savings, and functionality.
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,"
"intends," "anticipates," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements.
CHANGE IN ACCOUNTING POLICY--EXTENDED SERVICE PLANS
The Company sells extended service plans on behalf of unrelated third
parties ("Non-Obligor Contracts") and, to a lesser extent, sells its own
extended service plans ("Obligor Contracts") in those states in which
third-party service plan sales are not permitted. In either case, the extended
service plans are administered by a third party ("Administrator") and all
performance obligations and risk of loss with respect to such contracts are
economically transferred to the Administrator and other parties at the time the
contracts are sold by the Company.
Effective as of the beginning of the fiscal 2000, the Company has changed
its accounting policy with respect to the recognition of revenues from the sale
of Obligor Contracts. Pursuant to the Company's new policy, the Company
recognizes revenues, net of direct selling expenses (consisting primarily of a
lump sum payment due to the Administrator at the time of sale), ratably over the
terms of the Obligor Contracts sold,
19
<PAGE>
generally two to five years. Previously, the Company recognized substantially
all revenues, net of direct selling expenses for the sale of Obligor Contracts
at the time of sale. Such policy was adopted in fiscal 1996 concurrent with the
consummation of an agreement with a new Administrator. The Company has given
retroactive effect to this new accounting policy by restatement of the Company's
previously published financial statements beginning with fiscal 1996. As a
result of the change in accounting policy with respect to Obligor Contracts, net
income for the first quarter of fiscal 1999 was reduced by $1.9 million, or
$0.02 per share, from the previously published amounts.
The Company has and will continue to recognize revenues from the sale of
Non-Obligor Contracts at the time of sale. However, the Company has also
reclassified its previously published financial statements to show the net
commission income from the sale of Non-Obligor Contracts (retail price less the
lump sum payment due to the Administrator at the time of sale) as a component of
net sales. Previously, the Company reflected the full retail price of the
Non-Obligor Contracts as a component of net sales and the amount paid to the
Administrator as a component of cost of sales and occupancy costs.
COMPUSA NET.COM
In March 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, the Company's former mail order, fulfillment, and
Internet sales division. In the fourth quarter of fiscal 1999, CompUSA Net.com
began phasing out or transferring to the Company its previous mail order,
fulfillment, and other non-Internet operations.
In October 1999, the Company transferred CompUSA Net.com's Internet business
to cozone.com l.l.c., an indirect subsidiary of the Company. Another indirect
subsidiary, cozone.com inc., is the sole manager of cozone.com l.l.c. These two
subsidiaries are collectively referred to in this report as "cozone.com."
cozone.com offers a wide range of products for use in the home, home office, and
small office, and on the road, and specializes in customer service and
industry-leading Internet technology.
20
<PAGE>
GENERAL
All references herein to "fiscal 2000" relate to the fifty-two weeks ending
June 24, 2000, and references to "fiscal 1999" relate to the fifty-two weeks
ended June 26, 1999. In addition, all references herein to "first quarter of
fiscal 2000" relate to the thirteen weeks ended September 25, 1999, and all
references to "first quarter of fiscal 1999" relate to the thirteen weeks ended
September 26, 1998.
The following table sets forth certain items expressed as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999(1) 1998
------------- -------------
<S> <C> <C>
Net sales.......................................... 100.0% 100.0%
Cost of sales and occupancy costs.................. 84.9 86.0
----- -----
Gross profit....................................... 15.1 14.0
Operating expenses................................. 12.8 10.6
Pre-opening expenses............................... 0.1 0.1
General and administrative expenses................ 3.5 2.4
Restructuring charges.............................. (0.2) --
----- -----
Operating income (loss)............................ (1.1) 0.9
Interest expense and other income, net............. 0.4 0.2
----- -----
Income (loss) before income taxes.................. (1.5) 0.7
Income tax expense (benefit)....................... (0.5) 0.2
----- -----
Net income (loss).................................. (1.0)% 0.5%
===== =====
</TABLE>
- ------------------------
(1) For a discussion of the Company's non-recurring and restructuring charges,
see Note 3 of Notes to Consolidated Financial Statements.
21
<PAGE>
The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
<S> <C> <C>
Stores open at end of period....................... 213 203
Acquired Computer City stores(1)................... -- 37
Stores opened during the period.................... 6 4
Stores closed during the period(1)................. 4 --
Stores relocated during the period................. 1 2
Average net sales per gross square foot(2), (3).... $ 235 $ 278
Average net sales per Computer Superstore (in
thousands)(2).................................... $6,368 $7,484
Comparable store sales decrease(4)................. (0.03)% (1.62)%
</TABLE>
- ------------------------
(1) As of August 31, 1998, the Company acquired 37 Computer City stores that the
Company operated as CompUSA Computer Superstores through the end of fiscal
1999. Of the 37 former Computer City stores that the Company operated as
CompUSA Computer Superstores in fiscal 1999, the Company closed four such
former Computer City stores in the first quarter of fiscal 2000 in
connection with the Company's Fourth Quarter Initiatives.
(2) Net sales are comprised of retail sales generated from the Company's
Computer Superstores, direct sales to corporate, government, and education
customers, and sales of CompUSA PC Inc., but exclude sales of CompUSA
Net.com (now cozone.com).
(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.
(4) Comparable store sales are net retail sales for the Computer Superstores
open the same number of months in both the indicated and previous periods,
including stores that were relocated or expanded during either period.
Beginning with the first quarter of fiscal 2000, the calculation of the
change in comparable store sales has been changed to include only the net
retail sales of products and services through the Company's Computer
Superstores. As a result of the centralization of the Company's direct sales
organization and the outsourcing of its direct sales fulfillment and
configuration operations, direct sales to corporate, government, and
education customers are no longer included in the comparable store sales
calculation. The calculation of the change in comparable store sales for the
first quarter of fiscal 1999 has been restated to include only the net
retail sales of products and services generated from the Company's Computer
Superstores. In addition, the calculation of the change in comparable store
sales for the first quarter of fiscal 2000 includes the September 1999
retail sales of the 33 former Computer City stores acquired by the Company
as of August 31, 1998, that the Company is continuing to operate. The sales
of the former Computer City stores that the Company is continuing to operate
are not included in the calculation of the change in comparable store sales
for the first quarter of fiscal 1999.
22
<PAGE>
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, store closings, and changes
in product mix. See "--Quarterly Data and Seasonality."
FIRST QUARTER ENDED SEPTEMBER 25, 1999, COMPARED WITH THE FIRST QUARTER ENDED
SEPTEMBER 26, 1998
In fiscal 1999, the Company implemented various programs and initiatives
(collectively, the "Fiscal 1999 Initiatives") that included (1) initiatives
announced in the fourth quarter of fiscal 1999 as a result of the Company's
extensive evaluation of its core businesses (the "Fourth Quarter Initiatives"),
(2) the formation of CompUSA Net.com and its transition to an Internet-only
business (the "CompUSA Net.com Realignment"), which business was transferred to
cozone.com in October 1999, and (3) information technology initiatives (the "IT
Initiatives"). Non-recurring and restructuring charges incurred in connection
with these initiatives aggregated approximately $84.0 million in fiscal 1999 and
approximately $16.7 million in the first quarter of fiscal 2000.
The following table summarizes the financial statement classification of the
non-recurring and restructuring charges incurred:
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 25, 1999
------------------------------------------------------
FOURTH COMPUSA
QUARTER NET.COM
INITIATIVES REALIGNMENT IT INITIATIVES TOTAL
----------- ----------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of sales and occupancy costs.................. $ 1,853 $1,530 $ -- $ 3,383
Operating expenses................................. 13,182 -- -- 13,182
General and administrative expenses................ -- -- 2,282 2,282
Restructuring charges.............................. (2,176) -- -- (2,176)
------- ------ ------ -------
$12,859 $1,530 $2,282 $16,671
======= ====== ====== =======
</TABLE>
23
<PAGE>
The following table summarizes the nature of the non-recurring and
restructuring charges incurred:
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 25, 1999
------------------------------------------------------
FOURTH COMPUSA
QUARTER NET.COM
INITIATIVES REALIGNMENT IT INITIATIVES TOTAL
----------- ----------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-cash charges for asset write-downs, primarily
inventory and estimated losses related to the
change in the extended service plan provider..... $ 6,000 $1,530 $ -- $ 7,530
Write-down of fixed assets with no future
utility.......................................... 3,722 -- -- 3,722
Personnel costs and professional fees.............. -- -- 2,282 2,282
Transition expenses related to the implementation
of the Fourth Quarter Initiatives................ 5,313 -- -- 5,313
------- ------ ------ -------
15,035 1,530 2,282 18,847
Amounts included in restructuring charges:
Adjustments to previously recorded restructuring
charges:
Exit costs related to the write-down of fixed
assets and the accrual of future rental
obligations of the Company's fulfillment and
configuration facility....................... (5,011) -- -- (5,011)
Reserves for future rental obligations for
closed stores and related lease carrying
costs and other closing costs................ 183 -- -- 183
Severance and other personnel costs.............. 2,652 -- -- 2,652
------- ------ ------ -------
(2,176) -- -- (2,176)
------- ------ ------ -------
$12,859 $1,530 $2,282 $16,671
======= ====== ====== =======
</TABLE>
FOURTH QUARTER INITIATIVES--The Fourth Quarter Initiatives were announced by
the Company on June 24, 1999, as a result of the Company's extensive evaluation
of its core businesses. The Fourth Quarter Initiatives were designed to increase
gross margins, reduce operating costs, improve customer service, and position
the Company to take advantage of additional strategic opportunities. The Company
recorded charges related to the Fourth Quarter Initiatives of approximately
$67.5 million in the fourth quarter of fiscal 1999 and $12.9 million in the
first quarter of fiscal 2000. The Company anticipates incurring approximately $3
to $6 million of transition costs in the second quarter of fiscal 2000 related
to the implementation of the Fourth Quarter Initiatives, primarily severance and
hiring and training of personnel. When fully implemented, the Company believes
the Fourth Quarter Initiatives will result in increased productivity and
operating efficiencies that should result in annualized cost savings of up to
$100 million.
Charges recorded in connection with the Fourth Quarter Initiatives were
related to (1) the streamlining of the Company's training business, (2) the
reorganization of the Company's technical services business, (3) the redesign of
the Company's direct sales fulfillment and configuration activities for
corporate, government, and education customers, (4) the evaluation of the
profitability of the Company's stores, and (5) the change in the third-party
provider of the extended service plans sold by the Company after June 1999.
STREAMLINING OF TRAINING BUSINESS--In connection with the redesign of the
Company's training business, the Company implemented a vertical, market-based
organizational structure in the fourth quarter of fiscal 1999. Previously, each
store operated as an independent training organization with a local focus.
24
<PAGE>
Costs incurred in connection with the streamlining of the training business
are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Termination of approximately 160 employees and other
personnel costs...................................... $ 33 $640
Transition expenses related to the implementation of a
new structure, primarily advertising and marketing... 174 --
---- ----
$207 $640
==== ====
</TABLE>
REORGANIZATION OF TECHNICAL SERVICES BUSINESS--As a result of the evaluation
of its technical services business, the Company implemented a strategy to focus
on high-volume technical service opportunities, including "break-fix" and
on-site warranty and technical services. In addition, the Company outsourced
networking and systems configuration services to third-party providers.
Costs incurred in connection with the reorganization of the technical
services business are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Termination of approximately 150 employees and other
personnel costs...................................... $ 9 $643
Transition expenses related to the implementation of a
new structure, primarily advertising and marketing... 20 --
--- ----
$29 $643
=== ====
</TABLE>
REDESIGN OF DIRECT SALES FULFILLMENT AND CONFIGURATION ACTIVITIES--As part
of the Fourth Quarter Initiatives, the Company also committed to a plan to
redesign its direct sales fulfillment and configuration activities for
corporate, government, and education customers by (1) outsourcing the direct
sales fulfillment and configuration operations and (2) consolidating the
Company's direct sales organization to a regional sales force and central sales
support.
25
<PAGE>
Costs incurred in connection with the redesign of direct sales fulfillment
and configuration activities are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Outsourcing of direct sales fulfillment and
configuration operations:
Costs of liquidating commercial inventories......... $1,500 $37,000
Termination of approximately 225 employees and other
personnel costs................................... 52 385
Exit costs related to the write-down of fixed assets
and accrual of future rental obligations of the
Company's fulfillment and configuration
facility.......................................... (5,011) 13,813
Write-down of fixed assets with no future utility... 3,722 --
Other............................................... 64 --
Consolidation of the Company's direct sales
organization:
Write-down of fixed assets.......................... -- 1,623
Termination of approximately 1,370 employees and
other personnel costs............................. 2,363 --
Transition expenses related to the start-up of the
Company's new centralized sales and support
facility, primarily personnel and facility
costs............................................. 4,307 --
------ -------
$6,997 $52,821
====== =======
</TABLE>
In connection with the outsourcing of the fulfillment of purchase orders
from corporate, government, and education customers, the Company has implemented
a plan to liquidate the related commercial inventories in its fulfillment and
configuration facility and its retail stores. As a result, the Company wrote
down the carrying values of such inventories by approximately $37.0 million in
the fourth quarter of fiscal 1999 to management's estimates of the net
realizable value of such inventories to be generated from vendor returns,
liquidation through third parties, and promotional activities in the Company's
stores. Based upon the costs of liquidating certain of such inventories in the
first quarter of fiscal 2000 and its estimates of the costs to liquidate the
remaining inventories, the Company increased its previous estimate of the
write-down of its commercial inventories by $1.5 million in the first quarter of
fiscal 2000.
In August 1999, the Company discontinued the fulfillment and configuration
activities previously conducted in its Dallas/Fort Worth-area fulfillment and
configuration facility. At that time, purchase orders from corporate,
government, and education customers began to be fulfilled by Ingram Micro Inc.
("Ingram Micro"). Based upon its outsourcing of its direct sales fulfillment and
configuration operations to Ingram Micro, the Company believed it would abandon
its centralized fulfillment and configuration facility. Accordingly, the Company
recorded a charge in the fourth quarter of fiscal 1999 of approximately
$11.6 million to write down the carrying value of those fixed assets it believed
would be abandoned and had no future utility to the Company and a charge of
approximately $2.2 million for the estimated remaining lease rental obligations
and other carrying costs, net of subrental income, associated with that facility
prior to the expiration of the lease term in 2008. In the first quarter of
fiscal 2000, the Company determined that it would be able to redeploy certain
portions of the centralized fulfillment and configuration facility in its
ongoing operating activities, primarily the Company's call center operations. As
a result, the Company reversed the previously recorded charge of $2.2 million
for estimated remaining net lease rental obligations and reduced the previously
recorded estimate of the exit costs related to the fixed assets to be abandoned
by $2.8 million. The Company plans to redeploy certain of the assets located in
the former centralized
26
<PAGE>
fulfillment and configuration facility for its ongoing operating activities. The
Company recorded a $3.7 million write-down of the assets in the facility that
had no future utility for the Company's ongoing activities.
In August 1999, the Company organized a regional sales force and central
sales support function and opened a new 80,000 square-foot call center in the
Dallas/Forth Worth area to accommodate this function. Previously, each store
maintained a separate direct sales force. As a result of the consolidation of
the direct sales organization and the outsourcing of its direct sales
fulfillment and configuration operations, the Company terminated approximately
1,595 employees in August 1999 who were previously responsible for the direct
sales activities conducted through the Company's stores and the Company's
centralized fulfillment and configuration facility. Costs incurred in connection
with these termination actions and other personnel costs related to the redesign
of the Company's direct sales fulfillment and configuration activities to its
corporate, government, and education customers aggregated approximately $385,000
in the fourth quarter of fiscal 1999 and approximately $2.4 million in the first
quarter of fiscal 2000. The Company anticipates incurring an additional $3 to
$6 million in costs in the second quarter of fiscal 2000 related to such
initiatives.
In connection with the implementation of its plan to redesign its direct
sales fulfillment and configuration activities to corporate, government, and
education customers, the Company incurred costs of approximately $4.3 million in
the first quarter of fiscal 2000, primarily related to start-up personnel,
training, and facilities costs related to the Company's new centralized direct
sales and support facility located in the Dallas/Fort Worth area.
EVALUATION OF THE COMPANY'S STORES--In connection with the Fourth Quarter
Initiatives, the Company analyzed each of its retail stores in terms of
profitability and growth potential and closed four stores in July 1999.
Costs incurred in connection with the evaluation of the Company's stores are
as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
SEPTEMBER 25, JUNE 26,
1999 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs related to store closings:
Write-down of fixed assets and inventories and other
closing costs...................................... $523 $2,615
Termination of approximately 145 employees........... 195 --
Impairment charge for on-going stores.................. -- 6,512
---- ------
$718 $9,127
==== ======
</TABLE>
The Company will continue to analyze its retail stores in terms of
profitability and growth potential and anticipates the possible closure of an
additional five to ten underperforming stores.
CHANGE IN EXTENDED SERVICE PLAN PROVIDER--In June 1999, in response to a
proposed premium rate increase related to the then-current extended service plan
program (the "Prior ESP Program"), the Company terminated the Prior ESP Program.
In July 1999, the Company implemented a new extended service plan program
utilizing new administration and insurance companies. As a result of the
foregoing, the Company provided for estimated losses of $2.0 million in the
fourth quarter of fiscal 1999 and $4.2 million in the first quarter of fiscal
2000 associated with certain unresolved issues with the administrator of the
Prior ESP Program, primarily related to repair services provided by the Company
to the administrator of the Prior ESP Program.
The administration of the extended service plans sold pursuant to the Prior
ESP Program is the responsibility of the administrator of the Prior ESP Program
and/or the insurance companies that insured
27
<PAGE>
the administration obligations of the Prior ESP Program. In July 1999, the
Company elected, for business and customer relations reasons, to provide
supplemental administrative services to purchasers of extended service plans
sold pursuant to the Prior ESP Program who experienced difficulty in obtaining
services from the administrator of the Prior ESP Program. In the first quarter
of fiscal 2000, the Company incurred and expensed costs of approximately
$748,000 in connection with providing these supplemental administrative
services. However, the Company is currently seeking reimbursement from the
insurance companies of the costs incurred by the Company in fiscal 2000 in
providing these supplemental services. The Company believes it is entitled to
full reimbursement of such costs and, during the second quarter of fiscal 2000,
the Company expects to consummate an arrangement with the insurance companies
for the reimbursement of such costs. In addition, the Company expects, during
the second quarter of fiscal 2000, to reach an agreement with the insurance
companies regarding the future administration of the Prior ESP Program.
Depending upon the outcome of these negotiations, the Company may (1) record a
charge for the estimated additional costs related to the supplemental and future
administration of the Prior ESP Program, to the extent such costs are not
reimbursed by the insurance companies or (2) reverse previously recorded
expenses related to supplemental administrative services in the event such
expenses are subsequently reimbursed.
COMPUSA NET.COM REALIGNMENT--In March 1999, the Company completed the
formation of CompUSA Net.com by contributing to it the net assets of the
Company's CompUSA Direct division. Prior to the formation of CompUSA Net.com,
the Company conducted its mail order, fulfillment, and retail Internet sales
operations through CompUSA Direct. Concurrent with the formation of CompUSA
Net.com, the Company announced plans to change the operations of CompUSA Net.com
to an Internet-only business. Beginning in the fourth quarter of fiscal 1999,
the mail order and other non-Internet sales operations previously conducted by
CompUSA Direct were phased out or transferred to the Company. In October 1999,
the Company transferred CompUSA Net.com's Internet business to cozone.com.
The Company incurred costs of approximately $1.5 million in the first
quarter of fiscal 2000 related to the implementation of its Internet-only
strategy, primarily the write-down of inventories not consistent with the
Internet-only strategy to their estimated net realizable value upon liquidation
with a third party. The Company anticipates pre-tax operating losses at
cozone.com in the second quarter of fiscal 2000 of approximately $19 to
$23 million. The Company plans to explore strategic partnerships and/or access
the capital markets in the second half of fiscal 2000 to fund the growth of
cozone.com.
IT INITIATIVES--In the fourth quarter of fiscal 1998, the Company committed
to a new IT strategy. Pursuant to this strategy, the Company outsourced
substantially all of its IT processes to a third-party service provider. In
addition, the Company selected an Enterprise Resource Management ("ERM") system
in fiscal 1999 to replace a substantial portion of the Company's existing IT
systems. The Company implemented the first phases of the ERM system in July and
August 1999 and expects to complete the final implementation of the ERM system
in fiscal 2000. In the first quarter of fiscal 2000, the Company incurred
non-recurring charges of approximately $2.3 million related to the outsourcing
of its IT operations and training and other non-capitalizable costs incurred in
connection with the implementation of the ERM system.
In connection with its IT Initiatives, the Company expects to incur
additional costs of approximately $3 to $4 million in each fiscal quarter for
the remainder of fiscal 2000. The Company anticipates the completion of the IT
Initiatives in the fourth quarter of fiscal 2000.
28
<PAGE>
NET SALES--Net sales for the first quarter of fiscal 2000 decreased
approximately 2.0% to $1.35 billion from $1.38 billion for the first quarter of
fiscal 1999. The decrease in net sales was primarily due to a decline in direct
sales to corporate, government, and education customers to $410 million in the
first quarter of fiscal 2000 from $509 million in the first quarter of fiscal
1999. The decline in direct sales was primarily attributable to actions taken by
the Company in connection with the Fourth Quarter Initiatives to reduce or
eliminate sales to certain of the Company's corporate, government, and education
customers that did not meet certain profitability objectives and to consolidate
the direct sales organization to a central sales and support force located in
the Dallas/Fort Worth area. The Company anticipates that direct sales in the
second quarter of fiscal 2000 will decline approximately $300 million from the
second quarter of fiscal 1999. The decrease in direct sales was partially offset
by the sales of the former Computer City stores that were included in the three
months ended September 25, 1999, compared with operations from September 1, 1998
through September 26, 1998 included in the first quarter of fiscal 1999.
Despite an increase in the number of personal computer systems sold in the
first quarter of fiscal 2000 compared with the first quarter of fiscal 1999,
sales were negatively impacted by, among other things, declines in average
selling prices for certain of the Company's products, including desktop
computers and monitors, and increased sales of lower-end computer systems as a
percentage of total computer systems sold. Average net sales per square foot
decreased approximately 15% and average net sales per store decreased
approximately 15% from the first quarter of fiscal 1999 to the first quarter of
fiscal 2000. The Company believes the declines in average net sales per square
foot and average net sales per store were primarily due to (1) the decline in
direct sales, (2) lower average net sales of the former Computer City stores,
and (3) declines in average selling prices for certain of the Company's
products, including desktop computers and monitors. The decline in direct sales
is primarily attributable to actions taken by the Company in connection with the
Fourth Quarter Initiatives to reduce or eliminate sales to certain of the
Company's corporate, government, and education customers that did not meet
certain profitability objectives and to consolidate the direct sales
organization. The former Computer City stores generally have lower average net
sales compared with other CompUSA Computer Superstores. In addition, the decline
in average net sales per square foot and average net sales per store were
impacted by the lower average net sales of the former Computer City stores,
which are included in operations for three months in the first quarter of fiscal
2000 compared with one month in the first quarter of fiscal 1999. Average
selling prices for desktop computers and monitors declined approximately 18%
from $1,588 in the first quarter of fiscal 1999 to $1,305 in the first quarter
of fiscal 2000. This decrease was partially offset by an increase in the average
selling prices for notebook computers of approximately 4% from $1,854 in the
first quarter of fiscal 1999 to $1,922 in the first quarter of fiscal 2000.
Comparable store sales for the Company's stores decreased approximately
0.03% from the first quarter of fiscal 1999. The Company believes the change in
comparable store sales was negatively impacted by, among other things, declines
in average selling prices for certain of the Company's products, including
desktop computers and monitors, and increased sales of lower-end computer
systems as a percentage of total computer systems sold.
GROSS PROFIT--Gross profit was $203.4 million, or 15.1% of net sales, in the
first quarter of fiscal 2000 compared with $192.6 million, or 14.0% of net
sales, in the first quarter of fiscal 1999. Excluding costs associated with the
Fiscal 1999 Initiatives aggregating approximately $3.4 million, gross profit was
$206.8 million, or 15.3% of net sales, in the first quarter of fiscal 2000. The
increase in gross profit as a percentage of net sales to 15.3% in the first
quarter of fiscal 2000 from 14.0% in the first quarter of fiscal 1999 was
primarily due to a decrease in product costs as a percentage of net sales,
partially offset by an increase in occupancy costs as a percentage of net sales.
The increase in gross profit from the first quarter of fiscal 1999 to the
first quarter of fiscal 2000 was primarily due to an increase in the gross
profit of retail products as well as an increase in the percentage of retail
sales as a percentage of total sales. Retail margins generally are higher than
direct sales margins. In addition, the Company believes gross profit increased
due to improved pricing strategies in coordination
29
<PAGE>
with a change in promotional strategies implemented in connection with the
Fourth Quarter Initiatives, as well as an increase in the average number of
sales associates employed by the Company's Computer Superstores.
Occupancy costs increased by approximately 0.55% as a percentage of net
sales in the first quarter of fiscal 2000 compared with the first quarter of
fiscal 1999. Occupancy costs, which are generally fixed in nature, increased as
a percentage of net sales in the first quarter of fiscal 2000 primarily as a
result of lower average net sales per store compared with the first quarter of
fiscal 1999.
In connection with the Fourth Quarter Initiatives, the Company incurred
costs in the first quarter of fiscal 2000 of approximately $1.9 million, or
0.14% of net sales, related to the liquidation of commercial inventories held by
the Company's centralized fulfillment and configuration facility and the
Company's stores as well as the liquidation of inventories held by the four
Computer Superstores closed in July 1999.
In addition, the Company incurred costs of approximately $1.5 million, or
0.11% of net sales, in the first quarter of fiscal 2000 in connection with the
CompUSA Net.com Realignment, primarily related to the liquidation of inventories
not consistent with the Internet-only operations to be conducted by cozone.com
as successor to CompUSA Net.com.
OPERATING EXPENSES--Operating expenses were $171.9 million, or 12.8% of net
sales, in the first quarter of fiscal 2000 compared with $145.7 million, or
10.6% of net sales, in the first quarter of fiscal 1999. Excluding costs
associated with the Fiscal 1999 Initiatives aggregating approximately
$13.2 million, operating expenses were $158.7 million, or 11.8% of net sales, in
the first quarter of fiscal 2000. The increase in operating expenses as a
percentage of net sales to 11.8% in the first quarter of fiscal 2000 from 10.6%
in the first quarter of fiscal 1999 was due to increases in personnel and
facility expenses as percentages of net sales, partially offset by a decrease in
advertising expense as a percentage of net sales. In addition, the Company
recorded a charge of approximately $2.4 million, or 0.18% of net sales, in the
first quarter of fiscal 1999 for the anticipated closure of certain CompUSA
Computer Superstores in markets where a former Computer City store remained open
in close proximity to a CompUSA Computer Superstore.
Excluding personnel costs of approximately $2.3 million incurred in the
first quarter of fiscal 2000 in connection with the Fourth Quarter Initiatives,
personnel expenses in the first quarter of fiscal 2000 increased 1.44% as a
percentage of net sales. Personnel costs increased as a percentage of net sales
primarily as a result of lower average net sales per store. In addition,
personnel expenses increased due to the Company's increase in the average number
of sales associates employed by the Company's Computer Superstores.
Facility expenses increased by approximately 0.25% as a percentage of net
sales compared with the first quarter of fiscal 1999. Facility expenses, which
are generally fixed in nature, increased as a percentage of net sales in the
first quarter of fiscal 2000 primarily as a result of lower average net sales
per store.
The above increases were partially offset by lower advertising expenses as a
percentage of net sales. Excluding expenses in the first quarter of fiscal 2000
of approximately $135,000 related to the Fourth Quarter Initiatives, net
advertising expense decreased by approximately 0.38% as a percentage of net
sales in the first quarter of fiscal 2000 due to 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 as a percentage of net sales was partially offset by an increase in
advertising expenses of approximately $2.3 million related to cozone.com
advertising and marketing strategies.
In connection with the Fourth Quarter Initiatives, the Company incurred
non-recurring charges of approximately $13.2 million, or 0.98% of net sales, in
the first quarter of fiscal 2000. The primary components of such charges were
(1) the $3.7 million impairment charge related to the write-down of fixed assets
in the Company's former centralized fulfillment and configuration facility,
(2) personnel, training, and facilities costs of approximately $4.3 million
related to the consolidation of the Company's direct sales
30
<PAGE>
organization, and (3) costs aggregating approximately $5.0 million related to
the change in the provider of the Company's extended service plans.
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. In the first quarter of fiscal 2000, the Company incurred
$1.7 million in pre-opening expenses in connection with the opening of six
Computer Superstores and the relocation of one Computer Superstore, compared
with $1.4 million in pre-opening expenses in the first quarter of fiscal 1999
incurred in connection with the opening of four Computer Superstores and the
relocation of two Computer Superstores.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
were $46.7 million, or 3.5% of net sales, in the first quarter of fiscal 2000
compared with $32.6 million, or 2.4% of net sales, in the first quarter of
fiscal 1999. Excluding costs associated with the Fiscal 1999 Initiatives
aggregating approximately $2.3 million, general and administrative expenses were
$44.5 million, or 3.3% of net sales, in the first quarter of fiscal 2000. The
increase in general and administrative expenses as a percentage of net sales to
3.3% in the first quarter of fiscal 2000 from 2.4% in the first quarter of
fiscal 1999 was primarily due to increased personnel, facility, and depreciation
and amortization expenses as percentages of net sales.
Excluding personnel costs of approximately $382,000 incurred in the first
quarter of fiscal 2000 in connection with the IT Initiatives, personnel expenses
increased as a percentage of net sales in the first quarter of fiscal 2000 by
approximately 0.26%. This increase in personnel expenses as a percentage of net
sales is primarily attributable to lower average net sales per store in the
first quarter of fiscal 2000 compared with the first quarter of fiscal 1999. In
addition, personnel expenses increased due to increased incentive compensation
expense.
Facility expenses increased by approximately 0.07% of net sales in the first
quarter of fiscal 2000 compared with the first quarter of fiscal 1999. Facility
expenses, which are generally fixed in nature, increased as a percentage of net
sales in the first quarter of fiscal 2000 compared with the first quarter of
fiscal 1999 primarily as a result of lower average net sales per store.
Excluding professional fees of approximately $1.9 million incurred in the
first quarter of fiscal 2000 in connection with the IT initiatives, professional
fees increased by approximately 0.31% of net sales in the first quarter of
fiscal 2000 compared with the first quarter of fiscal 1999. The increase in
professional fees was primarily related to the cozone.com web site and
consulting fees of approximately $2.6 million for the cozone.com marketing
campaign.
The Company recorded approximately $1.3 million, or 0.10% of net sales, of
amortization expense related to the goodwill associated with the acquisition of
Computer City in the first quarter of fiscal 2000 compared with approximately
$300,000, or 0.02% of net sales, recorded in the first quarter of fiscal 1999.
In addition, depreciation expense increased approximately 0.08% as a percentage
of net sales in the first quarter of fiscal 2000 due to the expansion of the
Company's corporate facilities and the initial implementation and installation
of the Company's ERM system.
In the first quarter of fiscal 2000, the Company incurred expenses of
approximately $2.3 million, or 0.17% of net sales, related to the IT
Initiatives. Such costs were primarily due to the outsourcing of the Company's
IT development and training and other non-capitalizable costs incurred in
connection with the initial implementation and installation of its ERM System.
INTEREST EXPENSE AND OTHER INCOME, NET--Interest expense and other income,
net, was $5.9 million, or 0.4% of net sales, in the first quarter of fiscal 2000
compared with $2.8 million, or 0.2% of net sales, in the first quarter of fiscal
1999. The increase in interest expense and other income was primarily due to
interest expense on the $136 million subordinated promissory note payable to
Tandy Corporation related to the acquisition of Computer City. In addition, the
Company incurred interest expense in the first quarter of fiscal 2000 in
connection with the $50.0 million of borrowings outstanding under the Credit
Agreement as of September 25, 1999. These increases were partially offset by the
decrease in interest expense related to
31
<PAGE>
the Senior Subordinated Notes due to the payment of the Senior Subordinated
Notes on August 3, 1999. See "--Liquidity and Capital Resources."
INCOME TAXES--The Company's effective tax rate was 37.5% for the first
quarter of fiscal 2000 and 38.3% for the first quarter of fiscal 1999.
NET LOSS--As a result of the above, the net loss for the first quarter of
fiscal 2000 was $12.9 million, or $.14 per diluted share, compared with net
income of $6.2 million, or $.07 per diluted share, for the first quarter of
fiscal 1999.
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, store closings, 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 and store
closings, 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 September 25, 1999, total assets were $1.40 billion, $996.5 million of
which were current assets, including $128.3 million of cash and cash
equivalents. Net cash provided by operating activities for the first quarter of
fiscal 2000 was $64.7 million, compared with $84.6 million for the first quarter
of fiscal 1999.
Approximately three-fourths of the Company's net sales during the first
quarter of both fiscal 2000 and fiscal 1999 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 $675.5 million at September 25, 1999,
from $667.5 million at June 26, 1999. The increase in merchandise inventories is
primarily attributable to inventories at the six Computer Superstores opened in
the first quarter of fiscal 2000 as well as inventories received in anticipation
of seasonal promotional sales to be held in the second quarter of fiscal 2000.
At September 25, 1999, inventory per store was $3.1 million compared with
$3.7 million at September 26, 1998. The decrease in inventory per store from the
first quarter of fiscal 1999 to the first quarter of fiscal 2000 was primarily
due to the liquidation of commercial inventories in the first quarter of fiscal
2000 in connection with the Company's outsourcing of the fulfillment of purchase
orders from corporate, government, and education customers and the related
reduction of commercial inventories held by the Company's fulfillment and
configuration facility.
32
<PAGE>
Capital expenditures during the first quarter of fiscal 2000 were
$44.1 million, compared with $12.7 million of capital expenditures during the
first quarter of fiscal 1999. The following table sets forth the capital
expenditures for the first quarter of fiscal 2000 and the first quarter of
fiscal 1999.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
-------------- --------------
<S> <C> <C>
New stores......................................... $ 3,200 $ 2,159
Existing stores.................................... 4,911 5,688
Computer City store conversions.................... -- 1,414
Direct sales call center........................... 4,055 --
Information technology............................. 25,700 --
Corporate and other................................ 6,185 3,452
------- -------
$44,051 $12,713
======= =======
</TABLE>
The Company plans to open approximately 10 Computer Superstores in fiscal
2000, of which six were opened in the first quarter of fiscal 2000. The Company
currently anticipates capital expenditures of approximately $125 million in
fiscal 2000, including capital expenditures of approximately $76 million related
to the Company's IT Initiatives. 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 June 30, 1999, the Company entered into a three-year secured
revolving credit agreement (the "Credit Agreement") with a consortium of banks
and financial institutions that provides for borrowings and letters of credit up
to a maximum of $500 million, with letters of credit not to exceed
$100 million. Borrowings under the Credit Agreement are subject to a borrowing
base (the "Borrowing Base") that is equal to the sum of (a) 85% of eligible
accounts receivable, as defined, and (b) an amount equal to the lowest of
(i) 65% of the lower of cost or market value of eligible inventory, as defined,
(ii) 85% of appraised liquidation value, as defined, of eligible inventory, or
(iii) $400 million, less (c) outstanding letters of credit. The Borrowing Base
may also be reduced by certain reserves provided for in the Credit Agreement in
the event borrowings and letters of credit under the Credit Agreement exceed 50%
of the Borrowing Base without reduction for letters of credit or such reserves.
Borrowings under the Credit Agreement are secured by substantially all of the
Company's assets, excluding those of CompUSA Net.com and cozone.com. The Credit
Agreement requires the Company to maintain a minimum fixed charge coverage ratio
in the event the amount available for future borrowings under the Credit
Agreement is less than $75 million. As of September 25, 1999, the Company had
approximately $456.6 million of total availability under the Credit Agreement,
against which the Company had $50.0 million of outstanding borrowings and
$13.5 million of outstanding letters of credit.
In July 1999, the Company announced the redemption of its 9 1/2% Senior
Subordinated Notes due 2000 (the "Senior Subordinated Notes"). The Senior
Subordinated Notes were paid in full on August 3, 1999 utilizing available cash
balances and proceeds from borrowings under the Credit Agreement.
The Company also finances certain fixture and equipment acquisitions through
equipment lessors. Lease financing is available from numerous sources and the
Company evaluates equipment leasing as a supplemental source of financing on a
continuing basis.
In connection with the acquisition of Computer City, the Company issued a
$136 million subordinated promissory note payable to Tandy Corporation (the
"Seller Note"). The Seller Note 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.
33
<PAGE>
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 currently plans to explore strategic partnerships and/or access
the capital markets in the second half of fiscal 2000 to fund the growth of
cozone.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 to finance its continuing operations and expansion plans through the
end of fiscal 2000 and to make all required payments of interest on the Seller
Note and outstanding borrowings under the Credit Agreement. The level of future
expansion 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.
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 IT systems, including
accounting, data processing, 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 related to its IT systems, which began in
October 1996, will be completed by November 30, 1999, and that such efforts will
be completed prior to any currently anticipated impact on its computer equipment
and software. The Company estimates that as of November 3, 1999, it had
completed approximately 98% of the initiatives that it believes will be
necessary to fully address potential Year 2000 issues relating to its computer
equipment and software. The projects comprising the remaining 2% of the
initiatives are in process and expected to be completed by November 30, 1999. As
non-IT system issues are
34
<PAGE>
identified and assessed, remediation and testing of the non-IT system issues
will be ongoing through December 31, 1999.
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 INITIATIVE TIME 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.................................................... 3/98-11/99 95%
Remediation and testing regarding store and distribution
system issues............................................. 8/98-10/99 100%
Upgrades to telephone/PBX and other systems................. 3/98-3/99 100%
Electronic data interchange trading partner conversions..... 3/98-11/99 98%
Identification, assessment, remediation, and testing
regarding desktop and individual system issues............ 2/98-10/99 100%
Identification and assessment regarding non-IT system
issues.................................................... 4/98-12/99 99%
Remediation and testing regarding non-IT system issues...... 2/99-12/99 98%
Integrated company-wide testing............................. 9/99-12/99 90%
</TABLE>
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with many strategic customers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from or by such
entities are Year 2000 compliant. As of September 25, 1999, the Company had
received responses from approximately 81% of such third parties, and 56% 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 November 3, 1999, the Company had incurred costs of approximately
$4.5 million related to its Year 2000 identification, assessment, remediation,
and testing efforts. All of the $4.5 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
35
<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 including the variability of definitions of "compliance
with Year 2000" and the myriad of different products and services, and
combinations thereof, sold by the Company. 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 Company is a defendant in one lawsuit involving Year 2000 issues, and these
factors may lead to additional 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 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. At September 25, 1999, the Company had approximately $456.6 million of
total availability under the Credit Agreement, against which the Company had
$50.0 million of outstanding borrowings and $13.5 million of outstanding letters
of credit. The Senior Subordinated Notes, which required the Company to make
semi-annual interest payments at a fixed interest rate of 9 1/2% per annum, were
paid in full on August 3, 1999. 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 retirement of the Senior
Subordinated Notes, the fixed nature of the interest charges of the Seller Note,
and current variable-rate indebtedness of $50.0 million, 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.
36
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Note 6 of the Notes to Consolidated Financial Statements in Part I, Item 1
is incorporated herein by reference as if fully restated herein. Note 6 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>
<C> <S>
3.1 Restated and Amended Certificate of Incorporation.(1)
3.2 Restated and Amended Bylaws.(2)
10.1 CompUSA Inc. 1999 Change in Control Termination Plan.(3)
10.2 Amended and Restated CompUSA Inc. Long-Term Incentive
Plan.(3)
10.3 CompUSA Inc. cozone.com Stock Option Plan.(3)
10.4 cozone.com inc. Long-Term Incentive Plan and related form of
cozone.com inc. Nonstatutory Stock Option Agreement.(3)
10.5 Secured Wholesale Finance Agreement dated as of November 3,
1999 between CompUSA Stores L.P. and FINOVA Capital
Corporation and related Corporate Guaranty of CompUSA
Inc.(3)
21 Subsidiaries. (3)
27 Financial Data Schedule.(4)
Exhibits 10.1 through 10.4 constitute management
compensatory plans or contracts.
</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.
37
<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: November 15, 1999 By: /s/ JAMES E. SKINNER
-----------------------------------------
James E. Skinner
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
38
<PAGE>
COMPUSA INC.
1999 CHANGE IN CONTROL TERMINATION PLAN
R E C I T A L S:
A. Employer considers the maintenance of a sound management team
essential to protecting and enhancing its best interests and those of its
stockholders.
B. Employer recognizes that the possibility of a change in control of
Employer may result in the departure or distraction of management to the
detriment of Employer and its stockholders.
C. Employer has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of selected
members of Employer's management team to their assigned duties without the
distraction arising from the possibility of a change in control of Employer.
D. Employer has determined that the benefits of the Plan should only
be made available to those members of management who have demonstrated a
commitment to Employer by entering into a limited agreement not to compete with
Employer.
E. Employer desires to implement the CompUSA Inc. 1999 Change In
Control Termination Plan effective October 1, 1999.
NOW, THEREFORE, Employer hereby adopts the Plan upon the following terms
and conditions:
ARTICLE I
PARTICIPATION
1.1 COMMENCEMENT OF PARTICIPATION. Each employee employed by Employer
in an Eligible Category who enters into a Participation Agreement shall become a
Participant on the date of his or her execution and delivery to Employer of the
Participation Agreement.
1.2 DURATION OF PARTICIPATION.
(a) GENERAL PROVISIONS. Each Participant shall continue to
participate in the Plan until the earliest to occur of the following:
(i) termination of the Participant's employment with all
Employers other than in a Triggering Termination;
(ii) transfer, other than during an Applicable Period, of the
Participant's employment so that Participant ceases to be employed in an
Eligible Category;
<PAGE>
(iii) the last Employer (other than the Company) by which the
Participant is employed ceases to be a subsidiary or other affiliate of
the Company other than during an Applicable Period;
(iv) a Triggering Termination of the Participant's employment
with all Employers, but only after payment of the entire amount of the
Termination Payment to the Participant and all other payments that the
Participant is, or may become, entitled to receive under the Plan;
(v) expiration of the term of the Plan as provided in
Section 6.1;
(vi) expiration of the Applicable Period with respect to a
Change In Control;
(vii) death of the Participant; or
(viii) any breach or threatened breach by the Participant of the
Participant's Participation Agreement.
1.3 ELIGIBLE CATEGORY. The term "Eligible Category" refers to
employees employed by Employer in the capacity of Regional Manager, Senior
Director or Director, as those terms are defined in accordance with Employer's
personnel policies.
ARTICLE II
CHANGE IN CONTROL
2.1 CHANGE IN CONTROL DEFINED. A Change In Control shall be deemed to
have occurred for purposes hereof when any Person meets the requirements for
becoming an Acquiring Person, whether or not a Distribution Date occurs or the
Rights are redeemed by the Company, as those terms are defined in the Rights
Agreement dated as of April 29, 1994 (the "Rights Agreement") between the
Company and Bank One, Texas, N.A., as Rights Agent (American Stock Transfer &
Trust Company became successor Rights Agent as of April 19, 1996); provided that
a Change In Control shall not be deemed to have occurred for purposes hereof
with respect to any Person meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Securities Exchange Act of 1934, as
amended.
ARTICLE III
CHANGE IN CONTROL TERMINATION PAYMENT
3.1 TERMINATION PAYMENT.
(a) AMOUNT.
-2-
<PAGE>
(i) In the event a Participant's employment with Employer
terminates in a Triggering Termination, Employer shall pay the
Participant a lump sum payment in cash (the "Termination Payment") equal
to 50% of the sum of the following items:
(1) Participant's annual base compensation determined by
reference to his highest annual base compensation in effect at any
time during the Participant's employment with Employer;
(2) the Target Bonus that would be payable to the
Participant by Employer for the bonus period in which the Change
In Control occurred; and
(3) the Participant's annualized car allowance
determined by reference to his highest car allowance rate in
effect at any time during the Participant's employment with
Employer.
(ii) The Termination Payment shall include the amounts described
in Section 3.1(a)(i) plus the following amounts described in this Section
3.1(a)(ii):
(1) the amount of the Participant's compensation accrued
but unpaid as of the date of the Triggering Termination;
(2) reimbursements due to the Participant for unpaid
expenses incurred in the performance of his duties for Employer
prior to the Triggering Termination;
(3) any other benefit accrued but unpaid as of the date
of the Triggering Termination; and
(4) the estimated cost of obtaining accident, health,
dental, disability and life insurance coverage for the six-month
period following the expiration of the Participant's continuation
(COBRA) rights; provided that such coverage is substantially
similar to the most comprehensive coverage provided to the
Participant by Employer at any time during the Applicable Period;
and provided further that this Section 3.1(a)(ii)(4) shall be
applied without regard to, and the amount payable under this
Section 3.1(a)(ii)(4) is in addition to, any continuation (COBRA)
rights or conversion rights under any plan provided by Employer,
which rights are not affected by any provision of the Plan.
(c) APPLICABLE PERIOD DEFINED. "Applicable Period" means the 15-month
period that begins three months before the Change In Control and ends 12 months
after the Change In Control.
(d) TRIGGERING TERMINATION DEFINED. Each of the following events
constitutes a "Triggering Termination" when a Participant's employment with all
Employers is:
-3-
<PAGE>
(i) actually terminated by an Employer during an Applicable
Period other than for Good Reason;
(ii) Constructively Terminated by an Employer during an
Applicable Period other than for Good Reason; or
(iii) the last Employer (other than the Company) by which the
Participant is employed ceases to be a subsidiary or other affiliate of
the Company during an Applicable Period.
(e) GOOD REASON DEFINED. "Good Reason" means the termination of a
Participant's employment with Employer as a result of the Participant's
commission of a felony or failure to obey written directions delivered to the
Participant by the Company's Chairman of the Board, President, Chief Executive
Officer or its Board of Directors or by any of the Company's Executive Vice
Presidents, Senior Vice Presidents or Vice Presidents.
(f) CONSTRUCTIVELY TERMINATED DEFINED. "Constructively Terminated"
with respect to a Participant's employment with Employer will be deemed to have
occurred if Employer:
(i) demotes the Participant to a lesser position, either in
title or responsibility, than the highest position held by the
Participant with Employer at any time during the Participant's employment
with Employer;
(ii) decreases the Participant's compensation below the highest
level in effect at any time during the Participant's employment with
Employer or reduces the Participant's benefits and perquisites below the
highest levels in effect at any time during the Participant's employment
with Employer (other than as a result of any amendment or termination of
any employee or group or other executive benefit plan, which amendment or
termination is applicable to all executives of Employer); or
(iii) requires the Participant to relocate to a principal place
of business more than 25 miles from the principal place of business
occupied by Employer on the first day of an Applicable Period.
3.2 OUTPLACEMENT CONSULTING SERVICES. In addition to the Termination
Payment, Employer shall pay each Participant who incurs a Triggering Termination
a cash payment in the amount of $5,000 as an allowance for the cost of
outplacement consulting services. Such amount shall be paid at such time and in
accordance with Section 3.3 as if the payment under this Section 3.2 constituted
part of the Termination Payment. The Participant shall not be obligated to
apply the amount of the payment under this Section 3.2 to outplacement
consulting services and shall not be obligated to account to Employer for the
expenditure of such amounts.
3.3 TIME FOR PAYMENT; INTEREST. Employer shall pay the Termination
Payment to the Participant concurrent with the Triggering Termination or
concurrent with the Change In Control
-4-
<PAGE>
if the Participant's employment terminated in a Triggering Termination during
the portion of the Applicable Period prior to the Change In Control.
Employer's obligation to pay any amounts under the Plan to a Participant,
including without limitation the Termination Payment and any Gross Up Payment
due under Article IV, shall bear interest at the maximum rate allowed by law
until paid by Employer, and all accrued and unpaid interest shall bear
interest at the same rate, all of which interest shall be compounded daily.
All Employers shall be and remain jointly and severally liable for all
payments due under the Plan until such payments are made in full.
ARTICLE IV
GROSS UP PAYMENT
4.1 EXCESS PARACHUTE PAYMENT. If a Participant incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Code on "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code as the result of any
payments or distributions by Employer to or for the benefit of Participant
(whether paid or payable or distributed or distributable pursuant to the terms
of this Plan or otherwise) or as a result of the acceleration of vesting of
Options, Restricted Stock or other rights (collectively, the "Payments"), or if
Participant would incur the Excise Tax if the Change In Control satisfied the
requirements of Section 280G(b)(2)(A)(i) of the Code, then without regard to
whether the Change In Control in fact satisfies the requirements of Section
280G(b)(2)(A)(i) of the Code, Employer shall pay to the Participant an amount
(the "Gross Up Payment") such that the net amount retained by the Participant,
after deduction of (i) any Excise Tax owed, or that would be owed if the Change
In Control satisfied the requirements of Section 280G(b)(2)(A)(i) of the Code,
upon any Payments (other than payments provided by this Section 4.1) and (ii)
any federal, state and local income and employment taxes (together with
penalties and interest) and Excise Tax owed, or that would be owed if the Change
In Control satisfied the requirements of Section 280G(b)(2)(A)(i) of the Code,
upon the payments provided by this Section 4.1, shall be equal to the amount of
the Payments (other than payments provided by this Section 4.1).
4.2 APPLICABLE RATES. For purposes of determining the Gross Up
Payment amount, the Participant shall be deemed:
(a) to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individual taxpayers in the calendar year
in which the Gross Up Payment is made (which rate shall be adjusted as necessary
to take into account the effect of any reduction in deductions, exemptions or
credits otherwise available to the Participant had the Gross Up Payment not been
received);
(b) to pay additional employment taxes as a result of the receipt of
the Gross Up Payment in an amount equal to the highest marginal rate of
employment taxes applicable to wages; provided that if any employment tax is
applied only up to a specified maximum amount of wages, such limit shall be
taken into account for purposes of such calculation; and
-5-
<PAGE>
(c) to pay state and local income taxes at the highest marginal rates
of taxation in the state and locality of the Participant's residence on the date
of the Triggering Termination, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes.
4.3 DETERMINATION OF GROSS UP PAYMENT AMOUNT. The determination of
the Gross Up Payment amount shall be made, at Employer's expense, by Ernst &
Young LLP or another nationally recognized public accounting firm reasonably
acceptable to the Participant (in either case, the "Accountants"). If the
Excise Tax amount payable by the Participant, based upon a "Determination," is
different from the Excise Tax amount computed by the Accountants for purposes of
determining the Gross Up Payment amount, then appropriate adjustments to the
Gross Up Payment amount shall be made in the manner provided in Section 4.4.
For purposes of determining the Gross Up Payment amount prior to a Determination
of the Excise Tax amount, the following assumptions shall be utilized:
(a) that portion of the Termination Payment that is attributable to
the items described in Sections 3.1(a)(i)(1), (2) and (3), Section
3.1(a)(ii)(4), the payment made pursuant to Section 3.2, and the Gross Up
Payment amount shall be treated as a Parachute Payment;
(b) no portion of any payment made pursuant to Sections 3.1(a)(ii)(1),
(2) or (3) or Section 8.3 shall be treated as a Parachute Payment;
(c) the "ascertainable fair market value" (as set forth in Prop.
Treas. Reg. Section 1.280G-1, Q&A 13) of the Options, the vesting of which was
accelerated by the Change In Control as provided in the Incentive Plan and as
further provided in Section 5.1, shall be equal to the product of (i) and (ii)
as set forth below:
(i) the number of shares covered by such Options; and
(ii) the difference between:
(1) the fair market value per share as of the date of
the Change In Control; and
(2) the exercise price per share of stock subject to
such Options; and
(d) for purposes of applying the rules set forth in Prop. Treas. Reg.
Section 1.280G-1, Q&A 24(c), the amount reflecting the lapse of the obligation
to continue performing services shall be equal to the minimum amount allowed for
such payment as set forth in Prop. Treas. Reg. Section 1.280G-1, Q&A 24(c)(2)
(or if Prop. Treas. Reg. Section 1.280G-1 has been superseded by temporary or
final regulations, the minimum amount provided for in any temporary or final
regulations that supersede Prop. Treas. Reg. Section 1.280G-1 and that are
applicable to the Termination Payment, Gross Up Payment or both).
-6-
<PAGE>
4.4 TIME FOR PAYMENT. Employer shall pay the estimated Gross Up
Payment amount in cash to the Participant concurrent with the payment of the
Termination Payment. The Participant and Employer agree to reasonably cooperate
in the determination of the actual Gross Up Payment amount. Further, the
Participant and Employer agree to make such adjustments to the estimated Gross
Up Payment amount as may be necessary to equal the actual Gross Up Payment
amount based upon a Determination, which in the case of the Participant refers
to refunds of prior overpayments and in the case of Employer refers to makeup of
prior underpayments.
ARTICLE V
STOCK OPTIONS AND RESTRICTED STOCK
5.1 TREATMENT OF OPTIONS AND RESTRICTED STOCK. A Participant may hold
options ("Options") issued under the Incentive Plan that become immediately
exercisable upon a Change In Control. In addition, a Participant may hold
restricted stock ("Restricted Stock") issued under the Incentive Plan pursuant
to which applicable restrictions will lapse upon a Change In Control. Employer
shall take no action to facilitate a transaction involving a Change In Control,
including without limitation redemption of the Rights issued pursuant to the
Rights Agreement, unless it has taken such action as may be necessary to ensure
that each Participant has the opportunity to exercise all Options he may then
hold, and obtain certificates containing no restrictive legends in respect of
any Restricted Stock he may then hold, at a time and in a manner that shall give
each Participant the opportunity to sell or exchange the securities of Employer
acquired upon exercise of his Options and upon receipt of unrestricted
certificates for shares of common stock of the Company in respect of his
Restricted Stock, if any (collectively, the "Acquired Securities"), at the
earliest time and in the most advantageous manner any holder of the same class
of securities as the Acquired Securities is able to sell or exchange such
securities in connection with such Change In Control. Employer acknowledges
that its covenants in the preceding sentence (the "Covenants") are reasonable
and necessary in order to protect the legitimate interests of Employer in
maintaining the Participants as employees and that any violation of the
Covenants by Employer would result in irreparable injuries to the Participants,
and Employer therefore acknowledges that in the event of any violation of the
Covenants by Employer or its directors, officers or employees, or any of their
respective agents, each Participant shall be entitled to obtain from any court
of competent jurisdiction temporary, preliminary and permanent injunctive relief
in order to (i) obtain specific performance of the Covenants, (ii) obtain
specific performance of the exercise of his Options, delivery of certificates
containing no restrictive legends in respect of his Restricted Stock and the
sale or exchange of the Acquired Securities in the advantageous manner
contemplated above or (iii) prevent violation of the Covenants; provided that in
the event a Participant fails to obtain such injunctive relief, nothing in this
Plan shall be deemed to prejudice the Participant's rights to damages for
violation of the Covenants.
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ARTICLE VI
AMENDMENT AND TERMINATION
6.1 TERM. The Plan shall commence on the Effective Date and shall
terminate on September 30, 2003, if a Change In Control has not occurred before
such date. If, however, a Change In Control occurs before September 30, 2003,
the Plan shall continue in effect with respect to each Participant throughout
the Applicable Period with respect to such Change In Control.
6.2 AMENDMENT PROCEDURES. The Plan may be modified, amended or
terminated at any time by a written instrument executed by an officer of the
Company; provided that execution of such instrument must be authorized by a
written resolution of the Board of Directors of the Company or a written
resolution of the Committee.
6.3 NO AMENDMENTS DURING APPLICABLE PERIOD. Notwithstanding any
provision of the Plan to the contrary, the Plan shall not be modified, amended
or terminated in any respect during an Applicable Period if the effect of any
such amendment would be to reduce any benefit payable to a Participant or that
may become payable in the future to a Participant.
6.4 ADOPTION BY OTHER EMPLOYERS. Any subsidiary or other affiliate of
the Company may adopt the Plan for the benefit of its employees by appropriate
action of its Board of Directors. No subsidiary or other affiliate that is an
adopting employer of the Plan pursuant to this Section 6.4 shall have any power
at any time to modify or amend the Plan in any respect.
ARTICLE VII
ADMINISTRATION
7.1 AUTHORITY AND RESPONSIBILITY OF THE COMMITTEE. The Committee has
the authority to control and manage the operation and administration of the
Plan; provided that if the Committee for any reason fails or refuses to take any
action required or permitted under the terms of the Plan, the Board of Directors
of the Company may take such action in lieu of the Committee. The Committee
shall be the "named fiduciary" of the Plan for purposes of ERISA.
7.2 COMMITTEE ACTIONS. Each decision of a majority of the members of
the Committee then in office shall constitute the final and binding act of the
Committee. The Committee may act (a) at meetings called or held in person or by
conference telephone call and (b) by unanimous written consent, and shall keep
minutes of all meetings held and a record of all actions taken by unanimous
written consent.
7.3 COMMITTEE POWERS AND DUTIES. The Committee shall enforce the Plan
in accordance with its terms and, except as provided in Section 7.7, shall have
all powers and discretion necessary or appropriate to supervise the
administration of the Plan and to control its operation in accordance with its
terms, including without limitation the following powers:
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(a) to issue rules and regulations necessary for the conduct and
administration of the Plan and to change, alter or amend such rules and
regulations;
(b) to interpret and determine the meaning of the Plan and to
determine and resolve any questions arising under, or in connection with, the
administration of the Plan;
(c) to determine and resolve all questions relating to the eligibility
of employees to become Participants and the rights of Participants to any
payments under the Plan;
(d) to compute the amount of Termination Payments, Gross Up Payments
and other payments under the Plan to Participants;
(e) to keep records relating to Participants and other matters
applicable to the Plan;
(f) to appoint an agent for service of legal process with respect to
the Plan;
(g) to prescribe procedures to be followed and forms to be used in the
administration of the Plan, including adoption of a claims and appeal procedure
in compliance with ERISA;
(h) to make available for inspection and to provide upon request at
such charge as may be permitted and determined by the Committee, documents and
instruments required by ERISA to be disclosed to Participants; and
(i) to file, or cause to be filed, all reports required by law to be
filed with governmental agencies.
7.4 COMMITTEE DELEGATIONS AND ALLOCATIONS OF RESPONSIBILITY.
(a) DELEGATION. The Committee shall have the authority to delegate,
by instrument in writing filed in the Committee's minute book, all or any part
of its responsibilities under the Plan to such person as it may deem advisable
(and may authorize such person to delegate such responsibilities to such other
person as the Committee shall authorize); and in the same manner, the Committee
shall have the authority to revoke any such delegation of its responsibilities.
Any action of the Committee delegate in the exercise of such delegated
responsibilities shall have the same force and effect for all purposes under the
Plan as if such action had been taken by the Committee. The Committee shall not
be liable for any acts or omissions of any such delegate. The delegate shall
report periodically to the Committee concerning the discharge of the delegated
responsibilities.
(b) ALLOCATION. The Committee shall have the authority to allocate
from time to time, by instrument in writing filed in the Committee's minute
book, all or any part of its responsibilities under the Plan to one or more of
its members as it may deem advisable and in the same manner to revoke such
allocation of responsibilities. Any action of the member to whom
responsibilities are allocated in the exercise of such allocated
responsibilities shall have the same force and effect for all purposes under the
Plan as if such action had been taken by the Committee. The Committee shall
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not be liable for any acts or omissions of any such member. The member to
whom responsibilities have been allocated shall report periodically to the
Committee concerning the discharge of the allocated responsibilities.
(c) LIMITATION ON LIABILITY. Fiduciary duties and responsibilities
that have been delegated or allocated pursuant to the terms of the Plan are
intended to limit the liability of the Committee, the Boards of Directors of all
Employers, and all Employers in accordance with the provisions of ERISA.
7.5 RECORDS. The regularly kept records of the Committee and Employer
shall be conclusive evidence in the determination of any amounts to be paid to
any Participant in accordance with the Plan.
7.6 FIDUCIARY CAPACITY. Any person or group of persons may serve in
more than one fiduciary capacity with respect to the Plan.
7.7 REVIEW OF COMMITTEE DETERMINATIONS. Prior to a Change In Control,
the Committee shall exercise unlimited discretion in making and resolving all
determinations required or permitted under the Plan, and it is the intention of
the Company that all such determinations actually made and resolved by the
Committee shall be reviewed, if reviewed at all, in accordance with the
arbitrary and capricious standard of review, with maximum deference given to the
determination of the Committee. Following a Change In Control, the Committee
shall have no discretion in making or resolving any determinations required
under the Plan, and it is the intention of the Company that any such
determinations made and resolved by the Committee shall be given no deference in
any legal or equitable action. It is the further intention of the Company that
no Participant shall be required to exhaust any administrative remedies, whether
under the Plan or otherwise, as a condition to any legal or equitable action to
obtain benefits under the Plan following a Change In Control.
7.8 CLAIMS; ARBITRATION. Any controversy or claim arising out of or
relating to the Plan shall be settled exclusively by arbitration in Dallas,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrators may be entered in, and enforced by, any court having jurisdiction of
such claim or controversy.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. All notices and other communications hereunder shall be
in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally or if sent by nationally recognized overnight
courier service, prepaid, or if mailed by certified mail, return receipt
requested, or by written telecommunication, to the relevant address set forth
below,
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or to such other address as the recipient of such notice or communication
shall have specified to the other party in accordance with this Section 8.1:
If to Employer, to: with a copy to:
CompUSA Inc. Thompson & Knight L.L.P.
14951 North Dallas Parkway 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75240 Dallas, Texas 75201
Attention: General Counsel Attention: Fred W. Fulton
Facsimile Number: (972) 982-4183 Facsimile Number: (214) 969-1751
If to a Participant, to his last known address as reflected in Employer's
personnel records or such other address as shall be furnished in writing
in accordance with this Section 8.1. Any such notice shall be deemed to
have been given as of the date so mailed or sent.
8.2 WITHHOLDING; NO OFFSET. All payments required to be made by
Employer under the Plan to a Participant shall be subject to the withholding of
such amounts, if any, relating to federal, state and local taxes as may be
required by law. No payment under the Plan shall be subject to offset or
reduction attributable to any amount a Participant may owe Employer or any other
person.
8.3 LEGAL AND ACCOUNTING COSTS. Employer shall pay all attorneys' and
accountants' fees and costs incurred by a Participant as a result of any breach
by Employer of its obligations under the Plan, including without limitation all
such costs incurred in contesting or disputing any determination made by
Employer under the Plan or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Code to any
payment under the Plan. Reimbursements of such costs shall be made by Employer
within 15 days after a Participant's presentation to Employer of any statements
of such costs and thereafter shall bear interest at the maximum rate allowed by
law until paid by Employer, and all accrued and unpaid interest shall bear
interest at the same rate, all of which interest shall be compounded daily.
8.4 SEVERABILITY. If any provision of the Plan is held to be illegal,
invalid or unenforceable, such provision shall be fully severable, and the Plan
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof, and the remaining provisions of the
Plan shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as part of the Plan a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable.
8.5 WAIVERS. No delay or omission by either party in exercising any
right, power or privilege hereunder shall impair such right, power or privilege,
nor shall any single or partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any other right, power
or privilege.
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8.6 CAPTIONS. The captions in the Plan are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
8.7 REFERENCE TO PLAN. Use of the words "hereof," "hereunder" and the
like in the Plan refer to the Plan only as a whole and not to any particular
section or subsection of the Plan, unless otherwise noted.
8.8 BINDING EFFECT. The Plan shall be binding upon and inure to the
benefit of Employer and the Participants and shall be enforceable by the
personal representatives and heirs of each Participant and the successors and
assigns of Employer. The obligations of Employer under the Plan may be assigned
by the Company or any Employer to any Employer; provided that in the event of
any such assignment, the Company shall remain liable for all of its obligations
hereunder and shall be liable for all obligations of all such assignees
hereunder. If a Participant dies while any amounts are payable to him
hereunder, such amounts shall be paid to the Participant's estate. The amounts
payable under the Plan are not otherwise assignable by Participants.
8.9 GOVERNING LAW. Except to the extent provided by ERISA, the Plan
and its performance shall be construed and governed in accordance with the laws
of the State of Texas, without regard to its choice of law principles.
8.10 GENDER AND NUMBER. The masculine gender shall be deemed to denote
the feminine or neuter genders, the singular to denote the plural, and the
plural to denote the singular, where the context so permits.
ARTICLE IX
DEFINITIONS
9.1 DEFINITIONS. As used in the Plan, the following terms have the
meanings set forth below:
(a) ACCOUNTANTS has the meaning ascribed to it in Section 4.3.
(b) ACQUIRED SECURITIES has the meaning ascribed to it in Section 5.1.
(c) APPLICABLE PERIOD has the meaning ascribed to it in Section
3.1(c).
(d) CHANGE IN CONTROL has the meaning ascribed to it in Section 2.1.
(e) CODE means the Internal Revenue Code of 1986, as amended.
(f) COMMITTEE means the Compensation Committee of the Board of
Directors of the Company.
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(g) COMPANY means CompUSA Inc., a Delaware corporation.
(h) CONSTRUCTIVELY TERMINATED has the meaning ascribed to it in
Section 3.1(f).
(i) COVENANTS has the meaning ascribed to it in Section 5.1.
(j) DETERMINATION has the meaning ascribed to it in Section 1313(a) of
the Code.
(k) EFFECTIVE DATE means October 1, 1999.
(l) ELIGIBLE CATEGORY has the meaning ascribed to it in Section 1.3.
(m) EMPLOYER refers collectively to the Company and any of its
subsidiaries and other affiliates that adopt the Plan in accordance with Section
6.4. Each Participant shall be deemed to be employed by the Company and all
compensation and benefits paid or provided to a Participant by any Employer at
any time shall be deemed to have been paid or provided to the Participant by the
Company regardless of whether a Participant's actual Employer is the Company or
is a subsidiary or other affiliate of the Company.
(n) ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
(o) EXCISE TAX has the meaning ascribed to it in Section 4.1.
(p) GOOD REASON has the meaning ascribed to it in Section 3.1(e).
(q) GROSS UP PAYMENT has the meaning ascribed to it in Section 4.1.
(r) INCENTIVE PLAN means, collectively, the CompUSA Inc. Long-Term
Incentive Plan and the CompUSA Inc. Nonstatutory Option Plan, in each case as
amended from time to time.
(s) OPTIONS has the meaning ascribed to it in Section 5.1.
(t) PARTICIPANT means an individual who satisfies the requirements of
Article I to participate in the Plan.
(u) PARTICIPATION AGREEMENT means a CompUSA Inc. Change In Control
Termination Plan Participation and Noncompetition Agreement in such form as may
be approved by the Committee from time to time.
(v) PARACHUTE PAYMENTS has the meaning ascribed to it in Section
280G(b)(2) of the Code.
(w) PLAN means the CompUSA Inc. 1999 Change In Control Termination
Plan.
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(x) RESTRICTED STOCK has the meaning ascribed to it in Section 5.1.
(y) RIGHTS AGREEMENT has the meaning ascribed to it in Section 2.1.
(z) TARGET BONUS means, with respect to each Participant, the dollar
amount that is equal to the established percentage of such Participant's base
salary that would be paid to the Participant under the management incentive
bonus plan of Employer assuming the measurement criteria contained in such plan
with respect to the Participant were achieved for the bonus period in which the
Change In Control occurred.
(aa) TERMINATION PAYMENT has the meaning ascribed to it in Section
3.1(a)(i).
(bb) TRIGGERING TERMINATION has the meaning ascribed to it in Section
3.1(d).
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AS AMENDED AND RESTATED
SEPTEMBER 1, 1999
COMPUSA INC.
LONG-TERM INCENTIVE PLAN
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms will have the following
meanings:
1.1. ANNUAL STOCKHOLDERS MEETING has the meaning ascribed to it in
Section 4.2.
1.2. AUTOMATIC GRANT DATE has the meanings ascribed to it in
Sections 4.2(a) and 4.2(b), as applicable.
1.3. AWARD means a grant of Options under Article IV of the Plan, a
Restricted Stock Award under Article V of the Plan, a Stock Appreciation Rights
Award under Article VI of the Plan, a Performance Share Award under Article VII
of the Plan or a Stock Unit Award under Article VIII of the Plan.
1.4. AWARD AGREEMENT means an Option Agreement, Restricted Stock
Agreement, Stock Appreciation Rights Agreement, Performance Share Agreement or
Stock Unit Agreement.
1.5. BOARD means the Company's Board of Directors.
1.6. CAUSE means an act or acts engaged in by a Participant
involving (i) a felony, (ii) fraud, (iii) embezzlement, (iv) gross or willful
neglect of duty or misconduct, (v) the commission of any act that causes or
reasonably may be expected to cause substantial injury to the Company.
1.7. CODE means the federal Internal Revenue Code of 1986, as
amended.
1.8. COMMITTEE means a committee comprised of two or more Directors
of the Company, appointed by the Board, the members of which satisfy the
requirements for eligibility set forth in Section 3.1 and which is responsible
for the administration of the Plan; provided that the full Board may at any
time, in its sole discretion, exercise any or all functions and authority of the
Committee.
1.9. COMMISSION means the United States Securities and Exchange
Commission.
1.10. COMPANY means CompUSA Inc., a Delaware corporation.
1.11. DIRECTOR means a member of the Board of Directors of the
Company or of a subsidiary thereof.
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1.12. DISABILITY of a Participant will be deemed to occur
whenever a Participant is rendered unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can
be expected to last for a continuing period of not less than 12 months. In
the case of any dispute as to whether or not a Participant is disabled within
the meaning of this Section, the determination of disability will be made by
a licensed physician selected by the Board and acceptable to the Participant,
which physician's decision will be final and binding.
1.13. EMPLOYEE means any employee of the Company or of any of its
subsidiaries, as defined under Section 3401(c) of the Code and the
regulations promulgated thereunder.
1.14. EMPLOYMENT AGREEMENT means an agreement, if any, between
the Company or any subsidiary thereof and a Participant, setting forth the
terms and conditions of the Participant's employment by the Company or such
subsidiary.
1.15. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.16. GRANT DATE means, with respect to an Option, the date on
which an Option is granted, as specified in Section 4.2 or, as applicable, in
Section 4.3.
1.17. INCENTIVE OPTION means an Option that by its terms is
intended to be treated as an "incentive stock option" within the meaning of
Section 422 of the Code.
1.18. MARKET VALUE means, on any date, the closing price per
share of the Stock on the New York Stock Exchange on such date.
1.19. MINIMUM PERFORMANCE GOAL means the minimum objective(s)
established by the Committee that must be satisfied before any portion of a
Performance Share Award is earned. The Minimum Performance Goal may, in the
sole discretion of the Committee, be the same as or less than the Performance
Goal.
1.20. NONEMPLOYEE DIRECTOR means a member of the Board who is not
an Employee.
1.21. NONSTATUTORY OPTION means any Option that is not an
Incentive Option.
1.22. OPTION means an option to purchase Stock granted under the
Plan.
1.23. OPTION AGREEMENT means a written agreement between the
Company and a Participant setting forth the terms and conditions of an Option.
1.24. OPTION PRICE means the price to be paid by a Participant
for a share of Stock upon exercise of an Option.
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1.25. PARTICIPANT means a person to whom an Award has been granted.
1.26. PERFORMANCE CYCLE OR CYCLE means a period of years selected by
the Committee during which the performance of the Company and/or the Participant
is measured for the purpose of determining the extent to which Performance
Shares that have been contingently awarded with respect to such Cycle are
earned.
1.27. PERFORMANCE GOAL means the objective(s) established by the
Committee at the time each Performance Share Award is granted with respect to
the related Performance Cycle for the purpose of determining the extent to
which Performance Shares that have been contingently awarded for such Cycle
are earned.
1.28. PERFORMANCE SHARE OR PERFORMANCE SHARE AWARD means an Award
granted pursuant to Article VII expressed as a share of Stock.
1.29. PERFORMANCE SHARE AGREEMENT means a written agreement
between the Company and a Participant setting forth the terms and conditions
of a Performance Share Award.
1.30. PLAN means this Long-Term Incentive Plan of the Company, as
amended from time to time.
1.31. RESTRICTED STOCK OR RESTRICTED STOCK AWARD means an award
of Stock granted under Article V.
1.32. RESTRICTED STOCK AGREEMENT means a written agreement
between the Company and a Participant with respect to a Restricted Stock
Award.
1.33. RETIREMENT means resignation by the Participant on or after
the date on which the Participant has served the Company or one or more
subsidiaries thereof for at least five years in the aggregate.
1.34. RULE 16b-3 means Rule 16b-3 or its successors promulgated
under the Exchange Act.
1.35. SECURITIES ACT means the Securities Act of 1933, as amended.
1.36. SECTION 162(m) means Section 162(m) of the Code and the
regulations promulgated thereunder.
1.37. STOCK means Common Stock, par value $.01 per share, of the
Company or, in the event the outstanding shares of such stock are hereafter
changed into or exchanged for shares of a different security of the Company
or some other corporation, such other security.
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1.38. STOCK APPRECIATION RIGHT OR STOCK APPRECIATION RIGHTS AWARD
means an Award granted under Article VI.
1.39. STOCK APPRECIATION RIGHTS AGREEMENT means an agreement
between the Company and a Participant setting forth the terms and conditions
of a Stock Appreciation Rights Award.
1.40. STOCK UNIT OR STOCK UNIT AWARD means an award of Stock or
units granted under Article VIII.
1.41. STOCK UNIT AGREEMENT means a written agreement between the
Company and a Participant setting forth the terms and conditions of a Stock
Unit Award.
1.42. TEN PERCENT OWNER means a person who owns, or is deemed
within the meaning of Section 422(b)(6) of the Code to own, stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company (or its parent or subsidiary corporations, within the meaning of
Sections 424(e) and 424(f) of the Code). Whether a person is a Ten Percent
Owner will be determined with respect to each Option based on the facts
existing immediately prior to the Grant Date of such Option.
1.43. VESTING YEAR for any portion of any Incentive Option means
the calendar year in which that portion of the Option first becomes
exercisable.
ARTICLE II
GENERAL
2.1. PURPOSE. This Plan is intended to encourage ownership of
Stock by Participants and to provide additional incentives for them to
promote the success of the Company's business. The Company intends that
Incentive Options granted under Article IV will qualify as "incentive stock
options" within the meaning of Section 422 of the Code.
2.2. TERM OF THE PLAN. Awards may be granted not later than
August 31, 2009.
2.3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 9.2 and subject to any additional restrictions elsewhere in the Plan,
the maximum aggregate number of shares of Stock that may be issued from time
to time on or after September 1, 1999 pursuant to the Plan may not exceed the
total of (a) 16,416,699 shares plus (b) a number of shares equal to the
number of shares of Restricted Stock outstanding under the Plan as of
September 1, 1999 that are forfeited and returned to the Company at any time
on or after September 1, 1999. The maximum aggregate number of shares of
Stock with respect to which Awards may be granted to any Participant during
the term of the Plan may not exceed 50% of the total number of shares of
Stock that may be issued from time to time under the Plan. Shares to be
issued pursuant to Awards may be either authorized but unissued shares or
shares held by the Company in its treasury. If shares of Stock are reacquired
by the Company pursuant to the provisions of the Plan or if Options expire or
terminate for any
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reason without having been exercised in full, the reacquired shares and/or
the shares not purchased will again be available for issuance under the Plan
to the extent permitted by law.
2.4. ELIGIBILITY. Any full-time or part-time Employee, Director,
consultant or advisor of one or more of the Company or any subsidiary thereof
will be eligible to be a Participant; provided that Incentive Options may be
granted only to Employees.
2.5. ACCELERATION IN CERTAIN EVENTS. The Committee may
accelerate the exercisability of any Option or Stock Appreciation Right or
waive any restrictions and/or Performance Goals with respect to shares of
Restricted Stock, Performance Shares or Stock Units in whole or in part at
any time. In addition, notwithstanding the provisions of any Award Agreement,
the following provisions will apply:
(a) MERGERS AND REORGANIZATIONS. In the event the Company or
its stockholders enter into an agreement to dispose of all or
substantially all of the assets of the Company by means of a sale,
merger or other reorganization, liquidation or otherwise in a
transaction in which the Company is not the surviving corporation, any
Option or Stock Appreciation Right will become immediately exercisable
with respect to the full number of shares subject to that Option or
Stock Appreciation Right and all restrictions and/or Performance Goals
will be deemed lapsed, waived and/or satisfied (as applicable) with
respect to any Restricted Stock Award, Performance Share Award or Stock
Unit Award; provided that no Option or Stock Appreciation Right will be
immediately exercisable and no restrictions or Performance Goals will
be deemed lapsed, waived and/or satisfied with respect to a Restricted
Stock Award, Performance Share Award or Stock Unit Award under this
Section 2.5 on account of any agreement of merger or other
reorganization when the stockholders of the Company immediately before
the consummation of the transaction will own at least 50% of the total
combined voting power of all classes of stock entitled to vote of the
surviving entity immediately after the consummation of the transaction.
(b) CHANGE IN CONTROL. All Options and Stock Appreciation
Rights will become immediately exercisable and all restrictions and/or
Performance Goals related to any Restricted Stock Award, Performance
Share Award or Stock Unit Award will be deemed lapsed, waived and/or
satisfied (as applicable) in the event any Person (other than a Person
meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
or its successors promulgated under the Exchange Act) meets the
requirements for becoming an Acquiring Person, whether or not a
Distribution Date occurs or the Rights are redeemed by the Company, as
those terms are defined in the Rights Agreement dated as of April 29,
1994 between the Company and Bank One, Texas, N.A., as Rights Agent
(American Stock Transfer & Trust Company became successor Rights Agent
August 19, 1996).
2.6. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan, if at any time in the reasonable opinion of the Company
the issuance of shares of Stock pursuant to an Award may constitute a violation
of law, then the Company may delay such issuance
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and the delivery of a certificate for such shares of Stock until (i) approval
has been obtained from such governmental agencies, other than the Commission,
as may be required under any applicable law, rule or regulation and (ii) in
the case where such issuance would constitute a violation of a law
administered by or a regulation of the Commission, one of the following
conditions has been satisfied:
(a) the issuance of shares of Stock is effectively registered
under the Securities Act; or
(b) a no-action letter in form and substance reasonably
satisfactory to the Company with respect to the issuance of such shares
has been obtained by the Company from the staff of the Commission.
The Company will make all reasonable efforts to bring about the occurrence of
such events.
2.7. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION.
(a) Unless the issuance of shares of Stock to be issued
pursuant to an Award has been effectively registered under the
Securities Act, the Company will be under no obligation to issue any
shares of Stock pursuant to an Award unless the Participant gives a
written representation to the Company that is satisfactory in form and
substance to its counsel and upon which the Company may reasonably
rely, that he is acquiring the shares of Stock issued pursuant to such
Award as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares of Stock.
(b) If required in the opinion of counsel, each certificate
representing shares of Stock issued pursuant to an Award will bear a
reference to the investment representation made in accordance with this
Section 2.7 and to the fact that no registration statement has been
filed with the Commission in respect of the issuance of such shares of
Stock.
(c) If the Company deems it necessary or desirable to register
under the Securities Act or other applicable statutes the issuance of
any shares of Stock with respect to which an Award has been granted, or
to qualify the issuance of any such shares for exemption from the
Securities Act or other applicable statutes, then the Company will take
such action at its own expense. The Company may require from each
Participant such information in writing for use in any registration
statement, prospectus, preliminary prospectus or offering circular as
is reasonably necessary for such purpose and may require reasonable
indemnity to the Company and its Directors and officers from such
holder against all losses, claims, damages and liabilities arising from
such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made.
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2.8. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO
EXPIRATION OF SPECIFIED HOLDING PERIOD.
(a) Whenever shares of Stock are to be issued pursuant to an
Award, the Company will have the right to require the Participant to
remit to the Company an amount sufficient to satisfy federal, state,
local or other withholding tax requirements (whether so required to
secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for
such shares of Stock.
(b) When a Participant is required to pay to the Company an
amount required to be withheld under applicable income tax laws in
connection with an Award, such payment may be made, in whole or in
part, (i) in cash, (ii) by check, (iii) if permitted by the Committee,
by delivery to the Company of shares of Stock already owned by the
Participant having a Market Value on the date on which the amount of
tax to be withheld is determined (the "Tax Date") equal to the amount
required to be withheld, (iv) with respect to Options, through the
withholding by the Company ("Company Withholding") of a portion of the
shares of Stock acquired upon the exercise of the Options, or (v) in
any other form of valid consideration, as permitted by the Committee in
its sole discretion.
(c) The Company may require as a condition to the issuance of
shares of Stock upon exercise of an Incentive Option that the party
exercising such Option give a written representation to the Company,
which is satisfactory in form and substance to its counsel and upon
which the Company may reasonably rely, that he will report to the
Company any disposition of such shares prior to the expiration of the
holding periods specified by Section 422(a)(1) of the Code. If and to
the extent that the realization of income in such a disposition imposes
upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the
Company an otherwise available tax deduction, the Company will have the
right to require that the recipient remit to the Company an amount
sufficient to satisfy those requirements; and the Company may require
as a condition to the issuance of shares of Stock upon exercise of an
Incentive Option that the party exercising such option agree, in
writing in a form satisfactory to the Company, to make such a
remittance.
2.9. RESERVATION OF STOCK. The Company must at all times during the
term of the Plan reserve or otherwise keep available such number of shares of
Stock as will be sufficient to satisfy the requirements of the Plan and will pay
all fees and expenses necessarily incurred by the Company in connection
therewith.
2.10. NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. Nothing contained in
the Plan or in any Award will confer upon any Participant any right with respect
to the continuation of his employment or service with the Company (or any
subsidiary), or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment or consulting
agreement or provision of law or certificate of incorporation or bylaws to the
contrary, at any time
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to terminate such employment or consulting agreement or to increase or
decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award.
ARTICLE III
ADMINISTRATION
3.1. ADMINISTRATION. Subject to the provisions of the Plan, the
Plan will be administered by the Committee. Each member of the Committee must
qualify as a "Non-Employee Director" within the meaning of Rule 16b-3. In
addition, with respect to any Award that the Company intends to qualify for
the exception for qualified performance-based compensation set forth in
Section 162(m), such Award must be granted solely by "outside directors"
within the meaning of such section. The Committee will have sole discretion
and authority to determine from time to time the Participants to whom Awards
will be granted and the number of shares of Stock subject to each Award, to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine and interpret the terms and provisions of each
Award Agreement or waive any conditions, restrictions and/ or Performance
Goals applicable to any Option or Stock Appreciation Right (or the exercise
thereof) or to any shares of Restricted Stock, Performance Shares or Stock
Units, and to make all other determinations necessary or advisable for the
administration of the Plan. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
Participants, their present and potential contributions to the success of the
Company and its subsidiaries, and such other factors as the Committee in its
sole discretion deems relevant. The Committee's determinations on the matters
referred to in this Section 3.1 will be conclusive.
ARTICLE IV
OPTIONS
4.1 GRANT OF OPTIONS. The Committee may, in its sole
discretion, grant Options in accordance with the terms and conditions set
forth in the Plan. Each Option Agreement may contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as are
determined by the Committee in its sole discretion.
4.2. AUTOMATIC GRANTS OF OPTIONS TO NONEMPLOYEE DIRECTORS.
(a) DIRECTORS ELECTED OR RE-ELECTED AT ANNUAL STOCKHOLDERS
MEETING. Each Nonemployee Director who is elected or re-elected to the
Board at an annual stockholders meeting or special meeting in lieu of
an annual meeting (an "Annual Stockholders Meeting"), or continues to
serve as a Nonemployee Director after such Annual Stockholders Meeting,
is hereby granted, on the date of such meeting (as used in or with
reference to this Section 4.2(a), an "Automatic Grant Date"), a
Nonstatutory Option to purchase that whole number of shares (without
any fraction) of Stock calculated by dividing $50,000 by the Market
Value on the Automatic Grant Date. Each Option granted to a Participant
under this Section 4.2(a) will (i) have an Option Price equal to 100%
of the Market Value of the Stock on the Automatic Grant Date, (ii)
terminate on the tenth anniversary of the Automatic Grant
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Date and (iii) become exercisable in three equal installments as
follows: 33 1/3% on the first anniversary of the Automatic Grant
Date, an additional 33 1/3% on the second anniversary of the
Automatic Grant Date, and an additional 33 1/3% on the third
anniversary of the Automatic Grant Date.
(b) DIRECTORS ELECTED AT OTHER TIMES. Each Nonemployee
Director who is elected to the Board on a date other than the day of an
Annual Stockholders Meeting (as used in or with reference to this
Section 4.2(b), an "Automatic Grant Date") is hereby granted, on the
Automatic Grant Date, an Option to purchase the number of shares of
Stock set forth below, which Option will become exercisable if the
Participant remains a Nonemployee Director as set forth below:
(1) If such individual is elected after the day of an
Annual Stockholders Meeting but on or before December 31, he
is hereby granted an Option to purchase that whole number of
shares (without any fraction) of Stock calculated by dividing
$37,500 by the Market Value on the Automatic Grant Date, which
Option will become exercisable in three equal installments as
follows: 33 1/3% on the first anniversary of the Automatic
Grant Date, an additional 33 1/3% on the second anniversary of
the Automatic Grant Date, and an additional 33 1/3% on the
third anniversary of the Automatic Grant Date.
(2) If such individual is elected on or after January 1
but on or before March 31, he is hereby granted an Option to
purchase that whole number of shares (without any fraction) of
Stock calculated by dividing $25,000 by the Market Value on
the Automatic Grant Date, which Option will become exercisable
in three equal installments as follows: 33 1/3% on the first
anniversary of the Automatic Grant Date, an additional 33 1/3%
on the second anniversary of the Automatic Grant Date, and an
additional 33 1/3% on the third anniversary of the Automatic
Grant Date.
(3) If such individual is elected on or after April 1
but on or before June 30, he is hereby granted an Option to
purchase that whole number of shares (without any fraction) of
Stock calculated by dividing $12,500 by the Market Value on
the Automatic Grant Date, which Option will become exercisable
in three equal installments as follows: 33 1/3% on the first
anniversary of the Automatic Grant Date, an additional 33 1/3%
on the second anniversary of the Automatic Grant Date, and an
additional 33 1/3% on the third anniversary of the Automatic
Grant Date.
Each Option granted to a Nonemployee Director under Section 4.2(b) will have an
Option Price equal to 100% of the Market Value on the Automatic Grant Date and
will terminate on the tenth anniversary of the Automatic Grant Date.
4.3. TIME OF GRANTING OPTIONS. Except as provided in Sections
4.2(a) and 4.2(b), the granting of an Option will take place at the time
specified in the Option Agreement.
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4.4. OPTION PRICE. The Option Price under each Incentive Option may
not be less than 100% of the Market Value on the Grant Date, or less than 110%
of the Market Value on the Grant Date if the Participant is a Ten Percent Owner.
The Option Price under each Nonstatutory Option will not be so limited solely by
reason of this Section 4.4.
4.5. OPTION PERIOD. No Incentive Option may be exercised later than
the tenth anniversary of the Grant Date, or, if the Participant is a Ten Percent
Owner, not later than the fifth anniversary of the Grant Date. The option period
under each Nonstatutory Option will not be so limited solely by reason of this
Section 4.5. Options may become exercisable in such installments, cumulative or
noncumulative, as the Committee may determine.
4.6. LIMIT ON INCENTIVE OPTION CHARACTERIZATION. To the extent any
Option fails to qualify as an Incentive Option, such Option will be considered a
Nonstatutory Option.
4.7. EXERCISE OF OPTIONS.
(a) METHOD OF EXERCISE. Each Option will be exercisable in
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a
share of Stock.
(b) PAYMENT OF PURCHASE PRICE. The purchase price of any
shares of Stock purchased must be paid at the time of exercise of the
Option either (i) in cash, (ii) by certified or cashier's check, (iii)
by shares of Stock, if permitted by the Committee, (iv) if then
permitted under the laws of the State of Delaware and approved by the
Committee, by a promissory note for the total purchase price of the
shares of Stock being purchased, which note will contain such terms and
provisions as the Committee may approve, including without limitation
the right to repay the note partially or wholly with Stock, (v) by
delivery of a copy of irrevocable instructions from the Participant to
a broker or dealer, reasonably acceptable to the Company, to sell
certain of the shares of Stock purchased upon exercise of the Option or
to pledge them as collateral for a loan and promptly deliver to the
Company the amount of sale or loan proceeds necessary to pay such
purchase price or (vi) in any other form of valid consideration, as
permitted by the Committee in its sole discretion. If any portion of
the purchase price or a note given at the time of exercise is paid in
shares of Stock, those shares will be valued at the then Market Value.
4.8. TERMINATION OF EMPLOYMENT OR ASSOCIATION WITH THE COMPANY.
(a) TERMINATION OF EMPLOYMENT WITH THE COMPANY. If a
Participant ceases to be employed by the Company or any subsidiary
thereof because the Participant is terminated for Cause, any Options
held by that Participant will automatically expire. If a Participant's
employment is terminated for any reason other than for Cause or due to
death, such Participant's Option will be exercisable (to the extent
exercisable on the date of termination of the Participant's employment
or, if the Committee, in its sole discretion, has accelerated
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the vesting of such Option, to the extent exercisable following such
acceleration) at any time within 30 days after he ceases to be an
Employee (or within (i) three months after termination if on account of
Retirement or (ii) 12 months after termination if on account of
Disability), unless by its terms it expires earlier or unless, with
respect to any Nonstatutory Option, the Committee agrees, in its sole
discretion, to extend the term of such Option; provided that the term
of any such Option will not be extended beyond its original term. If a
Participant dies while employed by the Company or any subsidiary
thereof, or within three months after ceasing to be an Employee, such
Participant's Option will be exercisable (to the extent exercisable on
the date of death, or, if the Committee, in its sole discretion, has
accelerated the vesting of such Option, to the extent exercisable
following such acceleration) at any time within 12 months after the
date of death, unless by its terms it expires earlier or unless, with
respect to any Nonstatutory Option, the Committee agrees, in its sole
discretion, to extend the term of such Option; provided that the term
of any such Option will not be extended beyond its original term.
Military or sick leave will not be deemed a termination of employment,
provided that it does not exceed the longer of three months or the
period during which the absent Participant's reemployment rights, if
any, are guaranteed by statute or by contract. The foregoing is
qualified by the following: (i) if any facts that would constitute
Cause for termination of employment of a Participant are brought to the
attention of the Committee after the Participant's employment with the
Company or any subsidiary thereof has ended, any Options then held by
the Participant may be immediately terminated by the Committee and (ii)
if a Participant is an Employee employed pursuant to a written
Employment Agreement, the Participant's employment with the Company
will be deemed terminated for "cause" for purposes of the Plan only if
the Participant's employment is considered under the circumstances to
have been terminated for cause for purposes of such agreement.
(b) TERMINATION OF ASSOCIATION WITH THE COMPANY. If (i) a
Nonemployee Director is removed for Cause or (ii) a consultant or
advisor or other Participant who is not an Employee has his
relationship with the Company terminated for Cause, any Options held by
any such Participant will automatically expire. In all other cases, any
Options held by such a Participant, to the extent exercisable on the
date of termination of the Participant's association with the Company,
will remain exercisable and will expire in accordance with the terms of
the applicable Option Agreement; provided that (i) if any facts that
would constitute cause for removal or termination of a Participant who
is a Nonemployee Director, consultant or advisor or other person who is
not an Employee are brought to the attention of the Committee after
such Participant's association with the Company has ended, any Options
held by such Participant may be immediately terminated by the
Committee, and (ii) if such Participant has been retained pursuant to a
written agreement, the Participant's relationship with the Company will
be deemed terminated for "cause" for purposes of the Plan only if the
Participant's association with the Company is considered under the
circumstances to have been terminated for cause for purposes of such
written agreement.
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4.9. TRANSFERABILITY OF OPTIONS.
(a) INCENTIVE OPTIONS. Incentive Options may not be
transferred or assigned other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the
Participant only by the Participant or by the Participant's legally
authorized representative, and each Option Agreement in respect of an
Incentive Option will so provide. The designation by a Participant of a
beneficiary will not constitute a transfer of the Option.
(b) NONSTATUTORY OPTIONS. With respect to Nonstatutory
Options, the Committee may, in its sole discretion, provide in any
Option Agreement (or in an amendment to any existing Option Agreement)
such provisions regarding transferability of the Nonstatutory Options
as the Committee, in its sole discretion, deems appropriate.
4.10. LIMITATION OF RIGHTS IN STOCK. A Participant will not be
deemed for any purpose to be a stockholder of the Company with respect to any
of the shares of Stock covered by an Option, except to the extent the Option
has been exercised with respect thereto and, in addition, a certificate has
been issued therefor and delivered to the Participant or his agent. Any Stock
issued pursuant to the Option will be subject to all restrictions upon the
transfer thereof that may be now or hereafter imposed by the Certificate of
Incorporation of the Company (as amended or restated from time to time), the
Bylaws of the Company (as amended or restated from time to time) and any
applicable Employment Agreement.
4.11. OPTION REPRICINGS PROHIBITED. Notwithstanding any other
provision of the Plan, neither the Board nor the Committee shall, except as
provided under Section 9.2, (a) amend or modify any Options previously granted
under the Plan to reduce the Option Price of such Options or (b) cancel any
Options previously granted under the Plan in connection with the grant to the
holders of such Options of new Options under the Plan at a lower Option Price.
ARTICLE V
RESTRICTED STOCK
5.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may, in its
sole discretion, grant Restricted Stock Awards in accordance with the terms and
conditions set forth in the Plan. Each Restricted Stock Agreement may contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as are determined by the Committee in its sole discretion.
5.2. TERMS AND CONDITIONS. Each Restricted Stock Award confers upon
the recipient thereof the right to receive a specified number of shares of Stock
in accordance with the terms and conditions of each Participant's Restricted
Stock Agreement. The general terms and conditions of a Restricted Stock Award
will be as follows:
(a) Any shares of Stock awarded hereunder to a Participant
will be restricted for a period of time to be determined by the
Committee for each Participant at the time of the
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Award, which period shall be not more than ten years. The restrictions
will prohibit the sale, assignment, transfer, pledge or other
encumbrance of such shares, and will provide for possible reversion
thereof to the Company in accordance with subparagraph (b) during the
period of restriction.
(b) All Restricted Stock awarded under this Plan to a
Participant will be forfeited and returned to the Company in the event
the Participant's employment or service with the Company or a
subsidiary thereof is terminated prior to the expiration of the period
of restriction, unless the Participant's termination of employment or
service is due to his death, Disability or Retirement or unless the
Committee, in its sole discretion, waives the restrictions established
in accordance with subparagraph (a) with respect to any or all of
the shares of Restricted Stock.
(c) In the event of a Participant's death or Disability, the
restrictions established in accordance with subparagraph (a) will lapse
with respect to all Restricted Stock awarded to the Participant prior
to any such event, and the shares of Stock involved will cease to be
Restricted Stock and will no longer be subject to forfeiture to the
Company pursuant to subparagraph (b).
(d) In the event of a Participant's Retirement, the
restrictions established in accordance with subparagraph (a) will
continue to apply unless the Committee in its sole discretion shortens
the restriction period.
(e) Stock certificates issued with respect to Restricted Stock
Awards will be registered in the name of the Participant, but will be
delivered by him to the Company together with a stock power endorsed in
blank. Each such certificate will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO FORFEITURE, RESTRICTIONS ON TRANSFER AND
CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE
COMPUSA INC. LONG-TERM INCENTIVE PLAN AND THE
AGREEMENT BETWEEN THE REGISTERED OWNER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE AND COMPUSA
INC. ENTERED INTO PURSUANT TO SUCH PLAN."
From the time of grant of the Restricted Stock Award, the
Participant will be entitled to exercise all rights (including dividend
and voting rights) with respect to the shares represented by such
certificate, subject to forfeiture of such voting rights and the Stock
as provided in subparagraph (b).
(f) Upon the lapse of a restriction period as determined
pursuant to subparagraph (a), the Company will return the stock
certificates representing the shares with respect to
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which the restriction has lapsed to the Participant or his legal
representative, and pursuant to the instruction of the Participant
or his legal representative will issue a certificate for such shares
that does not bear the legend set forth in subparagraph (e).
(g) Any other securities or assets (other than ordinary cash
dividends) that are received by a Participant with respect to
Restricted Stock awarded to him, which is still subject to restrictions
established in accordance with subparagraph (a), will be subject to the
same restrictions and will be delivered by the Participant to the
Company as provided in subparagraph (e).
5.3. NOTICE TO COMPANY OF SECTION 83(b) ELECTION. Any Participant who
exercises an election under Section 83(b) of the Code to have his receipt of
Shares of Restricted Stock taxed currently, without regard to restrictions, must
give notice to the Company of such election immediately upon making such
election. Such an election must be made within 30 days after the effective date
of issuance and cannot be revoked except with the consent of the Internal
Revenue Service.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1. GRANT OF STOCK APPRECIATION RIGHTS. The Committee may, in its
sole discretion, grant Stock Appreciation Rights in accordance with the terms
and conditions set forth in the Plan. Each Stock Appreciation Rights Agreement
may contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as are determined by the Committee in its sole discretion.
6.2. TERMS AND CONDITIONS. A Stock Appreciation Right will entitle
a Participant to receive an amount equal to (or if the Committee shall so
determine at the time of grant, less than) the excess of the Market Value on the
date of exercise over the Market Value on the date of grant of such right (or
such other price as is set by the Committee), multiplied by the number of shares
of Stock with respect to which the Stock Appreciation Right shall have been
exercised.
6.3. FORM OF GRANT. A Stock Appreciation Right may be granted in
combination with, in addition to, or completely independent of, an Option or any
other Award.
6.4. FORM OF PAYMENT. Settlement of a Stock Appreciation Right may
be made (i) in cash, (ii) by certified or cashier's check, (iii) if permitted by
the Committee, in shares of Stock or (iv) in any other form of valid
consideration, as determined by the Committee in its sole discretion. However,
any Stock Appreciation Right exercised upon or subsequent to the occurrence of
an event described in Sections 2.5(a) or 2.5(b) must be paid in cash.
6.5. EXERCISE OF STOCK APPRECIATION RIGHTS; EFFECTS ON OPTIONS AND
VICE-VERSA. Each Stock Appreciation Right will be exercisable in accordance with
the terms of the Stock Appreciation Rights Agreement pursuant to which the Stock
Appreciation Right is granted. Whenever a Stock
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Appreciation Right is granted in relation to an Option and the exercise of
one affects the right to exercise the other, the number of shares of Stock
available under the Option to which the Stock Appreciation Right relates will
decrease by a number equal to the number of shares of Stock for which the
Stock Appreciation Right is exercised. Upon the exercise of an Option, any
related Stock Appreciation Right will terminate as to any number of shares of
Stock subject to such Stock Appreciation Right that exceeds the total number
of shares of Stock for which the Option remains unexercised.
6.6. TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Subject to
Section 6.8, the Committee may, in its sole discretion, provide in any Stock
Appreciation Rights Agreement (or in an amendment to any existing Stock
Appreciation Rights Agreement) such provisions regarding transferability of the
Stock Appreciation Rights as the Committee, in its sole discretion, deems
appropriate.
6.7. TERMINATION OF EMPLOYMENT OR SERVICE. Whenever a Stock
Appreciation Right is granted in relation to an Option and the exercise of one
affects the right to exercise the other, in the event of the termination of the
Participant's employment or service with the Company, the Stock Appreciation
Right may be exercised only during the period, if any, within which the Option
to which it relates may be exercised. If a Stock Appreciation Right is granted
independently of an Option under the Plan, the following provisions will apply:
(a) TERMINATION OF EMPLOYMENT WITH THE COMPANY. If a
Participant ceases to be employed by the Company or any subsidiary
thereof because the Participant is terminated for Cause, any Stock
Appreciation Rights held by that Participant will automatically expire.
If a Participant's employment is terminated for any reason other than
Cause or due to death, such Participant's Stock Appreciation Right will
be exercisable (to the extent exercisable on the date of termination of
the Participant's employment or, if the Committee, in its sole
discretion, has accelerated the vesting of such Stock Appreciation
Right, to the extent exercisable following such acceleration) at any
time within 30 days after he ceases to be an Employee (or within (i)
three months after termination if on account of Retirement or (ii) 12
months after termination if on account of Disability), unless by its
terms it expires earlier or unless the Committee agrees, in its sole
discretion, to extend the term of such Stock Appreciation Right;
provided that the term of any such Stock Appreciation Right will not be
extended beyond its original term. If a Participant dies while employed
by the Company or any subsidiary thereof, or within three months after
ceasing to be an Employee, such Participant's Stock Appreciation Right
will be exercisable (to the extent exercisable on the date of death,
or, if the Committee, in its sole discretion, has accelerated the
vesting of such Stock Appreciation Right, to the extent exercisable
following such acceleration) at any time within 12 months after the
date of death, unless by its terms it expires earlier or unless the
Committee agrees, in its sole discretion, to extend the term of such
Stock Appreciation Right; provided that the term of any such Stock
Appreciation Right will not be extended beyond its original term.
Military or sick leave will not be deemed a termination of employment,
provided that it does not exceed the longer of three months or the
period during
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which the absent Participant's reemployment rights, if any, are
guaranteed by statute or by contract. The foregoing is qualified by the
following: (i) if any facts that would constitute Cause for termination
of employment of a Participant are brought to the attention of the
Committee after the Participant's employment with the Company or any
subsidiary thereof has ended, any Stock Appreciation Rights then held
by the Participant may be immediately terminated by the Committee and
(ii) if a Participant is an Employee employed pursuant to a written
Employment Agreement, the Participant's employment with the Company
will be deemed terminated for "cause" for purposes of the Plan only if
the Participant's employment is considered under the circumstances to
have been terminated for cause for purposes of such agreement.
(b) TERMINATION OF ASSOCIATION WITH THE COMPANY. If a
consultant or advisor or other Participant who is not an Employee has
his relationship with the Company terminated for Cause, any Stock
Appreciation Rights held by any such Participant will automatically
expire. In all other cases, any Stock Appreciation Rights held by such
a Participant, to the extent exercisable on the date of termination of
the Participant's association with the Company, will remain exercisable
and will expire in accordance with the terms of the applicable Stock
Appreciation Rights Agreement; provided that (i) if any facts that
would constitute cause for removal or termination of a Participant who
is a consultant or advisor or other person who is not an Employee are
brought to the attention of the Committee after such Participant's
association with the Company has ended, any Stock Appreciation Rights
held by such Participant may be immediately terminated by the Committee
and (ii) if such Participant has been retained pursuant to a written
agreement, the Participant's relationship with the Company will be
deemed terminated for "cause" for purposes of the Plan only if the
Participant's association with the Company is considered under the
circumstances to have been terminated for cause for purposes of such
written agreement.
6.8. TANDEM INCENTIVE OPTION - STOCK APPRECIATION RIGHT. Whenever
an Incentive Option and a Stock Appreciation Right are granted together and the
exercise of one affects the right to exercise the other, the following
requirements shall apply:
(a) The Stock Appreciation Right will expire no later than the
expiration of the underlying Incentive Option.
(b) The Stock Appreciation Right may be for no more than the
difference between the Option Price of the underlying Incentive Option
and the Market Value of the Stock subject to the underlying Incentive
Option at the time the Stock Appreciation Right is exercised.
(c) The Stock Appreciation Right is transferable only when the
underlying Incentive Option is transferable, and under the same
conditions.
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(d) The Stock Appreciation Right may be exercised only when
the underlying Incentive Option is eligible to be exercised.
(e) The Stock Appreciation Right may be exercised only when
the Market Value of the Stock subject to the underlying Incentive
Option exceeds the Option Price of the underlying Incentive Option.
6.9. WRITTEN NOTICE REQUIRED. Any Stock Appreciation Right will be
deemed to be exercised when written notice of exercise has been received by the
Company at its principal office from the person entitled to exercise the Stock
Appreciation Right.
ARTICLE VII
PERFORMANCE SHARES
7.1. GRANT OF PERFORMANCE SHARES. The Committee may, in its sole
discretion, grant Performance Shares in accordance with the terms and conditions
set forth in the Plan. Each Performance Share Agreement may contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
are determined by the Committee in its sole discretion.
7.2. TERMS AND CONDITIONS. Performance Shares may be earned based
on the attainment of Performance Goals established by the Committee for a
particular Performance Cycle. The Committee may establish Performance Goals on
the basis of such criteria and to accomplish such objectives as the Committee
may from time to time select.
7.3. AMOUNT OF PAYMENT. After the end of each Performance Cycle,
the Committee will determine the number of Performance Shares earned by each
Participant with respect to the Performance Cycle in accordance with the
following:
(a) If the Performance Goal is attained or exceeded, a
Participant will be deemed to have earned the full number of
Performance Shares granted to the Participant.
(b) If the Minimum Performance Goal is not attained, a
Participant will be deemed to have earned no Performance Shares.
(c) If the Performance Goal is not attained, but the Minimum
Performance Goal is attained or exceeded, the number of Performance
Shares deemed to have been earned by a Participant will be a portion of
the Performance Shares, as determined based on a formula established by
the Committee at the time of grant.
(d) If a Participant's employment or service with the Company
or any subsidiary thereof has terminated because of death, Disability
or Retirement prior to the end of a Performance Cycle, the number of
Performance Shares such Participant will be deemed to have earned shall
be the number of Performance Shares determined as though such
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Participant's employment or service had not terminated, multiplied by a
fraction, the numerator of which is the number of months such
Participant was employed or served the Company or a subsidiary thereof
during the Performance Cycle (including the month during which
employment or service terminated) and the denominator of which is the
total number of months in the Performance Cycle.
(e) If the Participant's employment or service has terminated
for any reason other than death, Disability or Retirement, such
Participant will be deemed to have earned no Performance Shares except
as and to the extent the Committee may determine; provided that the
number of Performance Shares that may be so determined by the Committee
to have been earned may not exceed the number that would have been
earned had the provisions of Section 7.3(a) been applicable.
(f) At any time prior to the end of a Performance Cycle, the
Committee may adjust downward (but not upward) the Performance Goal
and/or the Minimum Performance Goal as a result of major events
unforeseen at the time the Performance Shares were awarded, such as
changes in the economy, the industry, laws affecting the operation of
the Company or any subsidiary thereof, changes in applicable tax laws
or accounting principles or any other event the Committee determines
would have a significant impact upon the probability of attaining the
previously established Performance Goal and/or Minimum Performance
Goal.
7.4. FORM OF PAYMENT. Payment in respect of earned Performance
Shares will be made to the Participant or, if the Participant has died, to the
Participant's designated beneficiary, as soon as practicable after the
expiration of the Performance Cycle and the Committee's determination under
Section 7.3. Payment in respect of earned Performance Shares may be made in
cash, in shares of Stock or a combination thereof, as determined by the
Committee in its sole discretion at the time of payment.
7.5. ADDITIONAL AWARDS. In the sole discretion of the Committee, a
Performance Share Award may provide the Participant with (i) dividends or
dividend equivalents (payable on a current or deferred basis) and (ii) cash
payments in lieu of or in addition to such Award.
ARTICLE VIII
STOCK UNIT AWARDS
8.1. GRANT OF STOCK UNIT AWARDS. The Committee may, in its sole
discretion, grant Stock Unit Awards in accordance with the terms and conditions
set forth in the Plan. Each Stock Unit Agreement may contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as are
determined by the Committee in its sole discretion.
8.2 TERMS AND CONDITIONS. Stock Unit Awards may be in the form of
Stock or units, the value of which is based, in whole or in part, on the Market
Value of Stock. Stock Unit Awards will be subject to such terms, restrictions,
conditions, vesting requirements and payment
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requirements as the Committee may determine in its sole discretion at the
time of grant, including without limitation the following:
(a) Any shares of Stock that are part of a Stock Unit Award
may be subject to restrictions on sale, assignment, transfer, pledge or
other encumbrance.
(b) Stock Unit Awards may provide for the payment of cash
consideration by the Participant or provide that the Award, and any
Stock to be issued in connection therewith, if applicable, shall be
delivered without the payment of cash consideration.
(c) Stock Unit Awards may relate in whole or in part to
certain performance criteria established by the Committee.
(d) Stock Unit Awards may provide for deferred payment
schedules and/or vesting over a specified period of employment or
service with the Company or any subsidiary thereof.
8.3. ADDITIONAL AWARDS. In the sole discretion of the Committee, a
Stock Unit Award may provide the Participant with (i) dividends or dividend
equivalents (payable on a current or deferred basis) and (ii) cash payments in
lieu of or in addition to such Award.
ARTICLE IX
TERMINATION, AMENDMENT AND ADJUSTMENT
9.1. TERMINATION AND AMENDMENT OF THE PLAN. The Board (or, if the
Board has specifically delegated this authority to the Committee, the Committee)
may at any time terminate the Plan or make such modifications of the Plan as it
deems advisable; provided that no amendment may be made without approval of the
stockholders of the Company if such approval is required under applicable law.
No termination or amendment of the Plan may, without the consent of the
Participant to whom any Award has theretofore been granted, adversely affect the
rights of such Participant under such Award.
9.2. ADJUSTMENT. In the event of any stock dividend payable in
Stock or any split-up or contraction of the number of shares of Stock after the
date an Award is granted and prior to the exercise in full of an Option or Stock
Appreciation Right or the lapse, waiver and/or satisfaction of any restrictions
or Performance Goals related to a Restricted Stock Award, Performance Share
Award or Stock Unit Award, the number of shares subject to such Award and, if
applicable, the Option Price, will be proportionately adjusted. In the event of
any reclassification or change of outstanding shares of Stock or in case of any
consolidation or merger of the Company with or into another company or in case
of any sale or conveyance to another company or entity of the property of the
Company as a whole or substantially as a whole, shares of stock or other
securities equivalent in kind and value to those shares a Participant would have
received if he had held the full number of shares of Stock subject to the Award
immediately prior to such reclassification, change,
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consolidation, merger, sale or conveyance (together with all other shares,
stock and securities thereafter issued in respect thereof) will thereupon be
subject to the Award. Upon dissolution or liquidation of the Company, all
Awards will terminate, but the Participant will have the right, immediately
prior to such dissolution or liquidation, to exercise any Option or Stock
Appreciation Right to the extent exercisable on the date of such dissolution
or liquidation. No fraction of a share of Stock will be purchasable or
deliverable upon exercise, but in the event any adjustment hereunder of the
number of shares covered by the Award will cause such number to include a
fraction of a share, such number of shares will be adjusted to the nearest
smaller whole number of shares. In the event of changes in the outstanding
Stock by reason of any stock dividend, split-up, contraction,
reclassification, or change of outstanding shares of Stock of the nature
contemplated by this Section 9.2, the maximum number of shares of Stock that
may be issued from time to time pursuant to the Plan and the maximum number
of shares of Stock with respect to which Awards may be granted to any
Participant during the term of the Plan, as stated in Section 2.3, will be
correspondingly adjusted.
ARTICLE X
MISCELLANEOUS
10.1. NOTICES AND OTHER COMMUNICATIONS. All notices and other
communications required or permitted under the Plan will be effective if in
writing and if delivered or sent by certified or registered mail, return
receipt requested (a) if to the Participant, at his residence address last
filed with the Company and (b) if to the Company, at 14951 North Dallas
Parkway, Dallas, Texas 75240 Attention: President, with a copy to the
Chairman of the Board of Directors of the Company, presently at 14951 North
Dallas Parkway, Dallas, Texas 75240, or to such other persons or addresses as
the Participant or the Company may specify by a written notice to the other
from time to time.
10.2. PLAN BINDING ON SUCCESSORS. The Plan will be binding upon
the successors and assigns of the Company.
10.3. NUMBER AND GENDER. Whenever used herein, nouns in the
singular will include the plural where appropriate, and the masculine pronoun
will include the female gender.
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COMPUSA INC.
COZONE.COM STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms will have the following
meanings:
1.1. BOARD means the Company's Board of Directors.
1.2. BUSINESS shall mean the business involving the sale of computer
hardware, software and peripherals as well as certain other consumer electronics
and technology products via the Internet, as conducted by Cozone L.L.C. or its
successor.
1.3. CAUSE means an act or acts engaged in by an Optionee involving (i)
a felony, (ii) fraud, (iii) embezzlement, (iv) gross or willful neglect of duty
or misconduct, or (v) the commission of any act that causes or reasonably may be
expected to cause substantial injury to the Company.
1.4. CODE means the federal Internal Revenue Code of 1986, as amended.
1.5. COMMISSION means the United States Securities and Exchange
Commission.
1.6. COMMITTEE means a committee comprised of two or more Directors of
the Company, appointed by the Board; provided that the full Board may at any
time, in its sole discretion, exercise any or all functions and authority of the
Committee.
1.7. COMPANY means CompUSA Inc., a Delaware corporation.
1.8. COZONE INC. means cozone.com inc., a Delaware corporation.
1.9. COZONE INC. PLAN means the cozone.com inc. Long-Term Incentive
Plan.
1.10. COZONE L.L.C. means cozone.com l.l.c., a Delaware limited
liability company.
1.11. DIRECTOR means a member of the Board of Directors of the Company
or of a subsidiary thereof.
1.12. DISABILITY of an Optionee will be deemed to occur whenever an
Optionee is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected to last for a
continuing period of not less than 12 months. In the case of any dispute as to
whether or not an Optionee is disabled within the meaning of this Section, the
determination of disability will
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be made by a licensed physician selected by the Board and acceptable to the
Optionee, which physician's decision will be final and binding.
1.13. EMPLOYEE means any employee of the Company or of any of its
subsidiaries, as defined under Section 3401(c) of the Code and the regulations
promulgated thereunder.
1.14. EMPLOYMENT AGREEMENT means an agreement, if any, between the
Company or any subsidiary thereof and an Optionee, setting forth the terms and
conditions of the Optionee's employment by the Company or such subsidiary.
1.15. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.16. EXERCISE PRICE means the price to be paid by an Optionee for a
share of Stock upon exercise of an Option.
1.17. NONEMPLOYEE DIRECTOR means a member of the Board who is not an
Employee.
1.18. OPTION means an option to purchase Stock granted under the Plan.
1.19. OPTION AGREEMENT means a written agreement between the Company and
an Optionee setting forth the terms and conditions of an Option.
1.20. OPTION VALUE with respect to any date shall be equal to (i) the
Stock Value calculated as of such date minus the Exercise Price, multiplied by
(ii) the number of shares of Stock that would be purchasable pursuant to the
Option as of such date if it was exercisable in full.
1.21. OPTIONEE means a person to whom an Option has been granted.
1.22. PLAN means this cozone.com Stock Option Plan of the Company, as
amended from time to time.
1.23. PUBLICLY TRADED means either (i) listed on the New York Stock
Exchange or (ii) quoted on the National Association of Securities Dealers
Automated Quotation National Market System.
1.24. RETIREMENT means resignation by the Optionee on or after the date
on which the Optionee has served the Company or one or more subsidiaries thereof
for at least five years in the aggregate.
1.25. SECURITIES ACT means the Securities Act of 1933, as amended.
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1.26. STOCK means Class A Common Stock, par value $.01 per share, of
Cozone Inc., or, in the event the outstanding shares of such stock are hereafter
changed into or exchanged for shares of a different security of Cozone Inc. or
some other company, such other security.
1.27. "STOCK VALUE" with respect to any date shall be equal to the
average of the valuations of a share of Stock as of such date determined by two
independent, nationally-recognized investment banking firms, which valuations
shall equal the fair market value of one share of Stock without taking into
account any discount for illiquidity or lack of control.
ARTICLE II
GENERAL
2.1. PURPOSE. This Plan is intended to encourage ownership of Stock by
Optionees and to provide additional incentives for them to promote the success
of the Company's business and its investment in Cozone Inc.
2.2. TERM OF THE PLAN. Options may not be granted after November 2,
2009.
2.3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
5.2 and subject to any additional restrictions elsewhere in the Plan, the
maximum aggregate number of shares of Stock that may be available from time to
time pursuant to the Plan may not exceed 600,000. Shares available pursuant to
Options will be shares of Stock held by the Company. If Options expire or
terminate for any reason without having been exercised in full, the shares not
purchased will again be available for purchase pursuant to the Plan.
2.4. ELIGIBILITY. Any full-time or part-time Employee, Director,
consultant or advisor of one or more of the Company or any subsidiary thereof
will be eligible to be an Optionee.
2.5. ACCELERATION AND TREATMENT OF OPTION IN CERTAIN EVENTS. The
Committee may accelerate the exercisability of any Option in whole or in part at
any time. In addition, notwithstanding the provisions of any Option Agreement,
the following provisions will apply:
(a) SALE, MERGER OR REORGANIZATION. If before the Stock has become
Publicly Traded, the Company enters into an agreement to dispose of all or
substantially all the assets of the Company, by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the Company
is not the surviving corporation, the Company shall purchase, if Optionee so
elects, the entire Option for a price equal to the Option Value (as defined
below) calculated as of the date the transaction requiring such determination is
consummated, payable in cash as soon as practicable and in any event within 60
days after consummation of the transaction causing such purchase obligation;
provided that no purchase obligation shall exist under this Section 2.5(a) on
account of any agreement of merger or other reorganization when the stockholders
of the Company immediately before consummation of the transaction will own at
least 50% of the
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total combined voting power of all classes of stock entitled to vote of the
surviving entity immediately after consummation of the transaction.
(b) COMPANY CHANGE IN CONTROL. If a Company Change In Control (as
defined below) occurs before the Stock has become Publicly Traded, the Company
shall purchase, if Optionee so elects, the entire Option for a price equal to
the Option Value calculated as of the date the transaction requiring such
determination is consummated, payable in cash as soon as practicable and in any
event within 60 days after the occurrence of the event constituting the Company
Change In Control.
(c) COZONE CHANGE IN CONTROL. If a Cozone Change In Control (as
defined below) occurs before the Stock has become Publicly Traded, the Company
shall purchase, if Optionee so elects, the entire Option for a price equal to
the Option Value calculated as of the date the transaction requiring such
determination is consummated. Any payment due pursuant to the preceding
sentence shall be made, at the Company's sole option, by tendering such payment
in the form of (i) cash, (ii) shares of the common stock of the Company, with
each of such shares valued at the closing sale price of a share of Company
common stock on the last trading day immediately preceding the date of payment,
or (iii) any combination of the foregoing. The resale of any shares of Company
common stock tendered to Optionee pursuant to the preceding sentence must at the
time of such tender be registered pursuant to an effective registration
statement filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
(d) POST-IPO COZONE CHANGE IN CONTROL. If a Cozone Change In Control
occurs after the Stock has become Publicly Traded, the Option will become
immediately exercisable in full.
(e) Certain defined terms:
(i) At any time BEFORE the Stock has become Publicly Traded, a
"Cozone Change In Control" shall be deemed to have occurred if either (a)
the Company and its majority-owned direct or indirect subsidiaries shall
at any time cease to be the beneficial owners, collectively, of
securities representing at least 15% of the equity interest in Cozone
Inc., or (b) any of Cozone Inc. or its stockholders or Cozone L.L.C. or
its members enter into an agreement to dispose of all or substantially
all the assets of the Business by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company or Cozone L.L.C., as applicable, is not the surviving entity;
provided that entering into such an agreement shall not constitute a
Company Change In Control if (1) the stockholders of the Company and
members of Cozone L.L.C., as applicable, immediately before the
consummation of the transaction will collectively own or control,
directly or indirectly, at least 15% of the equity interest of the
surviving entity or successor in ownership to the Business, as
applicable, immediately after the consummation of the transaction, or (2)
the surviving entity or successor in ownership to the Business is the
Company or an entity controlled directly or indirectly by the Company.
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At any time AFTER the Stock has become Publicly Traded, a "Cozone
Change In Control" shall be deemed to have occurred if Cozone Inc. has
adopted a stockholder rights plan (the "Cozone Rights Plan") and either
(a) a Person has met the requirements for becoming an Acquiring Person of
Cozone Inc., whether or not a Distribution Date occurs or the Rights are
redeemed by Cozone Inc.; provided that a Cozone Change In Control shall
not be deemed to have occurred for purposes hereof with respect to any
Person meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Exchange Act, or any successor
provision (for purposes of this Section 2.5(e)(i), "Person," "Acquiring
Person," "Distribution Date" and "Rights" shall have the meanings
ascribed to such terms or any analogous terms in the Cozone Rights Plan
on the date the Cozone Rights Plan is adopted, whether or not the Cozone
Rights Plan is subsequently amended to change the meaning of any such
terms or analogous terms), or (b) any of Cozone Inc. or its stockholders
or Cozone L.L.C. or its members enter into an agreement to dispose of all
or substantially all of the assets of the Business by means of a sale,
merger or other reorganization, liquidation or otherwise in a transaction
in which Cozone Inc. or Cozone L.L.C., as applicable, is not the
surviving entity; provided that entering into such an agreement shall not
constitute a Cozone Change In Control if (1) the stockholders of Cozone
Inc. and members of Cozone L.L.C., as applicable, immediately before the
consummation of the transaction will collectively own or control,
directly or indirectly, at least 15% of the equity interest of the
surviving entity or successor in ownership to the Business, as
applicable, immediately after the consummation of the transaction, or (2)
the surviving entity or successor in ownership to the Business is the
Company or an entity controlled directly or indirectly by the Company.
(ii) A "Company Change In Control" shall be deemed to have
occurred when any Person meets the requirements for becoming an Acquiring
Person of the Company, whether or not a Distribution Date occurs or the
Rights are redeemed by the Company; provided that a Company Change In
Control shall not be deemed to have occurred for purposes hereof with
respect to any Person meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Exchange Act, or any successor
provision. For purposes of this Section 2.5(e)(ii), "Person," "Acquiring
Person," "Distribution Date" and "Rights" shall have the meanings
ascribed to such terms in the Rights Agreement between the Company and
Bank One, Texas, N.A. as Rights Agent (American Stock Transfer & Trust
Company became successor Rights Agent as of August 19, 1996), dated as of
April 29, 1994. Notwithstanding the foregoing, a Company Change In
Control shall not be deemed to have occurred in the event a Cozone Change
In Control shall have occurred at any time prior to the occurrence of the
event otherwise constituting a Company Change In Control.
2.6. RESTRICTIONS ON TRANSFER OF SHARES. Notwithstanding any other
provision of the Plan, if at any time in the reasonable opinion of the Company
the transfer of shares of Stock pursuant to an Option may constitute a violation
of law, then the Company may delay such transfer and the delivery of a
certificate for such shares of Stock until (i) approval has been obtained from
such governmental agencies, other than the Commission, as may be required under
any applicable law,
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rule or regulation and (ii) in the case where such issuance would constitute
a violation of a law administered by or a regulation of the Commission, one
of the following conditions has been satisfied:
(a) the transfer of the Stock has been effectively registered
under the Securities Act; or
(b) a no-action letter in form and substance reasonably
satisfactory to the Company with respect to the transfer of such shares
has been obtained by the Company from the staff of the Commission.
The Company will make all reasonable efforts to bring about the occurrence of
such events.
2.7. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION.
(a) Unless the transfer of the shares of Stock from the Company
to an Optionee pursuant to exercise of an Option has been effectively
registered under the Securities Act, the Company will be under no
obligation to transfer any shares of Stock pursuant to exercise of an
Option unless the Optionee gives a written representation to the Company
that is satisfactory in form and substance to its counsel and upon which
the Company may reasonably rely, that he is acquiring the shares of Stock
transferred pursuant to such Option as an investment and not with a view
to, or for sale in connection with, the distribution of any such shares
of Stock.
(b) If required in the opinion of counsel, each certificate
representing shares of Stock transferred by the Company to an Optionee
pursuant to exercise of an Option will bear a reference to the investment
representation made in accordance with this Section 2.7 and to the fact
that no registration statement has been filed with the Commission in
respect of the transfer of such shares of Stock.
2.8. WITHHOLDING.
(a) Whenever shares of Stock are to be transferred pursuant to
exercise of an Option, the Company will have the right to require the
Optionee to remit to the Company an amount sufficient to satisfy federal,
state, local or other withholding tax requirements (whether so required
to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for
such shares of Stock.
(b) When an Optionee is required to pay to the Company an
amount required to be withheld under applicable income tax laws in
connection with exercise of an Option, such payment may be made either in
cash or by certified or cashier's check.
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2.9. RESERVATION OF STOCK. The Company must at all times during the
term of the Plan reserve or otherwise keep available such number of shares of
Stock as will be sufficient to satisfy the requirements of the Plan and will pay
all fees and expenses necessarily incurred by the Company in connection
therewith.
2.10. NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. Nothing contained in the
Plan or in any Option will confer upon any Optionee any right with respect to
the continuation of his employment or service with the Company (or any
subsidiary), or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment or consulting
agreement or provision of law or certificate of incorporation or bylaws to the
contrary, at any time to terminate such employment or consulting agreement or to
increase or decrease the compensation of the Optionee from the rate in existence
at the time of the grant of an Option.
ARTICLE III
ADMINISTRATION
3.1. ADMINISTRATION. Subject to the provisions of the Plan, the Plan
will be administered by the Committee. The Committee will have sole discretion
and authority to determine from time to time the Optionees to whom Options will
be granted and the number of shares of Stock subject to each Option, to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine and interpret the terms and provisions of each
Option Agreement and to make all other determinations necessary or advisable for
the administration of the Plan. In making such determinations, the Committee
may take into account the nature of the services heretofore rendered by the
respective Optionees, their present and potential contributions to the success
of the Company and its subsidiaries, and such other factors as the Committee in
its sole discretion deems relevant. The Committee's determinations on the
matters referred to in this Section 3.1 will be conclusive.
ARTICLE IV
OPTIONS
4.1 GRANT OF OPTIONS. The Committee may, in its sole discretion,
grant Options in accordance with the terms and conditions set forth in the Plan.
Each Option Agreement may contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as are determined by the Committee in
its sole discretion.
4.2. TIME OF GRANTING OPTIONS. The granting of an Option will take
place at the time specified in the Option Agreement.
4.3. EXERCISE PRICE. The Exercise Price under each Option will be as
specified in the Option Agreement.
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4.4. OPTION PERIOD. The option period under each Option will be as
specified in the Option Agreement. Options may become exercisable in such
installments, cumulative or noncumulative, as the Committee may determine.
4.5. EXERCISE OF OPTIONS.
(a) METHOD OF EXERCISE. Each Option will be exercisable in
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a share
of Stock.
(b) PAYMENT OF EXERCISE PRICE. The Exercise Price of any
shares of Stock purchased must be paid at the time of exercise of the
Option either in cash or by certified or cashier's check.
4.6. TERMINATION OF EMPLOYMENT OR ASSOCIATION WITH THE COMPANY.
(a) TERMINATION OF EMPLOYMENT WITH THE COMPANY. If an Optionee
ceases to be employed by the Company or any subsidiary thereof because
the Optionee is terminated for Cause, any Options held by that Optionee
will automatically expire. If an Optionee's employment is terminated for
any reason other than for Cause or due to death, such Optionee's Option
will be exercisable (to the extent exercisable on the date of termination
of the Optionee's employment or, if the Committee, in its sole
discretion, has accelerated the vesting of such Option, to the extent
exercisable following such acceleration) at any time within 30 days after
he ceases to be an employee of the Company or any subsidiary thereof (or
within (i) three months after termination if on account of Retirement or
(ii) 12 months after termination if on account of Disability), unless by
its terms it expires earlier or unless the Committee agrees, in its sole
discretion, to extend the term of such Option; provided that the term of
any such Option will not be extended beyond its original term. If an
Optionee dies while employed by the Company or any subsidiary thereof, or
within three months after ceasing to be an employee of the Company or any
subsidiary thereof, such Optionee's Option will be exercisable (to the
extent exercisable on the date of death, or, if the Committee, in its
sole discretion, has accelerated the vesting of such Option, to the
extent exercisable following such acceleration) at any time within 12
months after the date of death, unless by its terms it expires earlier or
unless the Committee agrees, in its sole discretion, to extend the term
of such Option; provided that the term of any such Option will not be
extended beyond its original term. Military or sick leave will not be
deemed a termination of employment, provided that it does not exceed the
longer of three months or the period during which the absent Optionee's
reemployment rights, if any, are guaranteed by statute or by contract.
The foregoing is qualified by the following: (i) if any facts that would
constitute Cause for termination of employment of an Optionee are brought
to the attention of the Committee after the Optionee's employment with
the Company or any subsidiary thereof has ended, any Options then held by
the Optionee may be immediately terminated by the Committee and (ii) if
an Optionee is employed pursuant to a written Employment Agreement, the
Optionee's
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employment with the Company will be deemed terminated for "cause" for
purposes of the Plan only if the Optionee's employment is considered
under the circumstances to have been terminated for cause for purposes
of such agreement.
(b) TERMINATION OF ASSOCIATION WITH THE COMPANY. If (i) a
Nonemployee Director is removed for Cause or (ii) a consultant or advisor
or other Optionee who is not an Employee has his relationship with the
Company terminated for Cause, any Options held by any such Optionee will
automatically expire. In all other cases, any Options held by such a
Optionee, to the extent exercisable on the date of termination of the
Optionee's association with the Company, will remain exercisable and will
expire in accordance with the terms of the applicable Option Agreement;
provided that (i) if any facts that would constitute cause for removal or
termination of a Optionee who is a Nonemployee Director, consultant or
advisor or other person who is not an employee of the Company are brought
to the attention of the Committee after such Optionee's association with
the Company has ended, any Options held by such Optionee may be
immediately terminated by the Committee, and (ii) if such Optionee has
been retained pursuant to a written agreement, the Optionee's
relationship with the Company will be deemed terminated for "cause" for
purposes of the Plan only if the Optionee's association with the Company
is considered under the circumstances to have been terminated for cause
for purposes of such written agreement.
4.7. TRANSFERABILITY OF OPTIONS. The Committee may, in its sole
discretion, provide in any Option Agreement (or in an amendment to any existing
Option Agreement) such provisions regarding transferability of the Options as
the Committee, in its sole discretion, deems appropriate.
4.8. LIMITATION OF RIGHTS IN STOCK. An Optionee will not be deemed for
any purpose to be a stockholder of Cozone Inc. with respect to any of the shares
of Stock covered by an Option, except to the extent the Option has been
exercised with respect thereto and, in addition, a certificate has been issued
therefor and delivered to the Optionee or his agent. Any Stock acquired
pursuant to exercise of the Option will be subject to all restrictions upon the
transfer thereof that may be now or hereafter imposed by the Certificate of
Incorporation of Cozone Inc. (as amended or restated from time to time), the
Bylaws of Cozone Inc. (as amended or restated from time to time) and any
applicable Employment Agreement.
ARTICLE V
TERMINATION, AMENDMENT AND ADJUSTMENT
5.1. TERMINATION AND AMENDMENT OF THE PLAN. The Board (or, if the
Board has specifically delegated this authority to the Committee, the Committee)
may at any time terminate the Plan or make such modifications of the Plan as it
deems advisable. No termination or amendment of the Plan may, without the
consent of the Optionee to whom any Option has theretofore been granted,
adversely affect the rights of such Optionee under such Option.
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5.2. ADJUSTMENT. In the event of any stock dividend payable in Stock
or any split or contraction of the number of shares of Stock after the date an
Option is granted and prior to the exercise in full of an Option, the number of
shares subject to such Option and, if applicable, the Exercise Price, will be
proportionately adjusted. In the event of any reclassification or change of
outstanding shares of Stock or in case of any consolidation or merger of Cozone
Inc. with or into another company or in case of any sale or conveyance to
another company or entity of the property of Cozone Inc. as a whole or
substantially as a whole, shares of stock or other securities equivalent in kind
and value to those shares an Optionee would have received if he had held the
full number of shares of Stock subject to the Option immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance (together
with all other shares, stock and securities thereafter issued in respect
thereof) will thereupon be subject to the Option. Upon dissolution or
liquidation of Cozone Inc., all Options will terminate, but the Optionee will
have the right, immediately prior to such dissolution or liquidation, to
exercise any Option to the extent exercisable on the date of such dissolution or
liquidation. No fraction of a share of Stock will be purchasable or deliverable
upon exercise, but in the event any adjustment hereunder of the number of shares
covered by the Option will cause such number to include a fraction of a share,
such number of shares will be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 5.2, the number of
shares of Stock available for the purpose of the Plan as stated in Section 2.3
will be correspondingly adjusted.
ARTICLE VI
MISCELLANEOUS
6.1. NOTICES AND OTHER COMMUNICATIONS. All notices and other
communications required or permitted under the Plan will be effective if in
writing and if delivered or sent by certified or registered mail, return receipt
requested (a) if to the Optionee, at his residence address last filed with the
Company and (b) if to the Company, at 14951 North Dallas Parkway, Dallas, Texas
75240 Attention: President, or to such other persons or addresses as the
Optionee or the Company may specify by a written notice to the other from time
to time.
6.2. PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company.
6.3. NUMBER AND GENDER. Whenever used herein, nouns in the singular
will include the plural where appropriate, and the masculine pronoun will
include the female gender.
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COZONE.COM INC.
LONG-TERM INCENTIVE PLAN
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms will have the following
meanings:
1.1. AWARD means a grant of Options under Article IV of the Plan, a
Restricted Stock Award under Article V of the Plan, a Stock Appreciation Rights
Award under Article VI of the Plan, a Performance Share Award under Article VII
of the Plan or a Stock Unit Award under Article VIII of the Plan.
1.2. AWARD AGREEMENT means an Option Agreement, Restricted Stock
Agreement, Stock Appreciation Rights Agreement, Performance Share Agreement or
Stock Unit Agreement.
1.3. BOARD means the Company's Board of Directors.
1.4. CAUSE means an act or acts engaged in by a Participant involving
(i) a felony, (ii) fraud, (iii) embezzlement, (iv) gross or willful neglect of
duty or misconduct, or (v) the commission of any act that causes or reasonably
may be expected to cause substantial injury to the Company.
1.5. CODE means the federal Internal Revenue Code of 1986, as amended.
1.6. COMMISSION means the United States Securities and Exchange
Commission.
1.7. COMMITTEE means a committee comprised of two or more persons,
appointed by the Board, the members of which satisfy the requirements for
eligibility set forth in Section 3.1 and which is responsible for the
administration of the Plan; provided that the full Board may at any time, in its
sole discretion, exercise any or all functions and authority of the Committee.
1.8. COMPANY means cozone.com inc., a Delaware corporation.
1.9. DIRECTOR means a member of the Board of Directors of the Company
or of a subsidiary thereof.
1.10. DISABILITY of a Participant will be deemed to occur whenever a
Participant is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected to last for a
continuing period of not less than 12 months. In the case of any dispute as to
whether or not a Participant is disabled within the meaning of this Section, the
determination of disability will be made by a licensed physician selected by the
Board and acceptable to the Participant, which physician's decision will be
final and binding.
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1.11. EMPLOYEE means any employee of the Company or of any of its
subsidiaries, as defined under Section 3401(c) of the Code and the regulations
promulgated thereunder.
1.12. EMPLOYMENT AGREEMENT means an agreement, if any, between the
Company or any subsidiary thereof and a Participant, setting forth the terms and
conditions of the Participant's employment by the Company or such subsidiary.
1.13. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.14. GRANT DATE means, with respect to an Option, the date determined
pursuant to Section 4.2.
1.15. INCENTIVE OPTION means an Option that by its terms is intended to
be treated as an "incentive stock option" within the meaning of Section 422 of
the Code.
1.16. IPO has the meaning ascribed to it in Section 4.1.
1.17. MARKET VALUE means, as of any date, the value of a share of Stock
determined as follows: (a) if such Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination; (b) if such Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Stock is listed or
admitted to trading; (c) if such Stock is publicly traded but is not quoted on
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination; or (d) if none of the foregoing is applicable, by the
Committee in good faith.
1.18. MINIMUM PERFORMANCE GOAL means the minimum objective(s)
established by the Committee that must be satisfied before any portion of a
Performance Share Award is earned. The Minimum Performance Goal may, in the
sole discretion of the Committee, be the same as or less than the Performance
Goal.
1.19. NASDAQ NATIONAL MARKET means the Nasdaq Stock Market's National
Market System.
1.20. NONEMPLOYEE DIRECTOR means a member of the Board who is not an
Employee.
1.21. NONSTATUTORY OPTION means any Option that is not an Incentive
Option.
1.22. OPTION means an option to purchase Stock granted under the Plan.
1.23. OPTION AGREEMENT means a written agreement between the Company and
a Participant setting forth the terms and conditions of an Option.
1.24. EXERCISE PRICE means the price to be paid by a Participant for a
share of Stock upon exercise of an Option.
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1.25. PARENT means CompUSA Inc., a Delaware corporation.
1.26. PARTICIPANT means a person to whom an Award has been granted.
1.27. PERFORMANCE CYCLE or CYCLE means a period of years selected by the
Committee during which the performance of the Company and/or the Participant is
measured for the purpose of determining the extent to which Performance Shares
that have been contingently awarded with respect to such Cycle are earned.
1.28. PERFORMANCE GOAL means the objective(s) established by the
Committee at the time each Performance Share Award is granted with respect to
the related Performance Cycle for the purpose of determining the extent to which
Performance Shares that have been contingently awarded for such Cycle are
earned.
1.29. PERFORMANCE SHARE or PERFORMANCE SHARE AWARD means an Award
granted pursuant to Article VII expressed as a share of Stock.
1.30. PERFORMANCE SHARE AGREEMENT means a written agreement between the
Company and a Participant setting forth the terms and conditions of a
Performance Share Award.
1.31. PLAN means this Long-Term Incentive Plan of the Company, as
amended from time to time.
1.32. RESTRICTED STOCK or RESTRICTED STOCK AWARD means an award of Stock
granted under Article V.
1.33. RESTRICTED STOCK AGREEMENT means a written agreement between the
Company and a Participant with respect to a Restricted Stock Award.
1.34. RETIREMENT means resignation by the Participant on or after the
date on which the Participant has served the Company or one or more subsidiaries
thereof for at least five years in the aggregate.
1.35. RULE 16b-3 means Rule 16b-3 or its successors promulgated under
the Exchange Act.
1.36. SECURITIES ACT means the Securities Act of 1933, as amended.
1.37. SECTION 162(m) means Section 162(m) of the Code and the
regulations promulgated thereunder.
1.38. STOCK means Class A Common Stock, par value $.01 per share, of the
Company or, in the event the outstanding shares of such stock are hereafter
changed into or exchanged for shares of a different security of the Company or
some other corporation, such other security.
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1.39. STOCK APPRECIATION RIGHT or STOCK APPRECIATION RIGHTS AWARD means
an Award granted under Article VI.
1.40. STOCK APPRECIATION RIGHTS AGREEMENT means an agreement between the
Company and a Participant setting forth the terms and conditions of a Stock
Appreciation Rights Award.
1.41. STOCK UNIT or STOCK UNIT AWARD means an award of Stock or units
granted under Article VIII.
1.42. STOCK UNIT AGREEMENT means a written agreement between the Company
and a Participant setting forth the terms and conditions of a Stock Unit Award.
1.43. TEN PERCENT OWNER means a person who owns, or is deemed within the
meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or
its parent or subsidiary corporations, within the meaning of Sections 424(e) and
424(f) of the Code). Whether a person is a Ten Percent Owner will be determined
with respect to each Option based on the facts existing immediately prior to the
grant of such Option.
1.44. VESTING YEAR for any portion of any Incentive Option means the
calendar year in which that portion of the Option first becomes exercisable.
ARTICLE II
GENERAL
2.1. PURPOSE. This Plan is intended to encourage ownership of Stock by
Participants and to provide additional incentives for them to promote the
success of the Company's business. The Company intends that Incentive Options
granted under Article IV will qualify as "incentive stock options" within the
meaning of Section 422 of the Code.
2.2. TERM OF THE PLAN. No Awards may be granted after November 2,
2009.
2.3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
9.2 and subject to any additional restrictions elsewhere in the Plan, the
maximum aggregate number of shares of Stock that may be issued from time to time
pursuant to the Plan may not exceed 2,200,000. The maximum aggregate number of
shares of Stock with respect to which Awards may be granted to any Participant
during the term of the Plan may not exceed 50% of the total number of shares of
Stock that may be issued from time to time under the Plan. Shares to be issued
pursuant to Awards may be either authorized but unissued shares or shares held
by the Company in its treasury. If shares of Stock are reacquired by the
Company pursuant to the provisions of the Plan or if Options expire or terminate
for any reason without having been exercised in full, the reacquired shares
and/or the shares not purchased will again be available for issuance under the
Plan to the extent permitted by law.
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2.4. ELIGIBILITY. Any full-time or part-time Employee, Director,
consultant or advisor of one or more of the Company or any subsidiary thereof
will be eligible to be a Participant; provided that Incentive Options may be
granted only to Employees.
2.5. TREATMENT OF AWARDS IN CERTAIN EVENTS. The Committee may
accelerate the exercisability of any Option or Stock Appreciation Right or waive
any restrictions and/or Performance Goals with respect to shares of Restricted
Stock, Performance Shares or Stock Units in whole or in part at any time. In
addition, the provisions of any Award Agreement may provide for the automatic
acceleration of exercisability of any Option or Stock Appreciation Right or
automatic waiver of any restrictions and/or Performance Goals with respect to
shares of Restricted Stock, Performance Shares or Stock Units or provide for the
triggering of certain other rights and obligations applicable to the Company,
Parent and Participant upon the occurrence of certain specified events such as a
change in control of the Company or Parent.
2.6. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan, if at any time in the reasonable opinion of the Company
the issuance of shares of Stock pursuant to an Award may constitute a violation
of law, then the Company may delay such issuance and the delivery of a
certificate for such shares of Stock until (i) approval has been obtained from
such governmental agencies, other than the Commission, as may be required under
any applicable law, rule or regulation and (ii) in the case where such issuance
would constitute a violation of a law administered by or a regulation of the
Commission, one of the following conditions has been satisfied:
(a) the issuance of shares of Stock is effectively registered
under the Securities Act; or
(b) a no-action letter in form and substance reasonably
satisfactory to the Company with respect to the issuance of such shares
has been obtained by the Company from the staff of the Commission.
The Company will make all reasonable efforts to bring about the occurrence of
such events.
2.7. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION.
(a) Unless the issuance of shares of Stock to be issued
pursuant to an Award has been effectively registered under the Securities
Act, the Company will be under no obligation to issue any shares of Stock
pursuant to an Award unless the Participant gives a written
representation to the Company that is satisfactory in form and substance
to its counsel and upon which the Company may reasonably rely, that he is
acquiring the shares of Stock issued pursuant to such Award as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares of Stock.
(b) If required in the opinion of counsel, each certificate
representing shares of Stock issued pursuant to an Award will bear a
reference to the investment representation
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made in accordance with this Section 2.7 and to the fact that no
registration statement has been filed with the Commission in respect
of the issuance of such shares of Stock.
(c) If the Company deems it necessary or desirable to register
under the Securities Act or other applicable statutes the issuance of any
shares of Stock with respect to which an Award has been granted, or to
qualify the issuance of any such shares for exemption from the Securities
Act or other applicable statutes, then the Company will take such action
at its own expense. The Company may require from each Participant such
information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary
for such purpose and may require reasonable indemnity to the Company and
its Directors and officers from such holder against all losses, claims,
damages and liabilities arising from such use of the information so
furnished and caused by any untrue statement of any material fact therein
or caused by the omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made.
2.8. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF
SPECIFIED HOLDING PERIOD.
(a) Whenever shares of Stock are to be issued pursuant to an
Award, the Company will have the right to require the Participant to
remit to the Company an amount sufficient to satisfy federal, state,
local or other withholding tax requirements (whether required to secure
for the Company an otherwise available tax deduction or otherwise) prior
to the delivery of any certificate or certificates for such shares of
Stock.
(b) When a Participant is required to pay to the Company an
amount required to be withheld under applicable tax laws in connection
with an Award, such payment may be made, in whole or in part, (i) in
cash, (ii) by check, (iii) if permitted by the Committee, by delivery to
the Company of shares of Stock already owned by the Participant having a
Market Value on the date as of which the amount of tax to be withheld is
to be determined (the "Tax Date") equal to the amount required to be
withheld, (iv) with respect to Options, through the withholding by the
Company ("Company Withholding") of a portion of the shares of Stock
acquired upon the exercise of the Options, or (v) in any other form of
valid consideration, as permitted by the Committee in its sole
discretion.
(c) The Company may require as a condition to the issuance of
shares of Stock upon exercise of an Incentive Option that the party
exercising such Option give a written representation to the Company,
which is satisfactory in form and substance to its counsel and upon which
the Company may reasonably rely, that he will report to the Company any
disposition of such shares prior to the expiration of the holding periods
specified by Section 422(a)(1) of the Code. If and to the extent that the
realization of income in such a disposition imposes upon the Company
federal, state, local or other withholding tax requirements, or any such
withholding is required to secure for the Company an otherwise available
tax deduction, the Company will have the right to require that the
recipient remit to the Company an
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amount sufficient to satisfy those requirements; and the Company may
require as a condition to the issuance of shares of Stock upon exercise
of an Incentive Option that the party exercising such option agree, in
writing in a form satisfactory to the Company, to make such a remittance.
2.9. RESERVATION OF STOCK. The Company must at all times during the
term of the Plan reserve or otherwise keep available such number of shares of
Stock as will be sufficient to satisfy the requirements of the Plan and will pay
all fees and expenses necessarily incurred by the Company in connection
therewith.
2.10. NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. Nothing contained in the
Plan or in any Award will confer upon any Participant any right with respect to
the continuation of his employment or service with the Company (or any
subsidiary), or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment or consulting
agreement or provision of law or certificate of incorporation or bylaws to the
contrary, at any time to terminate such employment or consulting agreement or to
increase or decrease the compensation of the Participant from the rate in
existence at the time of the grant of an Award.
ARTICLE III
ADMINISTRATION
3.1. ADMINISTRATION. Subject to the provisions of the Plan, the Plan
will be administered by the Committee. With respect to any Award that the
Company intends to qualify for the exception for qualified performance-based
compensation set forth in Section 162(m), such Award must be granted solely by
"outside directors" within the meaning of such section. The Committee will have
sole discretion and authority to determine from time to time the Participants to
whom Awards will be granted and the number of shares of Stock subject to each
Award, to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine and interpret the terms and provisions
of each Award Agreement or waive any conditions, restrictions and/ or
Performance Goals applicable to any Option or Stock Appreciation Right (or the
exercise thereof) or to any shares of Restricted Stock, Performance Shares or
Stock Units, and to make all other determinations necessary or advisable for the
administration of the Plan. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
Participants, their present and potential contributions to the success of the
Company and its subsidiaries, and such other factors as the Committee in its
sole discretion deems relevant. The Committee's determinations on the matters
referred to in this Section 3.1 will be conclusive.
ARTICLE IV
OPTIONS
4.1 GRANT OF OPTIONS. The Committee may, in its sole discretion,
grant Options in accordance with the terms and conditions set forth in the Plan;
provided, however, that before the Company shall have consummated an initial
public offering (the "IPO") of its Stock pursuant to an effective registration
statement under the Securities Act, all grants of Options must also be approved
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by the Board. Each Option Agreement may contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as are determined by
the Committee in its sole discretion.
4.2. TIME OF GRANTING OPTIONS. The granting of an Option will take
place at the time specified in the Option Agreement.
4.3. EXERCISE PRICE. The Exercise Price under each Incentive Option
may not be less than 100% of the Market Value on the Grant Date, or less than
110% of the Market Value on the Grant Date if the Participant is a Ten Percent
Owner. The Exercise Price under each Nonstatutory Option will not be so limited
solely by reason of this Section 4.3.
4.4. OPTION PERIOD. No Incentive Option may be exercised more than 10
years after the Grant Date, or, if the Participant is a Ten Percent Owner, more
than five years after the Grant Date. The option period under each Nonstatutory
Option will not be so limited solely by reason of this Section 4.4. Options may
become exercisable in such installments, cumulative or noncumulative, as the
Committee may determine.
4.5. LIMIT ON INCENTIVE OPTION CHARACTERIZATION. To the extent any
Option fails to qualify as an Incentive Option, such Option will be considered a
Nonstatutory Option.
4.6. EXERCISE OF OPTIONS.
(a) METHOD OF EXERCISE. Each Option will be exercisable in
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a share
of Stock.
(b) PAYMENT OF PURCHASE PRICE. The purchase price of any
shares of Stock purchased must be paid at the time of exercise of the
Option either (i) in cash, (ii) by certified or cashier's check, (iii) by
shares of Stock, if permitted by the Committee, (iv) if then permitted
under the laws of the State of Delaware and approved by the Committee, by
a promissory note for the total purchase price of the shares of Stock
being purchased, which note will contain such terms and provisions as the
Committee may approve, including without limitation the right to repay
the note partially or wholly with Stock, (v) by delivery of a copy of
irrevocable instructions from the Participant to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the shares of
Stock purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount of
sale or loan proceeds necessary to pay such purchase price or (vi) in any
other form of valid consideration, as permitted by the Committee in its
sole discretion. If any portion of the purchase price or a note given at
the time of exercise is paid in shares of Stock, those shares will be
valued at the then Market Value.
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4.7. TERMINATION OF EMPLOYMENT OR ASSOCIATION WITH THE COMPANY.
(a) TERMINATION OF EMPLOYMENT WITH THE COMPANY. If a
Participant ceases to be employed by the Company or any subsidiary
thereof because the Participant is terminated for Cause, any Options held
by that Participant will automatically expire. If a Participant's
employment is terminated for any reason other than for Cause or due to
death, such Participant's Option will be exercisable (to the extent
exercisable on the date of termination of the Participant's employment
or, if the Committee, in its sole discretion, has accelerated the vesting
of such Option, to the extent exercisable following such acceleration) at
any time within 30 days after he ceases to be an Employee (or within (i)
three months after termination if on account of Retirement or (ii) 12
months after termination if on account of Disability), unless by its
terms it expires earlier or unless, with respect to any Nonstatutory
Option, the Committee agrees, in its sole discretion, to extend the term
of such Option; provided that the term of any such Option will not be
extended beyond its original term. If a Participant dies while employed
by the Company or any subsidiary thereof, or within three months after
ceasing to be an Employee, such Participant's Option will be exercisable
(to the extent exercisable on the date of death, or, if the Committee, in
its sole discretion, has accelerated the vesting of such Option, to the
extent exercisable following such acceleration) at any time within 12
months after the date of death, unless by its terms it expires earlier or
unless, with respect to any Nonstatutory Option, the Committee agrees, in
its sole discretion, to extend the term of such Option; provided that the
term of any such Option will not be extended beyond its original term.
Military or sick leave will not be deemed a termination of employment,
provided that it does not exceed the longer of three months or the period
during which the absent Participant's reemployment rights, if any, are
guaranteed by statute or by contract. The foregoing is qualified by the
following: (i) if any facts that would constitute Cause for termination
of employment of a Participant are brought to the attention of the
Committee after the Participant's employment with the Company or any
subsidiary thereof has ended, any Options then held by the Participant
may be immediately terminated by the Committee and (ii) if a Participant
is an Employee employed pursuant to a written Employment Agreement, the
Participant's employment with the Company will be deemed terminated for
"cause" for purposes of the Plan only if the Participant's employment is
considered under the circumstances to have been terminated for cause for
purposes of such agreement.
(b) TERMINATION OF ASSOCIATION WITH THE COMPANY. If (i) a
Nonemployee Director is removed for Cause or (ii) a consultant or advisor
or other Participant who is not an Employee has his relationship with the
Company terminated for Cause, any Options held by any such Participant
will automatically expire. In all other cases, any Options held by such
a Participant, to the extent exercisable on the date of termination of
the Participant's association with the Company, will remain exercisable
and will expire in accordance with the terms of the applicable Option
Agreement; provided that (i) if any facts that would constitute cause for
removal or termination of a Participant who is a Nonemployee Director,
consultant or advisor or other person who is not an Employee are brought
to the attention of the Committee after such Participant's association
with the Company has ended, any Options
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held by such Participant may be immediately terminated by the
Committee, and (ii) if such Participant has been retained pursuant to
a written agreement, the Participant's relationship with the Company
will be deemed terminated for "cause" for purposes of the Plan only if
the Participant's association with the Company is considered under the
circumstances to have been terminated for cause for purposes of such
written agreement.
4.8. TRANSFERABILITY OF OPTIONS.
(a) INCENTIVE OPTIONS. Incentive Options may not be
transferred or assigned other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the Participant
only by the Participant or by the Participant's legally authorized
representative, and each Option Agreement in respect of an Incentive
Option will so provide. The designation by a Participant of a
beneficiary will not constitute a transfer of the Option.
(b) NONSTATUTORY OPTIONS. With respect to Nonstatutory
Options, the Committee may, in its sole discretion, provide in any Option
Agreement (or in an amendment to any existing Option Agreement) such
provisions regarding transferability of the Nonstatutory Options as the
Committee, in its sole discretion, deems appropriate.
4.9. LIMITATION OF RIGHTS IN STOCK. A Participant will not be deemed
for any purpose to be a stockholder of the Company with respect to any of the
shares of Stock covered by an Option, except to the extent the Option has been
exercised with respect thereto and, in addition, a certificate has been issued
therefor and delivered to the Participant or his agent. Any Stock issued
pursuant to the Option will be subject to all restrictions upon the transfer
thereof that may be now or hereafter imposed by the Certificate of Incorporation
of the Company (as amended or restated from time to time), the Bylaws of the
Company (as amended or restated from time to time) and any applicable Employment
Agreement.
ARTICLE V
RESTRICTED STOCK
5.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may, in its sole
discretion, grant Restricted Stock Awards in accordance with the terms and
conditions set forth in the Plan; provided, however, that before the IPO, all
grants of Restricted Stock Awards must also be approved by the Board. Each
Restricted Stock Agreement may contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as are determined by the Committee in
its sole discretion.
5.2. TERMS AND CONDITIONS. Each Restricted Stock Award confers upon
the recipient thereof the right to receive a specified number of shares of Stock
in accordance with the terms and conditions of each Participant's Restricted
Stock Agreement. The general terms and conditions of a Restricted Stock Award
will be as follows:
(a) Any shares of Stock awarded hereunder to a
Participant will be restricted for a period of time to be
determined by the Committee for each Participant
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at the time of the Award, which period shall be not more than ten
years. The restrictions will prohibit the sale, assignment, transfer,
pledge or other encumbrance of such shares, and will provide for
possible reversion thereof to the Company in accordance with
subparagraph (b) during the period of restriction.
(b) All Restricted Stock awarded under this Plan to a
Participant will be forfeited and returned to the Company in the
event the Participant's employment or service with the Company or
a subsidiary thereof is terminated prior to the expiration of the
period of restriction, unless the Participant's termination of
employment or service is due to his death, Disability or
Retirement or unless the Committee, in its sole discretion, waives
the restrictions established in accordance with subparagraph (a)
with respect to any or all of the shares of Restricted Stock.
(c) In the event of a Participant's death or Disability,
the restrictions established in accordance with subparagraph (a)
will lapse with respect to all Restricted Stock awarded to the
Participant prior to any such event, and the shares of Stock
involved will cease to be Restricted Stock and will no longer be
subject to forfeiture to the Company pursuant to subparagraph (b).
(d) In the event of a Participant's Retirement, the
restrictions established in accordance with subparagraph (a) will
continue to apply unless the Committee in its sole discretion
shortens the restriction period.
(e) Stock certificates issued with respect to Restricted
Stock Awards will be registered in the name of the Participant,
but will be delivered by him to the Company together with a stock
power endorsed in blank. Each such certificate will bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO FORFEITURE, RESTRICTIONS ON TRANSFER AND
CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE
COZONE.COM INC. LONG-TERM INCENTIVE PLAN AND THE
AGREEMENT BETWEEN THE REGISTERED OWNER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND COZONE.COM INC.
ENTERED INTO PURSUANT TO SUCH PLAN."
From the time of grant of the Restricted Stock Award, the
Participant will be entitled to exercise all rights (including
dividend and voting rights) with respect to the shares represented
by such certificate, subject to forfeiture of such voting rights
and the Stock as provided in subparagraph (b).
(f) Upon the lapse of a restriction period as determined
pursuant to subparagraph (a), the Company will return the stock
certificates representing the
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shares with respect to which the restriction has lapsed to the
Participant or his legal representative, and pursuant to the
instruction of the Participant or his legal representative will issue
a certificate for such shares that does not bear the legend set forth
in subparagraph (e).
(g) Any other securities or assets (other than ordinary
cash dividends) that are received by a Participant with respect to
Restricted Stock awarded to him, which is still subject to
restrictions established in accordance with subparagraph (a), will
be subject to the same restrictions and will be delivered by the
Participant to the Company as provided in subparagraph (e).
5.3. NOTICE TO COMPANY OF SECTION 83(b) ELECTION. Any Participant who
makes an election under Section 83(b) of the Code to have his receipt of Shares
of Restricted Stock taxed currently, without regard to restrictions, must give
notice to the Company of such election immediately upon making such election.
Such an election must be made within 30 days after the effective date of
issuance and cannot be revoked except with the consent of the Internal Revenue
Service.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1. GRANT OF STOCK APPRECIATION RIGHTS. The Committee may, in its
sole discretion, grant Stock Appreciation Rights in accordance with the terms
and conditions set forth in the Plan; provided, however, that before the IPO,
all grants of Stock Appreciation Rights must also be approved by the Board.
Each Stock Appreciation Rights Agreement may contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as are determined by
the Committee in its sole discretion.
6.2. TERMS AND CONDITIONS. A Stock Appreciation Right will entitle a
Participant to receive an amount equal to (or if the Committee shall so
determine at the time of grant, less than) the excess of the Market Value on the
date of exercise over the Market Value on the date of grant of such right (or
such other price as is set by the Committee), multiplied by the number of shares
of Stock with respect to which the Stock Appreciation Right shall have been
exercised.
6.3. FORM OF GRANT. A Stock Appreciation Right may be granted in
combination with, in addition to, or completely independent of, an Option or any
other Award.
6.4. FORM OF PAYMENT. Settlement of a Stock Appreciation Right may be
made (i) in cash, (ii) by certified or cashier's check, (iii) if permitted by
the Committee, in shares of Stock or (iv) in any other form of valid
consideration, as determined by the Committee in its sole discretion. However,
any Stock Appreciation Right exercised upon or subsequent to the occurrence of
an event described in Sections 2.5(a) or 2.5(b) must be paid in cash.
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<PAGE>
6.5. EXERCISE OF STOCK APPRECIATION RIGHTS; EFFECTS ON OPTIONS AND
VICE-VERSA. Each Stock Appreciation Right will be exercisable in accordance
with the terms of the Stock Appreciation Rights Agreement pursuant to which the
Stock Appreciation Right is granted. Whenever a Stock Appreciation Right is
granted in relation to an Option and the exercise of one affects the right to
exercise the other, the number of shares of Stock available under the Option to
which the Stock Appreciation Right relates will decrease by a number equal to
the number of shares of Stock for which the Stock Appreciation Right is
exercised. Upon the exercise of an Option, any related Stock Appreciation Right
will terminate as to any number of shares of Stock subject to such Stock
Appreciation Right that exceeds the total number of shares of Stock for which
the Option remains unexercised.
6.6. TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Subject to
Section 6.8, the Committee may, in its sole discretion, provide in any Stock
Appreciation Rights Agreement (or in an amendment to any existing Stock
Appreciation Rights Agreement) such provisions regarding transferability of the
Stock Appreciation Rights as the Committee, in its sole discretion, deems
appropriate.
6.7. TERMINATION OF EMPLOYMENT OR SERVICE. Whenever a Stock
Appreciation Right is granted in relation to an Option and the exercise of one
affects the right to exercise the other, in the event of the termination of the
Participant's employment or service with the Company, the Stock Appreciation
Right may be exercised only during the period, if any, within which the Option
to which it relates may be exercised. If a Stock Appreciation Right is granted
independently of an Option under the Plan, the following provisions will apply:
(a) TERMINATION OF EMPLOYMENT WITH THE COMPANY. If a
Participant ceases to be employed by the Company or any subsidiary
thereof because the Participant is terminated for Cause, any Stock
Appreciation Rights held by that Participant will automatically expire.
If a Participant's employment is terminated for any reason other than
Cause or due to death, such Participant's Stock Appreciation Right will
be exercisable (to the extent exercisable on the date of termination of
the Participant's employment or, if the Committee, in its sole
discretion, has accelerated the vesting of such Stock Appreciation Right,
to the extent exercisable following such acceleration) at any time within
30 days after he ceases to be an Employee (or within (i) three months
after termination if on account of Retirement or (ii) 12 months after
termination if on account of Disability), unless by its terms it expires
earlier or unless the Committee agrees, in its sole discretion, to extend
the term of such Stock Appreciation Right; provided that the term of any
such Stock Appreciation Right will not be extended beyond its original
term. If a Participant dies while employed by the Company or any
subsidiary thereof, or within three months after ceasing to be an
Employee, such Participant's Stock Appreciation Right will be exercisable
(to the extent exercisable on the date of death, or, if the Committee, in
its sole discretion, has accelerated the vesting of such Stock
Appreciation Right, to the extent exercisable following such
acceleration) at any time within 12 months after the date of death,
unless by its terms it expires earlier or unless the Committee agrees, in
its sole discretion, to extend the term of such Stock Appreciation Right;
provided that the term of any such Stock Appreciation Right will not be
extended
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<PAGE>
beyond its original term. Military or sick leave will not be deemed a
termination of employment, provided that it does not exceed the longer
of three months or the period during which the absent Participant's
reemployment rights, if any, are guaranteed by statute or by contract.
The foregoing is qualified by the following: (i) if any facts that
would constitute Cause for termination of employment of a Participant
are brought to the attention of the Committee after the Participant's
employment with the Company or any subsidiary thereof has ended, any
Stock Appreciation Rights then held by the Participant may be
immediately terminated by the Committee and (ii) if a Participant is
an Employee employed pursuant to a written Employment Agreement, the
Participant's employment with the Company will be deemed terminated
for "cause" for purposes of the Plan only if the Participant's
employment is considered under the circumstances to have been
terminated for cause for purposes of such agreement.
(b) TERMINATION OF ASSOCIATION WITH THE COMPANY. If a
consultant or advisor or other Participant who is not an Employee has his
relationship with the Company terminated for Cause, any Stock
Appreciation Rights held by any such Participant will automatically
expire. In all other cases, any Stock Appreciation Rights held by such a
Participant, to the extent exercisable on the date of termination of the
Participant's association with the Company, will remain exercisable and
will expire in accordance with the terms of the applicable Stock
Appreciation Rights Agreement; provided that (i) if any facts that would
constitute cause for removal or termination of a Participant who is a
consultant or advisor or other person who is not an Employee are brought
to the attention of the Committee after such Participant's association
with the Company has ended, any Stock Appreciation Rights held by such
Participant may be immediately terminated by the Committee and (ii) if
such Participant has been retained pursuant to a written agreement, the
Participant's relationship with the Company will be deemed terminated for
"cause" for purposes of the Plan only if the Participant's association
with the Company is considered under the circumstances to have been
terminated for cause for purposes of such written agreement.
6.8. TANDEM INCENTIVE OPTION - STOCK APPRECIATION RIGHT. Whenever an
Incentive Option and a Stock Appreciation Right are granted together and the
exercise of one affects the right to exercise the other, the following
requirements shall apply:
(a) The Stock Appreciation Right will expire no later than the
expiration of the underlying Incentive Option.
(b) The Stock Appreciation Right may be for no more than the
difference between the Exercise Price of the underlying Incentive Option
and the Market Value of the Stock subject to the underlying Incentive
Option at the time the Stock Appreciation Right is exercised.
(c) The Stock Appreciation Right is transferable only when the
underlying Incentive Option is transferable, and under the same
conditions.
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(d) The Stock Appreciation Right may be exercised only when the
underlying Incentive Option is eligible to be exercised.
(e) The Stock Appreciation Right may be exercised only when the
Market Value of the Stock subject to the underlying Incentive Option
exceeds the Exercise Price of the underlying Incentive Option.
(f) If Awards are to be purchased pursuant to Section 2.5, the
Company shall purchase either the Incentive Option or the Stock
Appreciation Right, at the election of the Participant holding such
Awards, but shall not purchase both.
6.9. WRITTEN NOTICE REQUIRED. Any Stock Appreciation Right will be
deemed to be exercised when written notice of exercise has been received by the
Company at its principal office from the person entitled to exercise the Stock
Appreciation Right.
ARTICLE VII
PERFORMANCE SHARES
7.1. GRANT OF PERFORMANCE SHARES. The Committee may, in its sole
discretion, grant Performance Shares in accordance with the terms and conditions
set forth in the Plan; provided, however, that before the IPO, all grants of
Performance Shares must also be approved by the Board. Each Performance Share
Agreement may contain such additional terms and conditions, not inconsistent
with the terms of the Plan, as are determined by the Committee in its sole
discretion.
7.2. TERMS AND CONDITIONS. Performance Shares may be earned based on
the attainment of Performance Goals established by the Committee for a
particular Performance Cycle. The Committee may establish Performance Goals on
the basis of such criteria and to accomplish such objectives as the Committee
may from time to time select.
7.3. AMOUNT OF PAYMENT. After the end of each Performance Cycle, the
Committee will determine the number of Performance Shares earned by each
Participant with respect to the Performance Cycle in accordance with the
following:
(a) If the Performance Goal is attained or exceeded, a
Participant will be deemed to have earned the full number of Performance
Shares granted to the Participant.
(b) If the Minimum Performance Goal is not attained, a
Participant will be deemed to have earned no Performance Shares.
(c) If the Performance Goal is not attained, but the Minimum
Performance Goal is attained or exceeded, the number of Performance
Shares deemed to have been earned by a Participant will be a portion of
the Performance Shares, as determined based on a formula established by
the Committee at the time of grant.
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<PAGE>
(d) If a Participant's employment or service with the Company
or any subsidiary thereof has terminated because of death, Disability or
Retirement prior to the end of a Performance Cycle, the number of
Performance Shares such Participant will be deemed to have earned shall
be the number of Performance Shares determined as though such
Participant's employment or service had not terminated, multiplied by a
fraction, the numerator of which is the number of months such Participant
was employed or served the Company or a subsidiary thereof during the
Performance Cycle (including the month during which employment or service
terminated) and the denominator of which is the total number of months in
the Performance Cycle.
(e) If the Participant's employment or service has terminated
for any reason other than death, Disability or Retirement, such
Participant will be deemed to have earned no Performance Shares except as
and to the extent the Committee may determine; provided that the number
of Performance Shares that may be so determined by the Committee to have
been earned may not exceed the number that would have been earned had the
provisions of Section 7.3(a) been applicable.
(f) At any time prior to the end of a Performance Cycle, the
Committee may adjust downward (but not upward) the Performance Goal
and/or the Minimum Performance Goal as a result of major events
unforeseen at the time the Performance Shares were awarded, such as
changes in the economy, the industry, laws affecting the operation of the
Company or any subsidiary thereof, changes in applicable tax laws or
accounting principles or any other event the Committee determines would
have a significant impact upon the probability of attaining the
previously established Performance Goal and/or Minimum Performance Goal.
7.4. FORM OF PAYMENT. Payment in respect of earned Performance Shares
will be made to the Participant or, if the Participant has died, to the
Participant's designated beneficiary, as soon as practicable after the
expiration of the Performance Cycle and the Committee's determination under
Section 7.3. Payment in respect of earned Performance Shares may be made in
cash, in shares of Stock or a combination thereof, as determined by the
Committee in its sole discretion at the time of payment.
7.5. ADDITIONAL AWARDS. In the sole discretion of the Committee, a
Performance Share Award may provide the Participant with (i) dividends or
dividend equivalents (payable on a current or deferred basis) and (ii) cash
payments in lieu of or in addition to such Award.
ARTICLE VIII
STOCK UNIT AWARDS
8.1. GRANT OF STOCK UNIT AWARDS. The Committee may, in its sole
discretion, grant Stock Unit Awards in accordance with the terms and conditions
set forth in the Plan; provided, however, that before the IPO, all grants of
Stock Unit Awards must also be approved by the Board.
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<PAGE>
Each Stock Unit Agreement may contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as are determined by the
Committee in its sole discretion.
8.2 TERMS AND CONDITIONS. Stock Unit Awards may be in the form of
Stock or units, the value of which is based, in whole or in part, on the Market
Value of Stock. Stock Unit Awards will be subject to such terms, restrictions,
conditions, vesting requirements and payment requirements as the Committee may
determine in its sole discretion at the time of grant, including without
limitation the following:
(a) Any shares of Stock that are part of a Stock Unit Award may
be subject to restrictions on sale, assignment, transfer, pledge or other
encumbrance.
(b) Stock Unit Awards may provide for the payment of cash
consideration by the Participant or provide that the Award, and any Stock
to be issued in connection therewith, if applicable, shall be delivered
without the payment of cash consideration.
(c) Stock Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee.
(d) Stock Unit Awards may provide for deferred payment
schedules and/or vesting over a specified period of employment or service
with the Company or any subsidiary thereof.
8.3. ADDITIONAL AWARDS. In the sole discretion of the Committee, a
Stock Unit Award may provide the Participant with (i) dividends or dividend
equivalents (payable on a current or deferred basis) and (ii) cash payments in
lieu of or in addition to such Award.
ARTICLE IX
TERMINATION, AMENDMENT AND ADJUSTMENT
9.1. TERMINATION AND AMENDMENT OF THE PLAN. The Board (or, if the
Board has specifically delegated this authority to the Committee, the Committee)
may at any time terminate the Plan or make such modifications of the Plan as it
deems advisable; provided that no amendment may be made without approval of the
stockholders of the Company if such approval is required under the Code or any
requirement under applicable state law. No termination or amendment of the Plan
may, without the consent of the Participant to whom any Award has theretofore
been granted, adversely affect the rights of such Participant under such Award.
9.2. ADJUSTMENT. In the event of any stock dividend payable in Stock
or any split-up or contraction of the number of shares of Stock after the date
an Award is granted and prior to the exercise in full of an Option or Stock
Appreciation Right or the lapse, waiver and/or satisfaction of any restrictions
or Performance Goals related to a Restricted Stock Award, Performance Share
Award or Stock Unit Award, the number of shares of Stock subject to such Award
and, if applicable, the Exercise Price, will be proportionately adjusted. In
the event of any reclassification or change
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of outstanding shares of Stock or in case of any consolidation or merger of
the Company with or into another company or in case of any sale or conveyance
to another company or entity of the property of the Company as a whole or
substantially as a whole, shares of stock or other securities equivalent in
kind and value to the Stock subject to the Award immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance (together
with all other shares, stock and securities thereafter issued in respect
thereof) will thereupon be subject to the Award. Upon dissolution or
liquidation of the Company, all Awards will terminate, but the Participant
will have the right, immediately prior to such dissolution or liquidation, to
exercise any Option or Stock Appreciation Right to the extent exercisable on
the date of such dissolution or liquidation. No fraction of a share of Stock
will be purchasable or deliverable upon exercise, but in the event any
adjustment hereunder of the number of shares covered by the Award will cause
such number to include a fraction of a share, such number of shares will be
adjusted to the nearest smaller whole number of shares. In the event of
changes in the outstanding Stock by reason of any stock dividend, split-up,
contraction, reclassification, or change of outstanding shares of Stock of
the nature contemplated by this Section 9.2, the maximum number of shares of
Stock that may be issued from time to time pursuant to the Plan and the
maximum number of shares of Stock with respect to which Awards may be granted
to any Participant during the term of the Plan, as stated in Section 2.3,
will be correspondingly adjusted.
ARTICLE X
MISCELLANEOUS
10.1. NOTICES AND OTHER COMMUNICATIONS. All notices and other
communications required or permitted under the Plan will be effective if in
writing and if delivered or sent by certified or registered mail, return receipt
requested (a) if to the Participant, at his residence address last filed with
the Company and (b) if to the Company, at 34 St. Martin Drive, Marlborough,
Massachusetts 01752, Attention: President, with a copy to the General Counsel
of Parent, presently at 14951 North Dallas Parkway, Dallas, Texas 75240, or to
such other persons or addresses as the Participant or the Company may specify by
a written notice to the other from time to time.
10.2. PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company.
10.3. NUMBER AND GENDER. Whenever used herein, nouns in the singular
will include the plural where appropriate, and the masculine pronoun will
include the female gender.
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Form of Nonstatutory Stock Option Agreement
<PAGE>
COZONE.COM INC.
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT dated as of _______________________ between cozone.com inc.,
a Delaware corporation (the "Company") that is an indirect subsidiary of CompUSA
Inc., a Delaware corporation ("Parent"), and the individual identified below,
residing at the address there set out ("Optionee").
1. GRANT OF OPTION. Pursuant to the Company's Long-Term Incentive
Plan, a copy of which is attached hereto as Exhibit A (as amended or restated to
date, the "Plan"), the Company grants to Optionee an option (the "Option") to
purchase from the Company a total of _______________ shares of the Company's
Class A Common Stock, par value $.01 per share ("Common Stock"), at a price of
$________ per share (the "Exercise Price"). This Option is granted as of the
date first above written (the "Grant Date").
2. CHARACTER OF OPTION. This Option will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986.
3. DURATION OF OPTION. This Option may not be exercised after the
expiration of 10 years from the Grant Date, or, in the event of Optionee's
termination of employment with the Company, after such earlier date as may be
provided in Section 4.7 of the Plan.
4. EXERCISE OF OPTION. This Option may be exercised in full or in
part, in the manner specified in Section 4.6 of the Plan, to the extent vested,
from the date of vesting for each installment of the Option until the last date
of exercisability determined in accordance with Section 3 hereof. This Option
will become fully vested on the fifth anniversary of the Vesting Start Date (as
defined below), provided that if the Common Stock becomes Publicly Traded (as
defined below) prior to such date this Option will become vested in the
installments identified in the table below. Notwithstanding any of the
foregoing, after termination of Optionee's employment with the Company, this
Option will, until its expiration, be exercisable only to the extent exercisable
immediately prior to such termination.
<TABLE>
<CAPTION>
PERCENTAGE DATE THE OPTION
OF SHARES VESTING BECOMES VESTED
IN EACH INSTALLMENT FOR SUCH SHARES
<S> <C>
33.33 First Anniversary of
Vesting Start Date
33.33 Second Anniversary of
Vesting Start Date
33.34 Third Anniversary of
Vesting Start Date
</TABLE>
<PAGE>
5. TRANSFER OF OPTION. This Option may not be transferred except by
will or the laws of descent and distribution and, during the lifetime of
Optionee, may be exercised only by Optionee or by Optionee's legally authorized
representative.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to
all of the applicable terms and provisions of the Plan, and such terms and
provisions are incorporated by reference herein. Capitalized terms used in this
Agreement and not otherwise defined herein have the meanings ascribed to such
terms in the Plan.
7. SALE OF PARENT.
(a) If before the Common Stock has become Publicly Traded, Parent
enters into an agreement to dispose of all or substantially all the assets of
Parent, by means of a sale, merger or other reorganization, liquidation or
otherwise in a transaction in which Parent is not the surviving corporation, the
Company shall purchase, if Optionee so elects, the entire Option for a price
equal to the Option Value (as defined below) calculated as of the date the
transaction requiring such determination is consummated, payable in cash as soon
as practicable and in any event within 60 days after consummation of the
transaction causing such purchase obligation; provided that no purchase
obligation shall exist under this Section 7(a) on account of any agreement of
merger or other reorganization when the stockholders of Parent immediately
before consummation of the transaction will own at least 50% of the total
combined voting power of all classes of stock entitled to vote of the surviving
entity immediately after consummation of the transaction.
(b) The Common Stock shall be deemed to be "Publicly Traded" if it is
either (i) listed on the New York Stock Exchange or (ii) quoted on the National
Association of Securities Dealers Automated Quotation National Market System.
(c) The "Option Value" with respect to any date shall be equal to (i)
the Stock Value (as defined below) calculated as of such date minus the Exercise
Price, multiplied by (ii) the number of shares of Common Stock that would be
purchasable pursuant to the Option as of such date if it was vested and
exercisable in full.
(d) The "Stock Value" with respect to any date shall be equal to the
average of the valuations of a share of Common Stock as of such date determined
by two independent, nationally-recognized investment banking firms, which
valuations shall equal the fair market value of one share of Common Stock
without taking into account any discount for illiquidity or lack of control.
8. CHANGE IN CONTROL.
(a) If a Parent Change In Control (as defined below) occurs before the
Common Stock has become Publicly Traded, the Company shall purchase, if Optionee
so elects, the entire Option for a price equal to the Option Value calculated as
of the date the transaction requiring such determination is consummated, payable
in cash as soon as practicable and in any event within 60 days after the
occurrence of the event constituting the Parent Change In Control.
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<PAGE>
(b) If a Company Change In Control (as defined below) occurs before
the Common Stock has become Publicly Traded, the Company shall purchase, if
Optionee so elects, for a price equal to the Pro Rata Option Value (as defined
below), up to the full amount of either (i) 50% of the Option if the Company
Change In Control occurs before the first anniversary of the Vesting Start Date,
(ii) 67% of the Option if the Company Change In Control occurs on or after the
first anniversary of the Vesting Start Date but before the second anniversary of
the Vesting Start Date, (iii) 83% of the Option if the Company Change In Control
occurs on or after the second anniversary of the Vesting Start Date but before
the third anniversary of the Vesting Start Date, or (iv) 100% of the Option if
the Company Change In Control occurs on or after the third anniversary of the
Vesting Start Date. The remaining portion of the Option not purchased by the
Company pursuant to the preceding sentence will remain outstanding and subject
to the vesting schedule set forth in Section 4 hereof (allocated on a pro rata
basis over any remaining installments of vesting of the Option). For purposes
of the foregoing, the Pro Rata Option Value shall be calculated as of the date
the transaction requiring such determination is consummated, and shall be paid
as soon as practicable and in any event within 60 days after the event
constituting the Company Change In Control. Any payment due pursuant to the
preceding sentence shall be made, at the Company's sole option, by tendering
such payment in the form of (i) cash, (ii) shares of the common stock of Parent,
with each of such shares valued at the closing sale price of a share of Parent
common stock on the last trading day immediately preceding the date of payment,
or (iii) any combination of the foregoing. The resale of any shares of Parent
common stock tendered to Optionee pursuant to the preceding sentence must at the
time of such tender be registered pursuant to an effective Registration
Statement filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
(c) If a Company Change In Control occurs after the Common Stock has
become Publicly Traded, the Option will become immediately vested and
exercisable in full.
(d) Certain defined terms:
(i) The "Business" shall mean the business involving the sale
of computer hardware, software and peripherals as well as certain other
consumer electronics and technology products via the Internet, as
conducted by cozone.com l.l.c., a Delaware limited liability company
("Cozone L.L.C."), or its successor.
(ii) At any time BEFORE the Common Stock has become Publicly
Traded, a "Company Change In Control" shall be deemed to have occurred
if either (a) Parent and its majority-owned direct or indirect
subsidiaries shall at any time cease to be the beneficial owners,
collectively, of securities representing at least 15% of the equity
interest in the Company, or (b) any of the Company or its stockholders or
Cozone L.L.C. or its members enter into an agreement to dispose of all or
substantially all the assets of the Business by means of a sale, merger
or other reorganization, liquidation or otherwise in a transaction in
which the Company or Cozone L.L.C., as applicable, is not the surviving
entity; provided that entering into such an agreement shall not
constitute a Company Change In Control if (1) the stockholders of the
Company and members of Cozone L.L.C., as applicable, immediately
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<PAGE>
before the consummation of the transaction will collectively own or
control, directly or indirectly, at least 15% of the equity interest of
the surviving entity or successor in ownership to the Business, as
applicable, immediately after the consummation of the transaction, or (2)
the surviving entity or successor in ownership to the Business is Parent
or an entity controlled directly or indirectly by Parent.
At any time AFTER the Common Stock has become Publicly Traded, a
"Company Change In Control" shall be deemed to have occurred if the
Company has adopted a stockholder rights plan (the "Company Rights Plan")
and either (a) a Person has met the requirements for becoming an
Acquiring Person of the Company, whether or not a Distribution Date
occurs or the Rights are redeemed by the Company; provided that a Company
Change In Control shall not be deemed to have occurred for purposes
hereof with respect to any Person meeting the requirements of clauses (i)
and (ii) of Rule 13d-1(b)(1) promulgated under the Securities Exchange
Act of 1934, as amended, or any successor provision (for purposes of this
Section 8(d)(ii), "Person," "Acquiring Person," "Distribution Date" and
"Rights" shall have the meanings ascribed to such terms or any analogous
terms in the Company Rights Plan on the date the Company Rights Plan is
adopted, whether or not the Company Rights Plan is subsequently amended
to change the meaning of any such terms or analogous terms), or (b) any
of the Company or its stockholders or Cozone L.L.C. or its members enter
into an agreement to dispose of all or substantially all of the assets of
the Business by means of a sale, merger or other reorganization,
liquidation or otherwise in a transaction in which the Company or Cozone
L.L.C., as applicable, is not the surviving entity; provided that
entering into such an agreement shall not constitute a Company Change In
Control if (1) the stockholders of the Company and members of Cozone
L.L.C., as applicable, immediately before the consummation of the
transaction will collectively own or control, directly or indirectly, at
least 15% of the equity interest of the surviving entity or successor in
ownership to the Business, as applicable, immediately after the
consummation of the transaction, or (2) the surviving entity or successor
in ownership to the Business is Parent or an entity controlled directly
or indirectly by Parent.
(iii) "Vesting Start Date" shall mean _________-_________.
(iv) "Pro Rata Option Value" with respect to any date shall be
equal to the Option Value calculated as of such date multiplied by a
fraction, the numerator of which shall be equal to the number of shares
of Common Stock attributable to the portion of the Option being purchased
by the Company and the denominator of which shall be equal to the total
number of shares of Common Stock subject to the Option.
(v) A "Parent Change In Control" shall be deemed to have
occurred when any Person meets the requirements for becoming an Acquiring
Person of Parent, whether or not a Distribution Date occurs or the Rights
are redeemed by Parent; provided that a Parent Change In Control shall
not be deemed to have occurred for purposes hereof with respect to any
Person meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Securities Exchange Act of 1934,
as amended, or any successor provision. For
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<PAGE>
purposes of this Section 8(d)(iii), "Person," "Acquiring Person,"
"Distribution Date" and "Rights" shall have the meanings ascribed to
such terms in the Rights Agreement between Parent and Bank One, Texas,
N.A. as Rights Agent (American Stock Transfer & Trust Company became
successor Rights Agent as of August 19, 1996), dated as of April 29,
1994. Notwithstanding the foregoing, a Parent Change In Control shall
not be deemed to have occurred in the event a Company Change In
Control shall have occurred at any time prior to the occurrence of the
event otherwise constituting a Parent Change In Control.
9. REGISTRATION OF SALE OF SHARES. As soon as practicable after the
Common Stock has become Publicly Traded, the Company shall cause the issuance of
Common Stock under the Plan to be registered under the Securities Act of 1933,
as amended.
10. MISCELLANEOUS. This Agreement will be construed and enforced in
accordance with the laws of the State of Texas (other than the rules governing
conflicts of laws) and shall be binding upon and inure to the benefit of any
successor or assign of the Company and any executor, administrator, trustee,
guardian, or other legal representative of Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
cozone.com inc.
By:
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Name:
------------------------------------
Title:
-----------------------------------
Optionee
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Name:
------------------------------------
Address:
---------------------------------
Social Security Number:
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<PAGE>
[GRAPHICD]
SECURED WHOLESALE FINANCE AGREEMENT
THIS SECURED WHOLESALE FINANCE AGREEMENT (collectively with any Schedule (the
"SCHEDULE") attached hereto, the "AGREEMENT") dated the date set forth below, is
entered into between COMPUSA STORES LP, a Texas limited partnership (the
"DEALER"), with its chief executive office and principal place of business
located at 14951 North Dallas Parkway, Dallas, Texas 75240 and FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), whose address is 12647 Alcosta
Boulevard, San Ramon, CA 94583.
1. DEFINITIONS. In addition to terms defined elsewhere in this Agreement,
the following terms have the definitions set forth below:
"ACCOMMODATION PARTY" means Compaq Computer Corporation, a Delaware corporation.
"ALLOWED CREDITS" means those adjustments to Vendor invoices requested by
Dealer, as more particularly set forth, processed and determined in accordance
with the procedures set forth in the Tri-Party Agreement.
"BASE RATE" means the rate of interest announced publicly by Citibank, N.A. (or
any successor thereto) as its "Prime Rate" which may not be such institution's
lowest rate.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of Arizona from time-to-time.
"COLLATERAL" means all of Dealer's present and future right, title and interest
in and to the Financed Inventory, all identifiable cash proceeds (including
proceeds of any insurance payable due to loss or damage to any of the Financed
Inventory) and products thereof, rights, claims and choses-in-action of Dealer
against Vendor in respect of the Financed Inventory, and books, records and
computer data relating thereto; provided, that notwithstanding the forgoing, the
term "Collateral" expressly excludes any proceeds constituting accounts,
instruments or general intangibles (as such terms are defined by the Code).
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which Dealer is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"FINANCED INVENTORY" means all inventory (as such term is defined by the Code)
acquired or to be acquired by Dealer at any time or from time-to-time from
Vendor in the ordinary course of Dealer's business with proceeds of Loans made
by FINOVA to, or for the benefit of, Dealer, including, but not limited to
Financed Inventory bearing Vendor's trademark, and all additions to and
accession of such inventory, including software integrated or installed thereon
by Vendor, Dealer or any third party and any of such Financed Inventory returned
to or repossessed by Dealer, and all documents of title or other documents
representing Financed Inventory.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied.
"GUARANTOR" means CompUSA, Inc., a Delaware corporation.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note executed by
Dealer and payable
<PAGE>
to FINOVA, and any other agreement entered into, or instrument or document
executed, delivered or recorded in connection with the Advances, including,
without limitation, Vendor invoices and purchase orders, and all alterations,
amendments, extensions, modifications, refinancings, renewals, replacements,
restatements or supplements of or to any of the foregoing.
"LOAN PARTY" means Dealer and Guarantor.
"OBLIGATIONS" means all present and future Advances and all interest, and
reasonable charges, expenses, fees, attorney's fees, and other sums chargeable
to Dealer hereunder.
"PBGC" means the Pension Benefit Guarantee Corporation.
"PERMITTED DISCRETION" means FINOVA's reasonable discretion in the exercise of
reasonable credit judgment which FINOVA believes: (i) will or could adversely
affect the value of any Collateral, the enforceability or priority of FINOVA's
liens thereon or the amount which FINOVA would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral; (ii) suggests that any collateral report or
financial information delivered to FINOVA by any person on behalf of Dealer is
incomplete, inaccurate or misleading in any material respect; (iii) materially
increases the likelihood of a bankruptcy, reorganization or other insolvency
proceeding involving Dealer or any of the Collateral, or (iv) creates or
reasonably could be expected to create an Event of Default. The phrase "FINOVA's
reasonable discretion in the exercise of reasonable credit judgment" shall be
measured according to that discretion which would be exercised by a reasonably
prudent Person that is a commercial lender in the inventory/distribution finance
industry and acting in such capacity under the same or substantially similar
circumstances.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, government, or any agency or political division thereof, or any other
entity.
"PRIMARY LENDER" means Bank of America, N.A. (formerly NationsBank, N.A.), and
those certain other lenders identified as such in the Primary Loan Agreement.
"PRIMARY LOAN AGREEMENT" means that certain Loan and Security Agreement dated as
of June 30, 1999, by and among Dealer and those certain other lenders which are
parties thereto, as the same may from time-to-time be amended, increased,
supplemented, extended, modified, renewed, refunded, replaced or refinanced.
"SCHEDULE" has the meaning set forth in the Preamble.
"TRI-PARTY AGREEMENT" means that certain agreement of even date herewith by and
among Dealer, Vendor and FINOVA, as the same may from time-to-time be amended in
accordance with the provisions thereof, pursuant to which the parties thereto
have established procedures for the purchase, sale, delivery, pricing and
funding of the Financed Inventory to be purchased by the Dealer from the Vendor.
"VENDOR" means COMPAQ COMPUTER CORPORATION.
2. CREDIT FACILITY.
2.1 TOTAL FACILITY. Upon the terms and conditions set forth herein and
provided that no Event of Default or event, which with the giving of notice or
the passage of time, or both, would constitute an Event of Default, may have
occurred and be continuing, FINOVA shall, at Dealer's request and in FINOVA's
Permitted Discretion, make advances from time to time (each, an "ADVANCE" and
collectively, "ADVANCES") to or for Dealer's account in an aggregate principal
amount not to exceed the Total Facility amount set forth in the Schedule ("TOTAL
FACILITY") for the purpose of financing Dealer's acquisition of Financed
Inventory from the Vendor. The Total Facility shall at no time exceed
Eighty-Five Million ($85,000,000) Dollars
2.2 PROCEDURE FOR ADVANCES., Advances shall be made in accordance with
the following general procedures: (i) Dealer shall deliver to Vendor Dealer's
purchase order for Financed Inventory; (ii) upon receipt of such purchase order,
Vendor will promptly deliver to FINOVA a copy thereof requesting FINOVA's
approval thereof; (iii) if in the exercise of FINOVA's Permitted Discretion,
FINOVA grants its approval of such purchase order, FINOVA will promptly deliver
to Vendor FINOVA's approval
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<PAGE>
number with respect thereto; (iv) upon receipt of such approval number from
FINOVA, Vendor shall promptly ship the Financed Inventory and deliver
Vendor's invoice therefor to FINOVA, with a copy thereof to Dealer; and (v)
subject to the terms, conditions and procedures set forth in the Tri-Party
Agreement, FINOVA shall pay such invoice, and the full amount of such invoice
(notwithstanding any discount or other financial accommodation which may be
provided to FINOVA by the Vendor or others with respect thereto) shall be
deemed an Advance under the Loan made at the ultimate request of the Dealer
for the benefit of Dealer. In the event that FINOVA fails to issue its
approval to Vendor, as provided in clause (iii) above, upon no less than
fifteen (15) days prior written notice to FINOVA, Dealer may terminate this
Agreement and avoid the payment of an Early Termination Fee as set forth in
the Schedule; provided, however, that FINOVA shall continue to honor all
invoices previously approved by FINOVA under clause (iii) above, and Dealer
shall pay all Obligations hereunder as and when otherwise due hereunder. This
Agreement may be terminated by FINOVA and Dealer as more specifically set
forth in the Schedule.
2.3 EVIDENCE OF ADVANCES. Each Advance or the Total Facility may, in
FINOVA's Permitted Discretion, be evidenced by notes or other instruments issued
or made by Dealer to FINOVA. If not so evidenced, such Advance shall be
evidenced solely by entries upon FINOVA's books and records.
2.4 PAYMENTS; PAYMENTS WITHOUT DEDUCTION. Advances shall be due within
the period specified on the Schedule. Any invoice not paid within such period
shall bear interest at the Default Rate provided in Section 3.1 of the Schedule.
FINOVA will provide Dealer with monthly statements and weekly confirmations of
transactions. Payments are due at the notice address set forth on the signature
page hereto on the 5th, 15th and 25th day of each month. With the exception of
Allowed Credits, Dealer shall pay all principal, interest, and other charges
payable hereunder when due, without any deduction whatsoever, including, without
limitation, any deduction for setoff, counterclaim, or recoupment, or for any
credit or other sum due Dealer from Vendor. Dealer's obligations under this
Agreement shall not be affected or impaired in any way by reason of any present
or future claim of Dealer against Vendor or its agents, including, without
limitation, any claim for breach of express or implied warranty of title, or
otherwise related to the condition of the Financed Inventory or Dealer's
relationship with Vendor.
2.5 APPLICATION OF PAYMENTS. All payments shall be applied first to the
Advance, the proceeds of which enabled Dealer to acquire rights in or use of
specific Financed Inventory, and then to other Advances outstanding in order of
the payment due dates thereunder.
2.6 APPROVED VENDOR. Dealer shall not request, and FINOVA shall have no
obligation to make, any Advance to finance Dealer's acquisition of Financed
Inventory unless such Financed Inventory are sold to Dealer by Vendor.
2.7 TRI-PARTY AGREEMENT. The provisions of the Tri-Party Agreement are
expressly incorporated herein and made a part hereof.
2.8 POWER OF ATTORNEY. Dealer hereby appoints any attorney, employee,
officer, agent or representative of FINOVA as Dealer's true and lawful
attorney-in-fact, and upon the occurrence of an Event of Default such Person or
Persons shall have the power to execute and deliver as attorney-in-fact for
Dealer: (i) any and all UCC-1 Financing Statements in favor of FINOVA, together
with any and all UCC-3 Continuation Statements in favor of FINOVA; (ii) any and
all instruments arising out of the sale or other disposition of any Collateral,
including releases and satisfactions; (iii) any check which may be payable to
Dealer for returned or unearned premiums or the proceeds of insurance with
respect to the Collateral; and (iv) with respect to the Collateral, to sign and
endorse the name of Dealer upon drafts drawn on persons liable, directly or
indirectly, on any account, and on assignments, verifications, notices,
invoices, freight or express bills, bills of lading, storage or warehouse
receipts and similar items. Dealer hereby grants to said attorney full power to
do any and all things necessary to be done with respect to the above as fully
and effectively as Dealer might or could do, with full power of substitution,
and hereby ratifying and confirming all its said attorney or its substitutes
shall lawfully do or cause to be done by virtue hereof. This power of attorney,
being coupled with an interest, shall be irrevocable until all amounts or the
Obligations hereunder are paid and performed in full, and shall survive any
dissolution, termination or liquidation of Dealer.
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<PAGE>
3. INTEREST
3.1 RATE. With respect to the Advances, Dealer shall pay FINOVA
interest as set forth in the Schedule.
3.2 FLOATING RATE; COMPUTATION. The interest rate chargeable on any
Advance shall be increased or decreased as the case may be, without notice or
demand of any kind, upon the announcement of any change in the Base Rate. Each
change in the Base Rate shall be effective immediately. Interest and all other
fees and charges shall be computed on the basis of a year of 360 days and actual
days elapsed and shall be payable to FINOVA in arrears on the first business day
of each month.
3.3 [INTENTIONALLY DELETED]
3.4 EXCESS INTEREST. The contracted for rate of interest contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate set forth in the Schedule, calculated and applied to the principal balance
of the Obligations in accordance with the provisions of this Agreement; (ii)
interest after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; (iii) any discount
afforded FINOVA with respect Vendor invoices for Financed Inventory; and (iv)
all Additional Sums (as herein defined), if any. Dealer agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements. The Facility Fee, attorneys fees, the Early
Termination Fee, other charges or any other sums or things of value paid or
payable by Dealer hereunder (collectively, the "ADDITIONAL SUMS"), whether
pursuant to this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Dealer as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "APPLICABLE USURY LAW"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "MAXIMUM INTEREST RATE"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Dealer or otherwise in connection with the loan evidenced hereby, (b) the
maturity of the Obligations is accelerated in whole or in part, or (c) all or
part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Dealer nor any other person or entity now or hereafter
liable for the payment of the Obligations shall be obligated to pay the amount
of such interest to the extent that it is in excess of the Maximum Interest
Rate, (3) any such excess which may have been collected shall be either applied
as a credit against the then unpaid principal amount of the Obligations or
refunded to Dealer, at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Dealer
or otherwise in connection with such Advance; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
Dealer further
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<PAGE>
agrees that should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law, then to the extent
not prohibited by the Applicable Usury Law, such increases, if applicable,
shall apply to all indebtedness evidenced hereby regardless of when incurred;
but, again to the extent not prohibited by the Applicable Usury Law, should
the Maximum Interest Rate be decreased because of a change in the Applicable
Usury Law, such decreases shall not apply to the indebtedness evidenced
hereby regardless of when incurred.
4. COLLATERAL
4.1 SECURITY FOR ADVANCES. To secure the prompt and complete payment
and performance of the Advances, Dealer hereby grants to FINOVA a purchase-money
lien on, and security interest in, the Collateral.
4.2 [INTELLIONALLY DELETED]
4.3 COLLATERAL IN POSSESSION OF OTHERS. If any Collateral is at any
time in the possession or control of any warehouseman, bailee or any of Dealer's
agents or processors, Dealer shall notify such Person of FINOVA's security
interest in such Collateral and, upon FINOVA's request, instruct them to hold
all such Collateral for FINOVA's account subject to FINOVA's instructions. From
time to time, Dealer shall, upon FINOVA's request, execute and deliver
confirmatory written instructions pledging the Collateral to FINOVA, but
Dealer's failure to do so shall not affect or limit FINOVA's security interest
or other rights in and to the Collateral. Until the obligations have been fully
satisfied and FINOVA's obligation to make further Advances hereunder has
terminated, FINOVA's security interest in the Collateral shall continue in full
force and in effect.
5. REPRESENTATIONS. Dealer represents and warrants that:
5.1 DUE AUTHORIZATION. Dealer is a limited partnership duly organized
and existing under the laws of the State set forth in the Schedule, is qualified
and authorized to do business and is in good standing in all states in which
such qualifications and good standings are necessary in order for it to conduct
its business and own its property, except where the failure to be so qualified
or authorized would not have a material adverse effect on its business, assets,
operation or condition, financial or otherwise. Further Dealer has all requisite
power and authority to conduct its business as presently conducted to own its
property and except where the failure to be so qualified or authorized would not
have a material adverse effect on its business assets, operation or condition,
financial or otherwise, and to execute and deliver each of the Loan Documents to
which it is a party and perform all of its obligations thereunder, has not taken
any steps to wind up, dissolve or otherwise liquidate its assets and the
execution, delivery and performance of this Agreement have been duly authorized
and are not in contravention of any law, organizational documents of Dealer, or
any arrangements of Dealer with any Vendor.
5.2 OTHER NAMES. Dealer has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
in the Schedule, nor has Dealer been the surviving entity of a merger or
consolidation or acquired all or substantially all of the assets of any person
during such time, except as set forth in the Schedule;
5.3 BINDING OBLIGATION. Each of the Loan Documents to which Dealer is a
party is the legal, valid and binding obligation of Dealer enforceable against
Dealer in accordance with its terms, except as may be limited by bankruptcy,
insolvency and other similar laws effecting creditors rights generally;
5.4 INTANGIBLE PROPERTY. Dealer possesses adequate Trademarks,
Copyrights, Licenses and Patents for the present and planned future conduct of
its business without any known conflict with the rights of others, and each is
valid and has been duly registered or filed with the appropriate governmental or
regulatory authorities, except matters that would not have a material adverse
effect upon its business, assets, operation or condition, financial or
otherwise.;
5.5 CAPITAL. Dealer has capital sufficient to conduct its business, is
able to pay its debts as they mature and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
5.6 MATERIAL LITIGATION. Except as disclosed on the Schedule, Dealer
has no pending, or to its knowledge threatened, litigation, actions or
proceedings which would materially and adversely
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<PAGE>
affect its business, assets, operations, condition, financial or otherwise,
or the Collateral or any of FINOVA's interests therein;
5.7 TITLE; SECURITY INTERESTS OF FINOVA. Upon purchase and taking
possession thereof, Dealer will have good, indefeasible and merchantable title
to the Collateral and, upon the execution and delivery of the Loan Documents,
the timely filing of UCC-1 Financing Statements in the appropriate offices and
the timely delivery of written notification to the Primary Lender, this
Agreement and such documents shall create valid and perfected first priority
liens in and to the Collateral. Except as disclosed on the Schedule, there are
no liens or encumbrances with respect to any portion of the Collateral;
5.8 RESTRICTIVE AGREEMENTS; LABOR CONTRACTS. Dealer is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, condition, financial or otherwise, or which restricts its
right or ability to incur the Obligations, and it is not party to any labor
dispute. In addition, no labor contract is scheduled to expire during the Term
of this Agreement, except as disclosed to FINOVA in writing prior to the date
hereof;
5.9 LAWS. Dealer is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral;
5.10 CONSENTS. Dealer has obtained or caused to be obtained or issued
any required consent of a governmental agency or other Person in connection with
the financing contemplated hereby;
5.11 DEFAULTS. Dealer is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default, if the existence of such defaults, singly or in the aggregate, would
during a period of twelve (12) months, result in losses which would exceed an
amount equal to or in excess of fifteen (15%) percent of the consolidated net
worth of Guarantor (exclusive of CompUSANet.com) as reflected upon the most
recent financial statements delivered to FINOVA hereunder;
5.12 FINANCIAL CONDITION. The financial statements of the Dealer
heretofore delivered to FINOVA fairly present Dealer's financial condition and
results of operations and those of such other Persons described therein as of
the date thereof in accordance with GAAP; there are no material omissions from
such financial Statements or other facts or circumstances not reflected in such
Financial Statements; and there has been no material and adverse change in such
financial condition or operations since the dates of such financial statements,
except with respect to restructuring charges relating to "Management's
Restructuring Plan" (as such term is defined in the Primary Loan Agreement), or
as disclosed in the Primary Loan Agreement;
5.13 ERISA. None of Dealer, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Dealer or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Dealer has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Dealer nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Dealer and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
5.14 TAXES. Dealer has filed all tax returns and such other reports as
it is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
5.15 LOCATIONS; FEDERAL TAX ID NO. Dealer's chief executive office and
the offices and locations where it keeps the Collateral (except for Inventory in
transit) are at the locations set forth in the Schedule, except to the extent
that such locations may have been changed after notice to FINOVA in
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accordance with Section 6.10 hereof; Dealer's federal tax identification
number is as shown in the Schedule;
5.16 BUSINESS RELATIONSHIPS. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Dealer and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Dealer, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Dealer or prevent Dealer from conducting such business after
the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted;
5.17 INDEPENDENT OBLIGATIONS. This Agreement and all Advances,
extensions of credit, and other financial accommodations of FINOVA to Dealer,
are completely independent of Dealer's or FINOVA's arrangements with the Vendor,
or any other Vendor, and neither FINOVA nor any Vendor is an agent for or acting
on behalf of the other. FINOVA makes no representation with respect to any of
the Financed Inventory or any materials provided by the Vendor with respect to
the Financed Inventory;
5.18 RELIANCE ON VENDOR. Dealer has relied exclusively upon the Vendor
with respect to the quality, merchantability, and fitness for any particular
purpose of the Financed Inventory purchased from the Vendor. Dealer has
determined with the Vendor the price, quantity and other terms with respect to
the sale of Financed Inventory to Dealer. Dealer has not relied, and will not
rely, on any statements, promises, or representations, oral or written, made by
Vendor (whether or not purported to be on FINOVA's behalf) relating to any of
the Advances;
5.19 [Intentionally omitted]
5.20 REAFFIRMATIONS. Each request for a loan made by Dealer pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Dealer to FINOVA that there does not then exist any Event of Default and (ii) a
reaffirmation as of the date of said request of all of the representations and
warranties of Dealer contained in this Agreement and the other Loan Documents.
6. COVENANTS. Dealer covenants, acknowledges, warrants and agrees that:
6.1 OWNERSHIP, CONDITION AND USE OF COLLATERAL. Except for sales in the
ordinary course of Dealer's business, and the junior liens of (i) the lenders
under the Primary Loan Agreement, and (ii) Vendor, Dealer is and shall continue
to be the owner of all of the Collateral, free and clear of all liens and
encumbrances.
6.2 ACCURATE INFORMATION. All information provided by Dealer to FINOVA
in connection with each Advance is, and will be, complete and accurate in every
material respect; provided, however that absent manifest error or fraud, nothing
herein shall be deemed to relieve FINOVA or Dealer from their respective
obligations under the Tri-Party Agreement.
6.3 VENDOR AUTHORIZATIONS. Vendor is authorized to issue directly to
FINOVA, and/or FINOVA's agents, credit memos, invoices, purchase orders,
certificates of origin and other documents and information relating to Dealer's
acquisition of Financed Inventory from Dealer.
6.4 INSURANCE. Dealer shall procure and maintain theft, burglary and
fire and other casualty insurance containing so-called extended coverage
insurance, insuring the Collateral, all of which insurance shall be in such
reasonable amounts and written by insurers and with lender's loss payee,
additional insured, and other endorsements satisfactory to FINOVA, and shall be,
if adjustable, adjustable by FINOVA, and payable to and for the benefit of
Dealer, the Primary Lender, and FINOVA as their interests may appear. Dealer
shall pay all premiums as and when due, and upon FINOVA's request, shall furnish
FINOVA with evidence satisfactory to FINOVA of its payment of premiums for such
policies or certificates evidencing its
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<PAGE>
compliance with such insurance requirements. If Dealer fails to comply with
this section, FINOVA may (but shall not be required to) procure such
insurance and endorsements at Dealer's expense and charge the cost thereof to
Dealer's Advance account as an Obligation.
6.5 CONSENTS. Dealer has obtained or caused to be obtained or issued
any required consent of a governmental agency, the Primary Lender and any other
lender, or other person in connection with the financing contemplated by this
Agreement. If requested by FINOVA, Dealer shall exercise commercially reasonable
efforts to furnish to FINOVA waivers from the lessors, bailors and/or mortgagees
of all locations where any Collateral is located.
6.6 [INTENTIONALLY DELETED]
6.7 LIENS. Other than the purchase money security interest in favor of
FINOVA created hereby and the junior liens of (i) the lenders under the Primary
Loan Agreement, and (ii) Vendor, Dealer shall not create, incur, assume or
permit to exist any lien or encumbrance upon any of the Collateral, whether now
owned or hereafter acquired.
6.8 FURTHER ASSURANCES. Dealer shall do all acts and execute and
deliver all writings FINOVA may at any time require to protect or enforce
FINOVA's interests, rights and remedies created by, provided in or emanating
from, this Agreement.
6.9 NOTICES. Within five days of acquiring knowledge thereof, Dealer
shall notify FINOVA in writing of (i) any change in any information provided by
Dealer to FINOVA in connection with any of the Advances or the Loan Documents,
OTHER than as outlined in the Tri-Party Agreement, (ii) any change in the
location of any of the Collateral or other matter materially affecting any of
the Collateral, (iii) any matter which has or may have a material adverse effect
on Dealer's business, assets, operations or financial condition, (iv) any
substantial loss, theft, damage, or destruction of any of the Collateral, or (v)
any matter which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default.
6.10 REPORTING REQUIREMENTS. Dealer shall furnish FINOVA, upon request,
such information and statements as FINOVA shall request from time to time
regarding Dealer's business affairs, financial condition and the results of its
operations. Without limiting the generality of the foregoing, Dealer shall
provide FINOVA with those reports identified in the Schedule as set forth in the
Schedule.
6.11 PRIMARY LOAN AGREEMENT. Dealer shall timely perform each and every
term, condition and covenant as and when the same are to be performed under the
Primary Loan Agreement. In the event that the Primary Loan Agreement shall be
amended, modified or terminated, Dealer shall give FINOVA prompt, detailed
written information concerning the same together with true, correct and complete
copies of all written documentation evidencing the same, and within thirty (30)
days of receipt of all such information, FINOVA may elect, to terminate this
Agreement by providing Dealer with no less than thirty (30) days prior written
notice of its intention to so terminate. If FINOVA elects to terminate this
Agreement pursuant to the provisions of the preceding sentence and provided no
Event of Default has occurred, FINOVA shall waive the Early Termination Fee as
described in the Schedule, and other than the repayment of Advances which shall
be due and payable in the ordinary course as set forth in the Schedule, all
other Obligations shall become immediately due and payable in full in
immediately available funds upon the effective date of such termination.
6.12 TRI-PARTY AGREEMENT. Dealer shall timely perform each and every
term, condition and covenant as and when the same are to be performed under the
Tri-Party Agreement.
6.13 FINANCIAL COVENANTS. Dealer shall comply with each and all of the
financial covenants as set forth in the Primary Loan Agreement.
6.14 COLLATERAL MAINTENANCE REQUIREMENT. Dealer shall comply with the
Collateral Maintenance requirement as set forth in the Schedule.
6.15 Y2K COMPLIANCE. Dealer shall take all action necessary to assure
that there will be no material adverse change to Dealer's business by reason of
the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing
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capabilities effectively recognize and process dates after December 31, 1999.
At FINOVA's request, Dealer shall provide to FINOVA assurance reasonably
acceptable to FINOVA that Dealer's computer-based systems, embedded
microchips and other processing capabilities are year 2000 compatible.
6.16 REVOCATION OF ACCOMMODATION PARTY GUARANTY. In the event that the
Accommoda-tion Party revokes, or reduces the amount of, its guaranty of the
Obligations, FINOVA may, at its election, reduce the Total Facility to Fifty
Million ($50,000,000) Dollars within thirty (30) days of receipt of the
Accommodation party's notice to FINOVA of such termination or reduction. FINOVA
will use its best efforts to obtain another guarantor or accommodation party, or
participant or participants for indebtedness in excess of Fifty Million
($50,000,000) Dollars. Should FINOVA be unable to find another guarantor,
accommodation party, participant or participants and should FINOVA reduce the
Total Facility in the event the Accommodation party reduces its guaranty and
provided no Event of Default has occurred, Dealer has the right to terminate the
Total Facility within thirty (30) days of notice of reduction in the Total
facility by FINOVA. FINOVA shall waive the Early Termination Fee as provided in
the Schedule pursuant to the provisions of the preceding sentence, and other
than the repayment of the Advances which shall be due and payable in the
ordinary course as set forth in the Schedule, all other Obligations shall become
immediately due and payable in full in immediately available funds upon the
effective date of such termination.
7. DEFAULTS AND REMEDIES.
7.1 EVENTS OF DEFAULT. Any one or more of the following events shall constitute
an Event of Default under this Agreement:
(a) Dealer fails to pay all or any part of the Obligations within three (3)
business days of written notice by FINOVA when due and payable at stated
maturity, upon acceleration or otherwise;
(b) Dealer or any other Loan Party fails or neglects to perform, keep, or
observe in any material respect any term, provision, condition, covenant or
agreement contained in any Loan Document to which Dealer or such other Loan
Party is a party, and such default continues for a period of thirty (30) days
after written notice thereof has been given to Dealer by FINOVA ;
(c) An Event of Default shall have occurred under the Primary Loan Agreement,
and the payment of the indebtedness thereunder shall have been accelerated;
(d) [Intentionally omitted]
(e) The value or priority of FINOVA's purchase money security interest in the
Collateral is materially impaired;
(f) Any portion of Dealer's assets is seized, attached, subjected to a writ or
distress warrant, is levied upon or comes into the possession of any judicial
officer, the value of which assets would exceed an amount equal to or in excess
of fifteen (15%) percent of the consolidated net worth of Guarantor (exclusive
of CompUSANet.com) as reflected upon the most recent financial statements
delivered to FINOVA hereunder, unless such action is stayed and such attachment
is dismissed within thirty (30) days;
(g) Dealer shall generally not pay its debts as they become due or shall enter
into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Dealer;
(h) Any bankruptcy or other insolvency proceeding is commenced by Dealer, or any
such proceeding is commenced against Dealer and remains undischarged or unstayed
for sixty (60) days;
(i) Other than those with respect to the Collateral and then only to the extent
permitted hereunder, any notice or notices of lien, levy or assessment, the
value of which assets which would be adversely affected by such lien, levy or
assessment would exceed an amount equal to or in excess of fifteen (15%) percent
of the consolidated net worth of Guarantor (exclusive of CompUSANet.com) as
reflected upon the most recent financial statements delivered to FINOVA
hereunder;
(j) Any judgments are entered against Dealer, the value of which would exceed an
amount equal to or in excess of fifteen (15%) percent of the consolidated net
worth of Guarantor (exclusive of CompUSANet.com) as reflected upon the most
recent financial statements
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delivered to FINOVA hereunder, unless each such judgment or judgments are
stayed and each such judgment is dismissed within thirty (30) days of the
entry thereof;
(k) Any default shall occur under any material agreement between Dealer and any
third party, which results in the acceleration by such third party of any
indebtedness of Dealer to such third party. For the purposes of this provision,
the term "material agreement" shall mean any agreement which gives any Person
the right to accelerate the indebtedness of the Dealer thereunder in an amount
equal to or in excess of fifteen (15%) percent of the consolidated net worth of
Guarantor (exclusive of CompUSANet.com) as reflected upon the most recent
financial statements delivered to FINOVA hereunder;
(l) Any representation or warranty made or deemed to be made by Dealer or any
other Loan Party in any Loan Document, or any other statement, document or
report made or delivered to FINOVA in connection with the transactions
contemplated thereby (including, without limitation, any representation or
warranty made by a Vendor on Dealer's behalf) shall prove to have been
misleading in any material respect; or
(m) The Guarantor revokes, terminates or attempts to revoke or terminate its
guaranty or any security therefor, or becomes subject to any bankruptcy or other
insolvency proceeding, is dissolved, liquidated, merged or reorganized (except
where the Guarantor is the surviving entity), or terminated.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE
RIGHT TO CEASE MAKING ANY ADVANCES OR ADVANCES IF AN EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING.
7.2 REMEDIES. Upon the occurrence of an Event of Default, FINOVA may, at its
option and in its Permitted Discretion and in addition to all of its other
rights under the Loan Documents, terminate this Agreement and declare all of the
Advances to be immediately payable in full. FINOVA shall also have all of its
rights and remedies under applicable law, including, without limitation, the
default rights and remedies of a secured party under the Code and upon the
occurrence of an Event of Default, Dealer hereby consents to the appointment of
a receiver by FINOVA in any action initiated by FINOVA pursuant to this
Agreement and to the jurisdiction and venue set forth in SECTION 9.15, and
Dealer waives notice and posting of a bond in connection therewith. Further,
FINOVA may, at any time, take possession of the Collateral and keep it on
Dealer's premises, at no cost to FINOVA, or remove any part of it to such other
place(s) as FINOVA may desire, or Dealer shall, upon FINOVA's demand, at
Dealer's sole cost, assemble the Collateral and make it available to FINOVA at a
place reasonably convenient to FINOVA. FINOVA may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as FINOVA deems advisable, at FINOVA's
discretion, and may, if FINOVA deems it reasonable, postpone or adjourn any sale
of the Collateral by an announcement at the time and place of sale or of such
postponed or adjourned sale without giving a new notice of sale. Dealer agrees
that FINOVA has no obligation to preserve rights to the Collateral or marshall
any Collateral for the benefit of any Person. FINOVA is hereby granted a license
or other right to use, without charge, Dealer's trademarks, copyrights, licenses
and patents or any similar property, in completing production, advertising or
selling any Collateral and Dealer's rights under all licenses and all franchise
agreements shall inure to FINOVA's benefit. Any requirement of reasonable notice
shall be met if such notice is mailed postage prepaid to Dealer at its address
set forth in the heading to this Agreement at least ten (10) days before sale or
other disposition. The proceeds of sale shall be applied, first, to all
reasonable attorneys fees and other expenses of sale, and second, to the
Obligations in such order as FINOVA shall elect, in its sole discretion. FINOVA
shall return any excess to Dealer and Dealer shall remain liable for any
deficiency to the fullest extent permitted by law. FINOVA shall also have the
right to reduce the Total Facility amount, or to modify the terms and conditions
upon which FINOVA is willing to consider making advances under the Total
Facility.
8. EXPENSES.
So long as any Advance remains outstanding and this Agreement remains in effect,
Dealer shall promptly reimburse FINOVA for all reasonable costs, fees and
expenses incurred by FINOVA in connection with the negotiation, preparation,
execution, delivery, administration, amendment, and enforcement of each of the
Loan Documents, including, but not limited to, the attorneys' and paralegals'
fees. Notwithstanding the foregoing, FINOVA acknowledges and agrees
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that the amount of all such costs, fees and expenses as of the date of
execution hereof shall not exceed the amount of the Facility Fee as defined
in the Schedule.
9. MISCELLANEOUS.
9.1 EXAMINATION OF RECORDS; FINANCIAL REPORTING. FINOVA shall at all reasonable
times have full access to and the right to examine, audit, make abstracts and
copies from and inspect Dealer's records, files, books of account and all other
documents, instruments and agreements relating to the Collateral and the right
to check, test and appraise the Collateral. Dealer shall furnish FINOVA, upon
request and at the times specified by FINOVA in FINOVA's Permitted Discretion,
such information and statements as FINOVA shall request from time to time
regarding Dealer's business affairs, financial condition and the results of its
operations. Failure to provide any of the requested information and statements
to FINOVA at the time specified by FINOVA shall be an Event of Default. If any
of the Advances are guaranteed, Dealer shall cause the Guarantor to deliver to
FINOVA such information and statements as FINOVA shall request from time to time
regarding Guarantor's financial condition.
9.2 TERM; TERMINATION. The term of this Agreement and the termination rights,
duties and obligations of the parties are as set forth in the Schedule. Subject
to the obligation of the Dealer to pay the Early Termination Fee as set forth in
the Schedule (except as otherwise expressly provided herein), either FINOVA or
Dealer may terminate the Total Facility at any time and for any reason upon no
less than thirty (30) days prior written notice to the of other their intention
to so terminate the Total Facility. Upon the effective date of termination,
other than the repayment of Advances which shall be due and payable in the
ordinary course as set forth in the Schedule, all other Obligations shall become
immediately due and payable in full in immediately available funds
9.3 RECOURSE TO SECURITY; CERTAIN WAIVERS. All Advances shall be payable by
Dealer as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Dealer waives
presentment and protest of any instrument and notice thereof, notice of default
and, to the extent permitted by applicable law, all other notices to which
Dealer might otherwise be entitled.
9.4 NO WAIVER BY FINOVA. Neither FINOVA's failure to exercise any right, remedy
or option under this Agreement, any supplement, the Loan Documents or other
agreement between FINOVA and Dealer nor any delay by FINOVA in exercising the
same shall operate as a waiver. An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in writing by FINOVA as
herein provided. No waiver by FINOVA shall be effective unless in writing and
then only to the extent stated. No waiver by FINOVA shall affect its right to
require strict performance of this Agreement. FINOVA's rights and remedies shall
be cumulative and not exclusive.
9.5 BINDING ON SUCCESSOR AND ASSIGNS. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Dealer's respective representatives, successors and assigns.
9.6 SEVERABILITY. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
9.7 AMENDMENTS; ASSIGNMENTS. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Dealer and FINOVA. Dealer
may not sell, assign or transfer any interest in this Agreement or any other
Loan Document, or any portion thereof, including, without limitation, any of
Dealer's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Dealer hereby consents to FINOVA's participation, sale, assignment,
transfer or other disposition, at any time or times hereafter, of this Agreement
and any of the other Loan Documents, or of any portion hereof or thereof,
including, without limitation, FINOVA's rights, title, interests, remedies,
powers and duties hereunder or thereunder. In connection therewith, FINOVA may
disclose all documents and information which FINOVA now or hereafter may have
relating to Dealer or Dealer's business. To the extent that FINOVA assigns its
rights and obligations hereunder to a third party, FINOVA shall thereafter be
released from such assigned obligations to Dealer and such assignment shall
effect a novation between Dealer and such third party.
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9.8 INTEGRATION. This Agreement, together with the Schedule (which is a part
hereof) and the other Loan Documents, reflect the entire understanding of the
parties with respect to the transactions contemplated hereby.
9.9 SURVIVAL. All of the representations and warranties of Dealer contained in
this Agreement shall survive the execution, delivery and acceptance of this
Agreement by the parties. No termination of this Agreement or of any guaranty of
the Obligations shall affect or impair the powers, obligations, duties, rights,
representations, warranties or liabilities of the parties hereto and all shall
survive any such termination.
9.10 NOTICES. Any written notice, consent or other communication provided for in
this Agreement shall be delivered personally (effective upon delivery), via
facsimile (effective upon confirmation of transmission), via overnight courier
(effective the next business day after dispatch if instructed to deliver on next
business day) or via U.S. Mail (effective 3 days after mailing, postage prepaid,
first class) to each party at its address(es) and/or facsimile number(s) set
forth below its signature, or to such other address as either party shall
specify to the other in writing from time to time.
9.11 DISBURSEMENT. All Advances shall be made directly to the Vendor in
accordance with the terms of the invoices, all as more particularly provided in
the Schedule.
9.12 CAPTIONS. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
9.13 COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be executed in one or
more counterparts, each of which taken together shall constitute one and the
same instrument, admissible into evidence. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by facsimile shall also deliver a
manually executed counterpart of this Agreement, but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
9.14 TIME OF ESSENCE. Time is of the essence for the performance by Dealer under
this Agreement.
9.15 GOVERNING LAW; JURISDICTION; VENUE. THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. DEALER
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA OR, AT THE SOLE
OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. DEALER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
9.16 SERVICE OF PROCESS; WAIVERS. DEALER WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO DEALER AT THE ADDRESS
SET FORTH BELOW ITS SIGNATURE HERETO AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO DEALER'S ADDRESS. DEALER FURTHER WAIVES ANY RIGHT IT
MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
9.17 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND DEALER EACH HEREBY WAIVES
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND DEALER; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF FINOVA
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OR DEALER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS
OR ANY OTHER PERSONS AFFILIATED WITH FINOVA OR DEALER; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have
caused this Agreement to be executed as of the date first written above.
COMPUSA STORES LP
By: CompUSA GP Holdings Company,
its sole general partner
By: /s/ J. Robert Gary
-------------------------------------------
J. Robert Gary, Senior Vice President
Notice address: Attn: Mark R. Walker, General
Counsel
14951 North Dallas Parkway
Dallas, TX 75240
Facsimile No.: (972) 982-4183
FINOVA CAPITAL CORPORATION
By: /s/ Patrick Smith
-------------------------------------------
Patrick Smith, Vice President,
Credit Manager
Notice Address: FINOVA Capital Corporation
Attn: Portfolio Manager
12647 Alcosta Boulevard
San Ramon, CA 94583
Facsimile No.: 925-543-1818
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<PAGE>
[GRAPHIC OMITTED]
SCHEDULE TO SECURED WHOLESALE FINANCE AGREEMENT
DEALER: COMPUSA STORES LP
EIN: 75-2652809
ADDRESS: 14951 NORTH DALLAS PARKWAY
DALLAS, TX 75240
DATE: NOVEMBER 3, 1999
This Schedule forms an integral part of the Secured Wholesale Finance Agreement
between the above Dealer and FINOVA Capital Corporation ("FINOVA") dated the
above date, and all references herein and therein to this "AGREEMENT" shall be
deemed to refer to said Agreement and to this Schedule.
================================================================================
DEFINITIONS (SECTION 1):
"ACCOMMODATION PARTY" means Compaq Computer Corporation, a Delaware
corporation.
"GUARANTOR" means CompUSA Inc., a Delaware corporation.
================================================================================
TOTAL FACILITY (SECTION 2.1):
An amount not in excess of $85,000,000.
================================================================================
TERM (SECTION 9.2):
The initial term shall commence as of the date of the Agreement and
shall expire on the day immediately preceding the second annual anniversary
thereof (the "Maturity Date"), unless extended or renewed by FINOVA in its
Permitted Discretion prior to such Maturity Date for an additional term of one
(1) year(s). FINOVA agrees to provide Dealer with its notice of its intent to
renew or extend the Loan no less
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<PAGE>
than ninety (90) days prior to the applicable Maturity Date. Unless the
Maturity Date is extended or renewed, other than the repayment of Advances
which shall be due and payable in the ordinary course as set forth in the
Tri-Party Agreement, all other Obligations are immediately due and payable to
FINOVA in immediately available funds on the Maturity Date.
================================================================================
CONDITIONS PRECEDENT (SECTION 2.3):
As conditions precedent to the initial Loan, each of the following
conditions shall have been fulfilled or waived to the satisfaction of FINOVA in
its Permitted Discretion:
a. (a) Execution and delivery of the Loan Documents, including
without limitation:
- Secured Wholesale Finance Agreement
- Schedule
- Guaranty of CompUSA, Inc.
- Guaranty of Accommodation Party
- Tri-Party Agreement
- Notices by FINOVA to Senior Lender(s)
- InterCreditor Agreement
- Subordination Agreement
- Y2k Undertaking
- UCC-1 Financing Statements
- Such other documents, instruments and agreements as FINOVA
shall require
b. (b) For Dealer and each guarantor not a natural person, copies
of all organizational documents (Articles of Incorporation,
By-Laws, Certificate of Limited Partnership, Certificate of
Formation, Partnership Agreement, Operating Agreement, etc.)
together with all amendments thereto to the date hereof, and
copies of authorizing resolutions, certified by the secretary of
Dealer and such guarantor that the same are true, correct and
complete copies of the originals thereof and have not been amended
or rescinded to the date hereof.
c. Good standing and foreign qualification certificates for Dealer,
Guarantor, and the Accommodation Party.
c. (d) Evidence of casualty insurance in amounts at least equal
to the Loan Facility with loss payable endorsement to FINOVA and not
less than 30 days prior notice to FINOVA of cancellation or
modification..
d. (e) [Intentionally omitted]
e.
f. (f) With respect to the Dealer, FINOVA shall have conduced such
searches of the public record as it shall deem necessary or
appropriate in its permitted Discretion.
g. (g) Opinion of Dealer's counsel as to such matters as FINOVA
shall determine in its Permitted Discretion.
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================================================================================
PAYMENT TERMS (SECTION 2.7)
All Advances shall be repaid in immediately available funds in
accordance with the following (each a "Payment Date"): (i) Advances be made
within forty (40) days of the date of the invoice therefor. Notwithstanding the
foregoing, at such time as the aggregate amount of the Obligations is (i) Seven
Million Five Hundred Thousand ($7,500,000) Dollars or greater in excess of (ii)
the aggregate value of the Financed Inventory (determined at the lower of cost
or market as determined by the accounting methods utilized by Dealer in
accordance with GAAP) in the possession of Dealer (the "COLLATERAL DEFICIT"),
Dealer shall within five (5) days of FINOVA's receipt of a monthly collateral
report reflecting such excess, repay in immediately available funds such portion
of the Obligations as is necessary to reduce the Obligations so that upon
receipt of such payment, the Collateral Deficit shall not exceed Seven Million
Five Hundred Thousand ($7,500,000) Dollars (a "PAYDOWN"). To the extent that a
Paydown occurs in respect of unpaid invoices which are at the time of the
Paydown less than thirty (30) days from their respective dates of issue, Dealer
shall be entitled to a discount of fifteen (15) basis points of the aggregate
amount of such invoices.
================================================================================
INTEREST RATE AND FEES (SECTION 3.1):
INTEREST RATE:
Provided that each Advance is paid on or before the respective
Payment Date, such Advances shall not bear interest as long as the
Vendor shall continue to support the transaction via Vendor
subsidy on the non-interest bearing period. In the event that the
subsidy provided by the Vendor to support the transaction is
reduced or increased, FINOVA shall have the right to fully and
completely pass through to Dealer any and all such additional
costs or savings. Any decrease in terms or increase in costs to
the Dealer as a result of Vendor support changes shall enable the
dealer to terminate the Agreement. Dealer will be responsible for
the lesser of: (i) the pro-rata share of the Early Termination Fee
(as hereinafter defined) for such year (i.e. the product of the
Early Termination Fee for such year times a fraction, the
numerator of which is the total number of days remaining in such
year and the denominator of which is 360; or (ii) Fifty (50%)
Percent of the Early Termination Fee for such year. Any payment
received after the respective Payment Date shall bear interest at
a rate equal to three (3) percent per annum in excess of the Base
Rate from the date such Advance was made.
AMOUNT OF FEES:
FACILITY FEE. As a condition precedent to Closing, Dealer shall
pay to FINOVA in immediately available funds a Facility Fee in an
amount equal to One Hundred Seventy Thousand ($170,000) Dollars
("FACILITY FEE"). The Facility Fee shall be deemed fully earned
and non-refundable at the time when due; provided, however that
this fee shall be credited by FINOVA against any of FINOVA's
documented reasonable legal fees and other reasonable
out-of-pocket expenses.
EARLY TERMINATION FEE. Either FINOVA or Dealer may terminate the
Total Facility at any time and for any reason upon no less than
thirty (30) days prior written notice to the of other their
intention to so terminate the Total Facility; provided, however
that if the Total Facility is so terminated, Dealer agrees to
compensate FINOVA for FINOVA's expenses and loss of anticipated
profits in accordance with the following: (i) an amount equal to
One-Half of One (0.005%) Percent of the Total Facility amount if
terminated prior to the first anniversary of the Closing Date; or
(ii) an amount equal to One Tenth of One (0.001%) Percent, if
terminated after the first anniversary of
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the Closing Date, but prior to the end of the eighteenth month
following the Closing Date (each an "EARLY TERMINATION FEE").
================================================================================
REPRESENTATIONS (SECTION 5):
STATE OF ORGANIZATION (Section 5.1): Texas
STATES QUALIFIED TO DO BUSINESS (Section 5.1):
See, Exhibit 5.1.
DEALER'S NAMES (Sections 5.2):
Prior Corporate Names:
Fictitious Names:
LITIGATION (Section 5.6):
See Exhibit 5.6 attached
LIENS (Section 5.7):
See Exhibit 5.7 attached
LOCATIONS OF COLLATERAL (Section 5.15):
See Exhibit 5.15 attached
CHIEF EXECUTIVE OFFICE (Section 5.15): 14951 North Dallas Parkway,
Dallas, TX 75240
AFFIRMATIVE COVENANTS (SECTION 6):
================================================================================
REPORTING REQUIREMENTS (Section 6.11)
Dealer shall furnish FINOVA, upon request, such information and
statements as FINOVA shall request from time to time regarding Dealer's business
affairs, financial condition and the results of its operations. Without limiting
the generality of the foregoing, Dealer shall provide FINOVA with:
(i) within twenty (20) days after the end of each fiscal period
perpetual inventory reports for all inventory (separately identifying the
Financed Inventory, and the location of all inventory and the Financed Inventory
individually) determined at the lower of cost or market as determined by the
accounting methods utilized by Dealer in accordance with GAAP;
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<PAGE>
(ii) within twenty (20) days after the end of each fiscal period of
each fiscal year (except for any fiscal period that is the last fiscal period of
a fiscal quarter), internally prepared consolidated balance sheet of Parent and
its consolidated subsidiaries as of the end of such fiscal period and the
related consolidated statements of operations for such fiscal period and for the
elapsed portion of the year ended with the last day of such fiscal period and a
consolidated statement of cash flows for the elapsed portion of the year ended.
With the last day of such fiscal period all prepared in accordance with GAAP.
(iii) within forty-five (45) days of the end of each of the first three
fiscal quarters of Dealer, Form 10Q of CompUSA Inc., as filed with the
Securities and Exchange Commission;
(iv) within ninety (90) days of the end of fiscal year, Form 10K of
CompUSA Inc., as filed with the Securities and Exchange Commission;
(v) no later than the end of the first quarter of each fiscal quarter
of each fiscal year, submit Annual Projections by fiscal quarter with respect to
such fiscal year; and
(vi) as and when required to be submitted to the Primary Lender under
the Primary Loan Agreement, true, correct, complete and originally executed
copies of any borrowing base certificate, compliance certificates, and other
similar certifications as required thereunder, showing Dealer's compliance with
each of the financial covenants set forth in the Primary Loan Agreement, and
stating whether any Event of Default has occurred or event which, with giving of
notice or the passage of time, or both, would constitute an Event of Default
thereunder.
FINANCIAL COVENANT (Section 6.13):
Dealer shall comply with all financial covenants required under
the Primary Loan Agreement.
COLLATERAL MAINTENANCE REQUIREMENT.
The Collateral Deficit shall at no time exceed Seven Million Five
Hundred Thousand ($7,500,000) Dollars; provided, however that if
Dealer's borrowing availability from Dealer's Primary Lender under
the Primary Loan Agreement is less than One Hundred Seventy-Five
Million ($175,000,000) Dollars, no Collateral Deficit shall be
permitted to exist. In the event that the Dealer's Primary Loan
Agreement is replaced, amended or modified, FINOVA and the Dealer
agree to enter into negotiations with the desired objective that
such provisions be adjusted or otherwise modified to fairly take
into account any such change. If no agreement can be reached
either party reserves their right to terminate the Agreement.
5
<PAGE>
================================================================================
DISBURSEMENT (SECTION 9.11):
All Advances to be made hereunder shall be made for the account of
Dealer directly to Compaq Computer Corporation in accordance with
the payment terms of the invoices submitted to FINOVA to Dealer.
EXECUTED UNDER SEAL BY:
<TABLE>
<S> <C>
DEALER: FINOVA:
COMPUSA STORES LP FINOVA CAPITAL
BY: COMPUSA GP HOLDINGS COMPANY, CORPORATION
ITS SOLE GENERAL PARTNER
BY: /s/ PATRICK SMITH
BY: /s/ J. ROBERT GARY ----------------------------------
------------------------------------- (SEAL)
J. ROBERT GARY, SENIOR VICE PRESIDENT TITLE: PATRICK SMITH, VICE PRESIDENT,
CREDIT MANAGER
</TABLE>
6
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THE FOREGOING SCHEDULE TO SECURED WHOLESALE FINANCE AGREEMENT WAS
ACKNOWLEDGED BEFORE ME THIS 3RD DAY OF NOVEMBER, 1999, BY COMPUSA GP HOLDINGS
COMPANY, A DELAWARE BUSINESS TRUST, THE SOLE GENERAL PARTNER OF COMPUSA STORES
LP, A TEXAS LIMITED PARTNERSHIP, ON BEHALF OF SUCH PARTNERSHIP.
MELISSA VANCE
TITLE OR RANK:
---------------
SERIAL NUMBER, IF ANY:
-------
7
<PAGE>
CORPORATE GUARANTY
TO: FINOVA Capital Corporation
Attn: Portfolio Manager
12647 Alcosta Boulevard
San Ramon, CA 94583
1. IDENTIFICATION.
This Guaranty is made by each of the undersigned, jointly and
severally if more than one, in your favor, in order to induce you to enter into
one or more notes, loan agreements and/or security agreements (herein, the
"Agreements"), with COMPUSA STORES L.P. (herein, the "Debtor"), or to otherwise
extend or continue financial accommodations in favor of the Debtor or to acquire
obligations or indebtedness owing by the Debtor.
2. GUARANTY OBLIGATION.
(a) We unconditionally guarantee to you and undertake the
obligations of a surety with respect to the following described obligations and
liabilities of the Debtor (herein, the "Debtor's Liabilities"):
(i) The prompt payment in full of any and all now existing
or hereafter arising indebtedness or obligations of the Debtor to you of every
kind or nature, whether acquired by you by negotiation, assignment or otherwise,
and whether direct or indirect, absolute on contingent, matured or unmatured, or
otherwise, and including without limitation all advances and other loans now or
at any time hereafter made by you to the Debtor under or secured by the
Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL
EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT
OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR
MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE
ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME-TO-TIME DIRECTLY
FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS
AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT
OF OUR RELATIONSHIP WITH THE DEBTOR; and
(ii) The prompt, full and faithful performance and discharge
by the Debtor of each and every term, condition, agreement, representation,
warranty and provision on the part of the Debtor contained in any of the
Agreements or in any modification, amendment or substitution thereof or in any
other document or instrument evidencing or securing any obligation or
indebtedness of the Debtor to you.
(b) We shall, on your demand, reimburse you for all expenses,
collection charges, court costs and attorneys' fees incurred by you in
endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend
any of your rights and remedies against us and/or the Debtor or against any
other person or entity primarily or secondarily liable for the obligations and
indebtedness guaranteed hereby (herein, an "Obligor"), or against or with
respect to any property, real or personal, now or hereafter granted to or
obtained by you as security for Debtor's Liabilities or for our liabilities and
obligations to you hereunder or for those of any Obligor (herein, "Secured
Property"), together with interest thereon until reimbursed at a rate equal to
three (3) percent above the rate of interest payable on the Debtor's Liabilities
guaranteed hereby (or the highest rate permitted by law) of the amount due by us
to you.
3. LIABILITY ABSOLUTE; WAIVERS.
(a) We shall pay all of the foregoing amounts and perform all of
the foregoing terms, covenants and conditions notwithstanding that any part or
all of the Agreements or other documents or instruments
<PAGE>
evidencing the Debtor's Liabilities, or any financial accommodation for or
transaction with the Debtor, shall be invalid, void, voidable or otherwise
unenforceable, in whole or in part, as against the Debtor, any property of the
Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of
Debtor or Debtor as a debtor-in-possession, including without limitation by
reason of any theory or provision of law or equity, statutory or otherwise,
relating to consideration, or the lack thereof, or to any alleged fraudulent,
preferential or other improper transfer or conveyance, and including further,
without limitation, by reason of failure by any person, including yourself, to
file any document or take any other action to make any of your rights against
the Debtor, any other Obligor or any property, pursuant to the Agreements or
otherwise, enforceable in accordance with their respective terms.
(b) You shall have the right from time to time, and at any time,
without notice to or consent from us, and without affecting, impairing or
discharging, in whole or in part, our obligations to you hereunder, to enter
into agreements with the Debtor or any other Obligor to modify, change or
supplement, in any respect whatsoever, any evidence of indebtedness, or any
agreement or transaction between you and the Debtor or between you and any other
Obligor, or any portion or provision of any thereof; to grant extensions of time
and other indulgences of any kind to the Debtor or other Obligor; to
compromise, release, substitute, exercise, enforce, or fail or refuse to
exercise or enforce any claims, rights or remedies of any kind which you may
have, at any time, against the Debtor or any other Obligor, or any portion
thereof, or with respect to any Secured Property; and to release, substitute or
surrender and to enforce, collect or liquidate any security of any kind held by
you at any time, and all of the foregoing whether done negligently, willfully or
otherwise.
(c) Our obligations to you shall not be affected, impaired or
discharged, in whole or in part, by reason of your failure to obtain, in the
first instance, rights against any person or entity, including without
limitation, the Debtor, or in or with respect to any property, or to protect,
perfect, continue or maintain any such rights.
(d) We waive notice of acceptance hereof and all notices and
demands of any kind to which we may otherwise be entitled including, without
limitation, all demands of payment and notice of nonpayment, protest and
dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or
other instruments for which we are or may be liable hereunder, and further waive
notice of any adverse change in the Debtor's financial condition, the value of
any Secured Property, or any other fact which might materially increase our risk
to you hereunder.
(e) We waive any right to require you to, prior to proceeding
against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii)
proceed against or exhaust any Secured Property; or (iii) pursue any other
remedy which you may have.
4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF.
Our liability to you hereunder is primary, absolute,
unconditional, continuing, direct and independent of the obligations of the
Debtor. Nothing shall discharge or satisfy our liability hereunder except the
full performance and payment of all of the Debtor's Liabilities. In the event
that all of Debtor's Liabilities shall have at any time been paid and performed
in full, this Guaranty and our obligations hereunder shall nevertheless remain
in full force and effect and be operative with respect to Debtor's Liabilities
incurred or arising at any time to times thereafter. We shall have no right of
subrogation, reimbursement or indemnity whatsoever and no right of recourse to
or with respect to the Debtor and/or any property of the Debtor, unless and
until all of Debtor's Liabilities have been paid and performed in full. Our
liability to you hereunder shall not be subject to set-off, counterclaim,
crossclaim or defense arising out of or by virtue of any claim or right which we
may at any time have against the Debtor or other Obligor, or which we may at any
time have against you in connection with this or any other transaction with or
acquired by you.
5. CONTINUING NATURE OF GUARANTY.
(2)
<PAGE>
Our obligations under the Guaranty shall be continuing. This
instrument shall continue in full force and effect until our obligations to you
are terminated by the actual receipt by you of written notice from us of such
termination. Such termination shall be applicable only to such of Debtor's
Liabilities as have their inception thereafter. Specifically, without
limitation, we shall, after and notwithstanding such termination, remain
obligated to you under the term hereof for: (i) all of Debtor's Liabilities
incurred prior to your actual receipt of such notice of termination, including
interest or other finance charges at any time theretofore accrued or thereafter
accruing or payable thereon; (ii) all of your costs and expenses, including
attorneys' fees, at any time incurred in connection with your enforcement and
collection of Debtor's Liabilities incurred prior to your actual receipt of such
notice of termination; (iii) Debtor's Liabilities incurred subsequent to your
actual receipt of such notice of termination pursuant to any perceived or actual
commitment made on your part prior to such notice of termination, arising out of
any course of dealing or other perceived or actual legal or other requirement
obligating or committing you to make advances, loans or other financial
accommodations giving rise to such Debtor's Liabilities; and (iv) advances at
any time made by you to protect your interests under or in connection with
Debtor's Liabilities incurred prior to you actual receipt of such notice of
termination. We acknowledge that, upon such termination, you will have
absolutely no further obligation to consider any further requests for loans or
other extensions of credit or financial accommodations for the Debtor.
6. SECURITY FOR GUARANTY.
All sums at any time to our credit and any of our present and
future property at any time in your possession shall be deemed held by you as
security for any and all of our obligations to you hereunder.
7. SUBORDINATION.
Any and all present and future indebtedness and obligations of
the Debtor to us are hereby agreed to be postponed in your favor. Upon written
notice given by you to us, which you may give at any time whether or not the
Debtor is in default to you, we will refrain from accepting any payments on
account of such indebtedness tendered by the Debtor or any other Obligor
thereon, or realized from any security therefor, and any amounts received by us
in violation of the foregoing shall be held by us upon an express trust for your
benefit and turned over to you upon demand. Until such notice, we will accept
only such payments which are in the nature of regularly scheduled payments made
pursuant to periodic reductions required by the terms of the documents
evidencing such indebtedness, and shall not accept any prepayment thereof,
whether on default, on demand under any demand instrument, or otherwise. We
represent to you that all such indebtedness owing to us is, and agree that it
shall remain, and any future indebtedness shall be unsecured.
8. NO WAIVER.
No failure, omission or delay on your part in exercising any
rights hereunder or under the Agreements or with respect to Debtor's
Liabilities, either against the Debtor or any other Obligor, or any Secured
Property, shall operate as a waiver of such rights or shall, in any manner,
prejudice your rights against us hereunder or otherwise.
9. CUMULATIVE REMEDIES.
All of your rights and remedies under the Agreements, this
Guaranty and under any other document or instrument evidencing or securing
Debtor's Liabilities are separate and cumulative and may be pursued separately,
successively or concurrently, are non-exclusive and the exercise of any one or
more of them shall in no way limit or prejudice any other legal or equitable
right, remedy or recourse to which you may be entitled. This Guaranty shall be
deemed to be in addition to, and not in lieu of, any prior suretyship or
guaranty delivered by us to you, and any suretyship or guaranty at any time
hereafter delivered by us to you shall be deemed to be in addition to, and not
in lieu of, this Guaranty.
10. APPLICATION OF FUNDS.
(3)
<PAGE>
Any payment made by us hereunder, or by the Debtor or any other
Obligor, and any proceeds realized by you from any Secured Property, may be
applied by you to any of Debtor's Liabilities in any order which you may
determine, notwithstanding any designation by us, the Debtor or other Obligor to
the contrary. To the extent that the Debtor has at any time any liabilities or
obligations to you for which we are not obligated to you under the terms of this
Guaranty, any payments received by you from Debtor or any other Obligor, or
proceeds realized by you from any security, and regardless of any designation by
any person or entity to the contrary, may be applied by you to such other
liabilities and obligations prior to your applying any amounts to Debtor's
Liabilities for which we are obligated to you hereunder.
11. MODIFICATIONS.
No provision thereof shall be modified or limited, except by a
written agreement expressly referring hereto and to the provision so modified or
limited, and signed by us and you.
12. MERGER.
This writing is intended as a final, complete and exclusive
expression of our agreement with you relative to the subject matter hereof. No
course of prior dealing between you and us, no usage of the trade, and no parole
or extrinsic evidence of any nature, shall be used or be relevant to supplement
or explain or modify and term used in this Guaranty.
13. SEVERABILITY.
In case any one or more of the provisions contained in this
Guaranty shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and this Guaranty shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. NOTICES.
We agree that any notice or demand upon us shall be deemed to be
sufficiently given or served if it is in writing and is personally served, or in
lieu of personal service is mailed by first class certified mail, postage
prepaid, addressed to us at the address set forth below. Any notice or demand
so mailed shall be deemed received on the date of actual receipt or the first
business day following mailing, whichever first occurs.
15. JUDGMENT INTEREST.
Any judgment entered against us hereunder shall, to the extent
permitted by applicable law, bear interest at the highest rate applicable to the
Debtor's Liabilities guaranteed hereby.
16. GOVERNING LAW.
THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAW
RULES) OF THE STATE OF ARIZONA. WE HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE
OF ARIZONA OR, AT YOUR SOLE OPTION, IN ANY OTHER COURT IN WHICH YOU SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. WE HEREBY IRREVOCABLY WAIVE ANY
OBJECTION OF FORUM NON CONVENIENS AND VENUE.
17. WAIVER OF JURY TRIAL.
(4)
<PAGE>
AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND
THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS
AGREEMENT OR OTHERWISE.
18. SUCCESSORS AND ASSIGNS.
This Guaranty shall inure to the benefit of your successors and
assigns and shall be binding on our successors and assigns.
19. GENDER; JOINT AND SEVERAL LIABILITY.
If there be more than one person or entity signing this Guaranty,
each of us will be jointly and severally obligated to you hereunder, and the
terms "we", "us" or "our" as used herein shall refer to each of us jointly and
severally. If less than all persons or entities who were intended to sign this
Guaranty do so, the same shall nevertheless be binding upon those who do sign.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
undersigned has duly executed this Guaranty as of this 3rd day of November,
1999.
CompUSA Inc., a Delaware Corporation
By: /s/ J. Robert Gary
----------------------------------------
J. Robert Gary, Senior Vice President
Attest: [Blank in original]
[Corporate Seal]
Address: Attn: Mark R. Walker, General
Counsel
14951 North Dallas Parkway
Dallas, TX 75240
(5)
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF COMPUSA INC.
1. CompUSA Stores L.P., a Texas limited partnership.
2. CompUSA GP Holdings Company, a Delaware business trust.
3. CompUSA Holdings Company, a Delaware business trust.
4. CompUSA PC Inc., a Delaware corporation.
5. CompUSA PC Operating Company, a Delaware business trust.
6. CompUSA Net.com Inc., a Delaware corporation.
7. cozone.com inc., a Delaware corporation
8. cozone.com l.l.c., a Delaware limited liability company
9. CompTeam Inc., a Delaware corporation.
10. CompUSA Management Company, a Delaware business trust.
11. CompUSA Holdings I Inc., a Delaware corporation.
12. CompUSA Holdings II Inc., a Delaware corporation.
<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 WEEKS
ENDED SEPTEMBER 25, 1999 AND THE THIRTEEN WEEKS ENDED SEPTEMBER 26, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-24-2000 JUN-26-1999<F1>
<PERIOD-START> JUN-27-1999 JUN-28-1998
<PERIOD-END> SEP-25-1999 SEP-26-1998
<CASH> 128,322 151,129
<SECURITIES> 0 0
<RECEIVABLES> 150,379 265,032
<ALLOWANCES> (4,697) (5,492)
<INVENTORY> 675,508 776,992
<CURRENT-ASSETS> 996,450 1,264,293
<PP&E> 467,952 442,651
<DEPRECIATION> (214,585) (213,372)
<TOTAL-ASSETS> 1,399,547 1,613,240
<CURRENT-LIABILITIES> 846,642 941,584
<BONDS> 0 110,000
0 0
0 0
<COMMON> 941 939
<OTHER-SE> 336,630 401,938
<TOTAL-LIABILITY-AND-EQUITY> 1,399,547 1,613,240
<SALES> 1,347,246 1,375,439
<TOTAL-REVENUES> 1,347,246 1,375,439
<CGS> 1,143,850 1,182,823
<TOTAL-COSTS> 1,143,850 1,182,823
<OTHER-EXPENSES> 218,110 179,667
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,752 4,383
<INCOME-PRETAX> (20,652) 10,106
<INCOME-TAX> (7,744) 3,874
<INCOME-CONTINUING> (12,908) 6,232
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,908) 6,232
<EPS-BASIC> (0.14) 0.07
<EPS-DILUTED> (0.14) 0.07
<FN>
<F1>RESTATED FINANCIAL DATA SCHEDULE. EFFECTIVE AS OF THE BEGINNING OF
FISCAL 2000, THE COMPANY ADOPTED A NEW ACCOUNTING POLICY FOR THE RECOGNITION
OF REVENUES RELATED TO SALES OF CERTAIN EXTENDED SERVICE PLANS BY THE
COMPANY, AS DESCRIBED IN NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS IN THE COMPANY'S REPORT ON FORM 10-Q FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 25, 1999. THE COMPANY HAS GIVEN RETROACTIVE EFFECT TO THIS NEW
ACCOUNTING POLICY AND IS ACCORDINGLY RESTATING ITS FINANCIAL STATEMENTS FOR
THE THIRTEEN WEEKS ENDED SEPTEMBER 26, 1998.
</FN>
</TABLE>
