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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 1-11566
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COMPUSA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2261497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 per share par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of these shares on the New York Stock
Exchange on September 10, 1999 was $414,683,999. For the purposes of this
disclosure only, the registrant has assumed that its directors, executive
officers, and beneficial owners of 5% or more of the registrant's common stock
are the affiliates of the registrant.
The registrant had 91,776,129 shares of common stock, $.01 per share par
value, outstanding as of September 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting
of stockholders of the Company to be held November 3, 1999 are incorporated by
reference into Part III of this Report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 8
Item 3. Legal Proceedings........................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......................................... 9
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters...................... 10
Item 6. Selected Financial Data..................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 13
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................................... 29
Item 8. Financial Statements and Supplementary Data................................................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 29
PART III
Item 10. Directors and Executive Officers of the Company............................................. 30
Item 11. Executive Compensation...................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 30
Item 13. Certain Relationships and Related Transactions.............................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 31
Signatures............................................................................................... 35
Index to Consolidated Financial Statements............................................................... F-1
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PART I
ITEM 1. BUSINESS
CompUSA Inc. ("CompUSA" or the "Company") is one of the leading retailers
and resellers of personal computers and related products and services,
principally through its Computer Superstores(SM) located throughout the United
States. In addition to the retail sales of its stores, the Company's operations
also include direct sales to corporate, government, and education customers. In
addition, the Company conducts a retail Internet sales operation through its
wholly-owned subsidiary, CompUSA Net.com Inc. ("CompUSA Net.com") and sells
build-to-order desktop and notebook personal computers and servers through its
wholly-owned subsidiary, CompUSA PC Inc. The Company also provides training and
technical services to its retail and corporate, government, and education
customers.
On August 31, 1998, the Company completed its acquisition of Computer City,
Inc. ("Computer City") from Tandy Corporation ("Tandy") for approximately $175
million, payable in a note and cash. The purchase price is subject to
post-closing adjustments that the Company anticipates finalizing with Tandy in
the second quarter of fiscal 2000. The sale was accounted for under the purchase
accounting method. The acquired operations included 96 retail stores located in
the United States, including two locations that had not opened, 59 of which the
Company has subsequently closed. The acquired operations also included seven
retail stores in Canada, which the Company sold to Future Shop Ltd. in November
1998, and six corporate sales and/or training offices, all of which the Company
has subsequently closed. The Company also acquired a call center and an assembly
facility located in the Dallas/Fort Worth area, both of which the Company is
currently operating. The acquired stores in the United States are operated under
the "CompUSA" name after being converted to the Company's format and merchandise
mix.
Prior to the filing of this Annual Report on Form 10-K, the Company
announced a number of strategic initiatives intended to improve the Company's
financial performance by increasing gross margins, reducing operating costs,
improving customer service, and capitalizing on strategic growth opportunities.
The details of the Company's strategic initiatives with respect to each of its
businesses are discussed in Item 7 below, "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- Fiscal 1999 compared with
Fiscal 1998." The description of the Company set forth in this Annual Report on
Form 10-K reflects changes made, or in the process of being made, to the
Company's structure and operations since June 24, 1999, as part of the Company's
efforts to implement the previously announced strategic initiatives.
The Company was incorporated in Delaware in 1988 to effect the acquisition
of a company formed in 1984 called Soft Warehouse, Inc. Until March 1991, the
Company operated under the name "Soft Warehouse, Inc." Except where the context
indicates otherwise, all references in this Annual Report to "CompUSA" or the
"Company" include all subsidiaries of CompUSA. The Company's principal executive
offices are located at 14951 North Dallas Parkway, Dallas, Texas 75240, and its
telephone number is (972) 982-4000. Additional information about the Company can
be accessed via the Internet through www.compusa.com.
RETAIL
The Company opened its first retail store in April 1985 and its first
Computer Superstore in April 1988. At June 26, 1999, the Company operated 211
Computer Superstores averaging approximately 26,000 square feet in 83
metropolitan areas in 42 states. At September 9, 1999, the Company operated 210
CompUSA Computer Superstores in 82 metropolitan areas in 42 states. In addition,
the Company operates seven "small market" concept stores. The Company plans to
open approximately ten Computer Superstores in fiscal 2000.
The Company offers thousands of personal computer hardware and software and
related products and accessories as an essential component of its merchandising
strategy. In addition to its in-store
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selection, which the Company believes is sufficiently broad to satisfy the needs
of most of its customers, CompUSA offers customers the ability to special order
approximately 30,000 additional products. Although prices for products and
services are typically determined centrally, local personnel regularly compare
these centrally determined prices with publicly available information regarding
prices of competitors, and managers have the authority to adjust in-store prices
in response to local competitive conditions within guidelines established and
controlled centrally. Major types of products offered are as follows:
HARDWARE--Hardware products include desktop and notebook personal computers;
peripherals, such as printers, modems, monitors, data storage devices, add-on
circuit boards, and connectivity products; certain business machines, such as
facsimile machines, video conferencing equipment, and other related equipment
and supplies; and certain electronics products such as digital cameras,
hand-held personal computers, pagers, calculators, and virtual reality
accessories. Major vendors include 3-Com, Apple, Canon, Compaq, CompUSA PC,
Epson, Hewlett-Packard, IBM, Maxtor, Packard Bell/NEC, PNY, Sony, Toshiba, and
Western Digital.
SOFTWARE--The Company sells over 2,000 different software packages in the
business and personal productivity, entertainment, education, utility, language,
and reference categories. Major vendors include Corel, Electronic Arts, Havas,
Intuit, Lotus, Mattel, Microsoft, Network Associates, and Symantec.
ACCESSORIES--Accessories sold by the Company include a broad range of
personal computer-related items and supplies such as CD-ROM drives, sound cards,
media storage, and other computer-related supplies. Major vendors include 3M,
Avery, Belkin, Curtis, Daisytek, Fellowes, Hewlett-Packard, Iomega, Kensington,
Logitech, Microsoft, Sony, and Targus.
SERVICES--The Company also provides training and technical services through
its retail stores. See "--Services" below.
DIRECT SALES
The Company believes that its presence in 82 metropolitan areas, broad
product assortment, competitive pricing, customer service, and training and
technical services position it to serve the diverse needs of corporate,
government, and education customers by offering a "total solution" to their
personal computing needs. CompUSA targets these customers primarily through
direct solicitations and telemarketing sales.
In August 1999, the Company opened its new 80,000 square foot call center in
Dallas to accomodate its central sales and support functions. These centralized
functions support the regional sales structure of the Company's direct sales
business, which features area sales managers, technical services engineers and
support teams dedicated to specific markets. The sales and support call center
is accessible through the toll-free 1-800-COMPUSA telephone number.
Direct sales product orders are fulfilled primarily through Ingram Micro
Inc. ("Ingram Micro"), pursuant to a contract that was executed in the first
quarter of fiscal 2000. Pursuant to the contract, the Company outsourced to
Ingram Micro a majority of the order fulfillment and configuration services for
the Company's direct sales to corporate, government, and education customers. A
portion of the Company's direct sales will continue to be fulfilled by the
Company from the inventories in its Computer Superstores, by an alternate
third-party order fulfillment and configuration provider, and, in the case of
CompUSA PC products, by CompUSA PC Inc. The Company believes that the
outsourcing to Ingram Micro should result in increased efficiencies and reduced
costs, while improving the quality of service provided to the Company's direct
sales customers. The outsourcing to Ingram Micro should also decrease the risk
of inventory obsolescence and declining price protection levels provided by
manufacturers.
Substantially all of CompUSA's advertisements, including its color
circulars, feature the Company's toll-free 1-800-COMPUSA telephone number and
the URL for its Internet portal page, www.compusa.com. The Company advertises
major brands of personal computer hardware, software,
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accessories, and supplies, as well as its full service offerings of training and
technical services in computer journals, magazines, catalogs, and many other
publications.
CORPORATE--The Company has a dedicated corporate sales group that solicits
potential corporate customers and offers phone ordering, electronic order
placement via the Internet, delivery, business credit, leasing, and other
services, including a corporate assistance window in each Computer Superstore
for merchandise pickup and technical assistance. The Company offers volume
purchase and national account agreements to qualified major customers. The
Company's corporate sales group markets on the basis of overall merchandise
selection, pricing, and service along with classroom training and technical
services. The Company assigns an account executive to each of its larger
customers to manage the Company's relationship with the customer.
GOVERNMENT AND EDUCATION--The government and education sales groups market
to federal, state, and local governments, government-related entities, and the
education market, both directly and as a supplier to systems integrators and
other contractors.
As of September 9, 1999, over 10,000 products sold by the Company, from over
35 vendors, have been approved by the Federal General Services Administration
("GSA") on the 1996-2001 GSA schedule, making such products eligible for
purchase by federal agencies and certain state and local governments. In
addition to products listed on the GSA schedule, the Company sells to government
customers via the federal procurement card, electronic order placement via the
Internet, and state, county, and city contracts. The Company is also an approved
training and service vendor on the GSA schedule.
To address the needs of its education customers, the Company also maintains
a sales group and support team dedicated to its education accounts. In addition
to product purchases, schools can contract with CompUSA for technical services
such as upgrades, maintenance, and telephone help desk support, as well as
computer training courses for students, faculty, and administration. The Company
provides these customers network design services by outsourcing to third-party
providers.
SERVICES--The Company also provides training and technical services to its
direct sales customers. See "--Services" below.
COMPUSA PC
In the first quarter of fiscal 1998, the Company introduced the "CompUSA
PC-TM-" brand of desktop personal computers. Initially, the Company outsourced
the assembly of these build-to-order products to third parties. Since November
1998, CompUSA PC products have been assembled by the Company in its assembly
facility in Fort Worth, Texas. These products are currently being produced by
CompUSA PC Inc. The Company introduced the CompUSA PC brand of notebook
computers and servers in the third and fourth quarters of fiscal 1999,
respectively. Customers place orders through the Company's Computer Superstores,
by using the Company's toll-free telephone number, 1-800-COMPUSA, or through
CompUSA PC Inc.'s web site at www.compusapc.com, which can also be accessed
through the Company's portal page at www.compusa.com. Following assembly,
CompUSA PC products are shipped directly to customers. CompUSA PC Inc. also
ships pre-configured CompUSA PC desktop and notebook personal computers to the
Company's retail stores for sale in such retail stores.
COMPUSA NET.COM
CompUSA Net.com is an Internet-only retailer of technology products that
targets the small office/ home office and home markets. Through its web site,
www.compusanet.com, CompUSA Net.com offers a comprehensive array of products
that includes computer hardware, software, and peripherals as well as certain
other consumer electronics and technology products.
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CompUSA Net.com and the Company have entered into various arms-length
agreements that provide, among other things, certain merchandising and marketing
relationships. Merchandising agreements between CompUSA Net.com and the Company
provide immediate access to, and availability of, new products, volume
discounts, and merchandising expertise. CompUSA Net.com plans to utilize its own
targeted marketing initiatives and advertising programs to reach a focused
audience and position itself as a service-oriented provider of technology
products via the Internet.
CompUSA Net.com operates a call center in Marlborough, Massachusetts to
provide customers with assistance in placing orders through its web site and
other customer service and support functions. Most sales are fulfilled through
separate arrangements with various distributors, such as Ingram Micro, with many
products shipped directly to the customer. Orders for CompUSA PC products
purchased through CompUSA Net.com are fulfilled by CompUSA PC Inc. In other
cases, sales are fulfilled by CompUSA Net.com from its distribution facility,
which also houses its call center.
CompUSA Net.com began operating on March 28, 1999, when CompUSA contributed
the net assets of its CompUSA Direct division to the subsidiary. 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.
SERVICES
TRAINING--The Company offers training for customers in classroom facilities
located in all of the metropolitan areas served by its Computer Superstores.
Substantially all of the classroom facilities are located in the Company's
retail stores. Although the Company's training business utilizes a market-based
organizational structure, this approach is supported by a Dallas-based central
registration and telemarketing services center and other support functions.
Classes are offered for a variety of application and advanced technology
software. All of the over 550 classrooms operated by the Company are equipped
with a personal computer for each student. Most classrooms accommodate
approximately 12 students, and the equivalent of approximately four to five
full-day classes are offered in each classroom per week. The Company's
instructors receive periodic training from software vendors and the Company on
new technology as well as instructional skills development. In addition, the
Company provides training at customers' facilities or at other off-site
locations.
The Company offers classroom training for most popular software
applications, including networking and the Internet. In addition, the Company
offers computer-based training and computerized skills assessment, as well as
training delivered via the Internet. The Company also offers project management
services to facilitate the registration of students and reporting of training
classes taken.
TECHNICAL SERVICES--The Company, primarily through the technical service
departments in its Computer Superstores, provides numerous technical services,
including computer upgrades, custom configurations, diagnostic testing,
maintenance, repair, and delivery and installation. The Company also has
outbound technical support teams in 20 major markets. These teams are designed
to provide on-site services for corporate, government, and education customers.
Services include product consultation and evaluation, computer and server
configuration, installation, testing, upgrades, maintenance, and repairs. Other
support functions include on-site technicians and emergency response. Network
and system design services are outsourced to third-party providers. The Company
also performs repairs for third-party service centers and extended service plan
providers under national service agreements. The Company is a vendor-authorized
service provider for Apple, Compaq, CompUSA PC, Hewlett-Packard, IBM, Microsoft,
Packard Bell/NEC, Toshiba, and other leading manufacturers.
In July 1998, the Company opened a new 105,000 square foot, 1,000-plus seat
call center in Plano, Texas offering a wide range of inbound and outbound
services. The center is divided into a sales and customer service department and
a technical support department to offer high-volume call capacity and fully
customizable sales, technical support, and customer support services for
businesses of all sizes. The
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call center's sales and customer service group offers custom-designed
inbound/outbound services for third-party, personal computer-related
manufacturers and software publishers. In addition, this group provides customer
service telephone support for CompUSA's retail and corporate, government, and
education customers. CompUSA's technical support group offers a full menu of
technical support outsourcing and help desk services for third parties, while
also functioning as the support center for CompUSA's "tech-service-by-phone"
offerings. In addition to custom-designed services, the Company offers a variety
of flexible tech-service-by-phone services on both a prepaid and
fee-for-services basis. The technical support group currently gives personal
computer users three flexible tech-service-by-phone options. The "Dial-A-Tech"
option is a technical service card that offers the customer unlimited technical
service calls within a specified time period (90, 180 or 365 days). Customers
that select CompUSA's "per incident" technical service option (1-888-NOW-TECH)
are charged a flat rate of $24.95 per call. Customers that prefer to be charged
by the minute can call 1-900-CALL-COMP for technical support at a rate of $2.49
per minute (the first minute is free). Each of these services is provided 24
hours a day, seven days a week. Hardware customers whose purchases are still
under manufacturers' warranties may call the Company for technical support at no
charge for the first 30 days after purchase.
PURCHASING, VENDOR SELECTION, AND PRODUCT OBSOLESCENCE
The Company manages the purchase and replenishment of all store merchandise
centrally. The inventory management department makes all purchases and directs
merchandise transportation and transfers among the Company's facilities. The
Company purchases a majority of its merchandise inventory for resale in its
stores directly from manufacturers, supplemented with purchases from
distributors. Manufacturers and distributors ship merchandise directly to the
Company's stores and the six regional cross-dock facilities utilized by the
Company that consolidate vendor shipments and transfer merchandise to the
stores. Substantially all inventory is held at the Company's stores. In
addition, beginning in September 1999, most direct sales orders of the Company's
corporate, government, and education customers are fulfilled through Ingram
Micro, with products shipped directly from the appropriate Ingram Micro
distribution center to the customer.
The Company considers numerous factors in vendor selection, including
customer demand, product availability, product performance, price, and vendor
credit terms. The Company believes that its significant purchase volumes
generally allow it to acquire products at or near the lowest prices available.
The Company has maintained long-term relationships with vendors but does not
have material long-term contracts or commitments with any of them. Brand names
and individual products are important to the Company's business. In fiscal 1999,
purchases of products from or manufactured by each of Compaq Computer
Corporation, Hewlett-Packard Company, and Ingram Micro constituted in excess of
10% of the Company's aggregate product purchases.
Components used in CompUSA PC personal computers are purchased by CompUSA PC
Inc. from numerous vendors. Necessary inventories of components and spare parts
are maintained by CompUSA PC Inc. at its assembly facility. Inventories of
components and spare parts are kept at low levels and regularly replenished to
reduce the risk of inventory obsolescence and to allow CompUSA PC Inc. to
incorporate quickly new technologies or components into product offerings.
Because CompUSA PC personal computers are either built to customers'
specifications or pre-configured and shipped to the Company's stores, no
significant inventory of components, spare parts, or finished products is
maintained at the assembly facility. However, the Company's Computer Superstores
maintain inventories of pre-configured CompUSA PC personal computers and,
therefore, the Company has obsolescence risk with respect to such inventories.
As a retailer of personal computer products, the Company's exposure to
product obsolescence and technological advances, other than with respect to
CompUSA PC products carried in store inventory, is less than that faced by
manufacturers of such products. Substantially all of the Company's major
vendors, either contractually or as a result of the vendor following industry
practices, have reduced the Company's
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exposure to inventory obsolescence by providing favorable arrangements,
including price protection, stock balancing privileges, and other return
privileges, subject to restrictions and limitations in certain circumstances,
and promotional allowances for most products purchased. The Company has entered
into agreements with certain vendors that limit the Company's return privileges
in exchange for additional rebates. The Company believes that its relationship
with Ingram Micro will reduce the Company's exposure to product obsolescence.
The Company further reduces obsolescence risk through inventory management
policies designed to maximize rapid inventory turnover. In fiscal 1999, the
Company turned its inventory approximately 7.2 times. A reduction in, or the
discontinuation of, current vendor practices related to price protection, stock
balancing privileges, and other return privileges, or a significant decline in
the Company's inventory turnover rate, could expose the Company to product
obsolescence risks that would have a material adverse effect on the Company.
There can be no assurance that vendors will not change these arrangements and
privileges to the Company's detriment in the future.
CREDIT
CompUSA extends credit to qualified corporate, government, and education
customers generally pursuant to 30-day payment terms. The Company makes
available revolving credit payment terms to corporations and individuals through
private label credit card programs, which are provided by independent financial
services companies. In addition, the Company accepts most major credit cards,
including Visa, Mastercard, American Express, Diners Club, and Discover Card.
Through its third-party leasing programs, the Company refers corporations
and individuals desiring lease financing to independent leasing companies that
purchase the specified equipment and lease it directly to these customers.
SEASONALITY
Based upon its past operating history, the Company believes its business is
seasonal. Excluding the effects of new store openings, net sales and earnings
are generally lower during the first and fourth fiscal quarters than in the
second and third fiscal quarters. See Note 16 of Notes to Consolidated Financial
Statements.
PERSONNEL
The Company considers its relationship with its employees to be excellent.
None of the Company's employees are covered by collective bargaining agreements.
At September 3, 1999, the Company employed approximately 13,900 full-time and
5,800 part-time employees.
INDUSTRY AND COMPETITION
The Company believes that unit sales of personal computers and related
products and services have increased as a result of the following factors: (i)
growth of the service/information-based sector of the economy; (ii) improvements
in personal computer hardware performance and new software applications; (iii)
the emergence of industry standards and component compatibility; (iv) reductions
in prices of hardware and software; (v) increased user familiarity with personal
computers; (vi) the replacement of obsolete hardware, software and peripherals;
(vii) increased consumer awareness created, in part, by Internet capabilities;
(viii) office automation and the reengineering of the workplace; and (ix) the
integration of personal computers into the educational curricula for students at
all grade levels. The Company also believes that as higher performance personal
computers continue to become available at even more attractive prices, the
market for personal computers and related products and services should continue
to grow.
The personal computer industry is undergoing significant change. Rapid
technological advances, in combination with an increasingly computer-literate
population, have increased the use and popularity of
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personal computers, resulting in the emergence and growth of a variety of
distribution channels. The Company believes that individuals, businesses,
schools, and governments, having gained familiarity with personal computers,
require less assistance in making their purchasing decisions and have become
increasingly price sensitive. At the same time, intense competition for market
share has forced hardware and accessory manufacturers, along with software
vendors, to reduce prices and seek new channels through which to sell their
products. These factors have resulted in widespread and intense competition
among personal computer product retailers and resellers. The Company believes
that its business strategy, including the recently announced strategic
initiatives, positions it well to compete successfully in this industry.
The Company competes with a large number and variety of resellers of
personal computers and related products and services in its businesses. As to
product sales, the Company primarily competes with large format consumer
electronics and office supply retailers, manufacturers and distributors that
sell directly to the public, other large format computer retailers,
Internet-based retailers, mail order houses, mass merchants, discounters,
specialty electronics retailers, software specialty retailers, other personal
computer retailers, outbound dealers, and value-added resellers. In the training
business, the Company primarily competes with various local, regional, and
national chains of training centers and other large format computer retailers.
In the technical services business, the Company primarily competes with
manufacturers, value-added resellers, system integration service providers,
other large format computer retailers, various other computer retailers,
specialty electronics retailers, and large format consumer electronics and
office supply retailers.
The Company believes that the major competitive factors in its businesses
include customer service, breadth and depth of selection, price, technical
support, marketing and sales capabilities, and ease of delivery and return
capabilities. The Company's utilization of trained personnel and the ability to
use national and local advertising media, as well as its physical presence in
local markets, are important to the Company's ability to compete in its
businesses. The Company believes it is a strong competitor with respect to each
of the factors referenced above. Given the highly competitive nature of the
personal computer industry, no assurances can be given that the Company will
continue to compete successfully with respect to the factors referenced above.
Also, the Company would be adversely affected if its competitors were to offer
their products at significantly lower prices or if the Company were unable to
obtain products in a timely manner for an extended period of time. Some of the
Company's competitors are larger and/or have substantially greater resources
than the Company.
TRADEMARKS AND SERVICE MARKS
The Company conducts its business in the United States under the trade names
"CompUSA," "CompUSA The Computer Superstore," and "CompUSA PC." CompUSA Net.com
Inc. currently conducts its business under the trade name "CompUSA Net.com." The
Company holds United States federal registrations for "CompUSA," "CompUSA The
Computer Superstore," and other marks, and has applied for United States federal
registrations for several other trademarks and service marks, including "CompUSA
PC." The Company has also registered trademarks and service marks in numerous
foreign countries. The Company pursues a program of registering and enforcing
its trademarks and service marks in the United States and throughout the world.
The Company sells products under various trademarks and service marks and
uses various trade names to which references are made in this Annual Report on
Form 10-K that are the property of others.
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ITEM 2. PROPERTIES
At September 9, 1999, the Company operated 210 CompUSA Computer Superstores
in 82 metropolitan areas in the 42 states listed below.
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NUMBER
STATE OF STORES
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Alabama..................................... 1
Alaska...................................... 1
Arizona..................................... 7
Arkansas.................................... 1
California.................................. 31
Colorado.................................... 6
Connecticut................................. 3
Delaware.................................... 1
Florida..................................... 16
Georgia..................................... 8
Hawaii...................................... 2
Idaho....................................... 1
Illinois.................................... 7
Indiana..................................... 1
Iowa........................................ 1
Kansas...................................... 2
Kentucky.................................... 2
Louisiana................................... 2
Maryland.................................... 5
Massachusetts............................... 7
Michigan.................................... 7
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NUMBER
STATE OF STORES
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Minnesota................................... 4
Mississippi................................. 1
Missouri.................................... 4
Nebraska.................................... 1
Nevada...................................... 3
New Hampshire............................... 1
New Jersey.................................. 10
New Mexico.................................. 1
New York.................................... 11
North Carolina.............................. 4
Ohio........................................ 7
Oklahoma.................................... 2
Oregon...................................... 2
Pennsylvania................................ 4
Rhode Island................................ 1
Tennessee................................... 4
Texas....................................... 20
Utah........................................ 3
Virginia.................................... 7
Washington.................................. 6
Wisconsin................................... 2
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All but four of the Company's stores are leased or subleased by the Company
with lease terms expiring between 1999 and 2019. In most instances, the Company
has renewal options at increased rents. Four stores are owned by the Company.
The Company's stores range in size from 11,300 to 58,800 square feet and average
approximately 26,000 square feet. The Company's headquarters, located in Dallas,
Texas, occupies approximately 197,000 square feet of leased space. The initial
lease term for the Company's headquarters has approximately four years remaining
and the Company has renewal options on the lease at increased rents. In
addition, the Company leases call center, distribution, warehouse, office, and
other space that aggregates approximately 1,017,000 square feet and is subject
to leases expiring at various dates through 2013. Such leased property includes
approximately 210,000 square feet of space that is currently subleased or
available for sublease by the Company to other parties. See Note 8 of Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
On April 23, 1998, a lawsuit, Hoeck v. CompUSA Inc. et al., was filed by a
stockholder of the Company in the United States District Court for the Northern
District of Texas against the Company and certain of its officers, seeking class
action status on behalf of the purchasers of the Company's Common Stock and
related publicly traded options during the class period. 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 the
Company's Common Stock and to artificially inflate the stock price, Company
insiders falsely reported to the market in early January 1998 that the Company
was achieving strong sales of certain types of products.
8
<PAGE>
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. The plaintiffs have until September 20, 1999, to file
an amended complaint. 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 file an
amended complaint and 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, a nonclass lawsuit, Tom Johnson v. Circuit City Stores,
Inc., et al., was filed by plaintiff Tom Johnson on behalf of himself and the
California public against Circuit City Stores, Inc. and seven other computer
products retailers, including the Company. Without identifying any specific acts
by any specific retailers, Johnson's complaint alleges that such retailers have
(1) misrepresented the Year 2000 ("Y2K") compliance of products sold by them,
(2) sold unnecessary Y2K fixes, and/or (3) failed to disclose the need for Y2K
fixes or upgrades. Johnson's complaint requests (1) the freezing of the
retailers' assets, (2) the restitution of all funds acquired by the retailers
since January 15, 1995, by means of the alleged conduct, (3) an injunction
requiring the retailers to disclose the nature of the Y2K problem, a means to
determine Y2K compliance and what fixes are available to all of their customers
who have bought products since January 15, 1995, and (4) attorneys' fees.
Together with other defendants, the Company has filed a Motion to Dismiss the
complaint and such motion is currently pending. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during
the fourth quarter of fiscal 1999.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "CPU." The following table sets forth the high and low sales prices
per share for the Common Stock as reported to the Company by the NYSE for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1998
First Quarter............................................................ $ 35.38 $ 21.25
Second Quarter........................................................... 37.81 25.69
Third Quarter............................................................ 35.00 25.63
Fourth Quarter........................................................... 26.00 14.75
FISCAL YEAR 1999
First Quarter............................................................ $ 21.56 $ 11.88
Second Quarter........................................................... 19.38 11.63
Third Quarter............................................................ 14.94 5.63
Fourth Quarter........................................................... 8.50 5.88
</TABLE>
At September 10, 1999 there were 1,893 holders of record of the Common
Stock.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends on
the Common Stock. The Company currently intends to retain earnings for use in
the operation and expansion of its business and therefore does not anticipate
paying cash dividends in the foreseeable future. The terms of the Company's
revolving credit agreement prohibit the payment of cash dividends on the Common
Stock. See Note 9 of Notes to Consolidated Financial Statements.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and operating
data as of and for the years ended June 24, 1995 through June 26, 1999. This
information should be read in conjunction with the Consolidated Financial
Statements and related Notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JUNE 26, JUNE 27, JUNE 28, JUNE 29, JUNE 24,
1999(2)(3) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 6,321,391 $ 5,286,041 $ 4,610,523 $ 3,829,786 $ 2,935,901
Cost of sales and occupancy costs.......... 5,518,330 4,540,717 3,953,407 3,311,682 2,573,945
Gross profit............................... 803,061 745,324 657,116 518,104 361,956
Operating expenses......................... 661,830 507,180 401,722 328,344 263,654
Pre-opening expenses....................... 4,461 8,704 6,220 5,466 2,454
General and administrative expenses........ 170,048 116,399 92,183 75,488 54,940
Restructuring charge....................... 20,938 -- -- -- --
Non-recurring amortization charge(4)....... -- 55,885 -- -- --
Transaction costs related to
acquisition(5)........................... -- -- -- 3,453 --
Operating income (loss).................... (54,216) 57,156 156,991 105,353 40,908
Interest expense........................... 25,906 12,331 12,229 12,487 12,015
Other income, net.......................... (6,926) (6,463) (7,900) (6,983) (2,409)
Income (loss) before income taxes.......... (73,196) 51,288 152,662 99,849 31,302
Income tax expense (benefit)............... (27,449) 19,745 58,776 40,184 6,963
Net income (loss).......................... $ (45,747) $ 31,543 $ 93,886 $ 59,665 $ 24,339
Basic earnings (loss) per share(6)......... $ (0.50) $ 0.35 $ 1.03 $ 0.68 $ 0.31
Diluted earnings (loss) per share(6)....... $ (0.50) $ 0.33 $ 0.99 $ 0.65 $ 0.30
Weighted average common shares(6).......... 91,490 91,369 90,835 87,510 79,798
Weighted average common shares assuming
dilution(6).............................. 91,490 94,616 94,589 91,220 81,736
SELECTED OPERATING DATA:
Computer Superstores open at end of year... 211 162 129 105 85
Average net sales per gross square
foot(7).................................. $ 1,139 $ 1,290 $ 1,364 $ 1,405 $ 1,336
Total gross square footage at end of
year..................................... 5,598,000 4,467,400 3,507,800 2,867,800 2,254,500
Percentage increase (decrease) in
comparable store sales(8)................ (3.4)% 1.7% 5.9% 12.6% 10.3%
BALANCE SHEET DATA:
Working capital............................ $ 150,060 $ 288,867 $ 363,963 $ 305,899 $ 190,128
Total assets............................... 1,465,848 1,160,510 1,124,592 909,337 641,329
Long-term debt, excluding current
portion.................................. 136,169 111,872 112,458 115,066 115,153
Stockholders' equity....................... 376,120 414,638 427,967 325,905 186,704
</TABLE>
- ------------------------
NOTES ON FOLLOWING PAGE.
11
<PAGE>
NOTES FROM PRECEDING PAGE.
(1) The Company's fiscal year is a 52/53 week year ending on the last Saturday
of each June. The Company's fiscal years ended June 26, 1999, June 27, 1998,
June 28, 1997, and June 24, 1995, each contained fifty-two weeks. The
Company's fiscal year ended June 29, 1996 contained fifty-three weeks.
(2) On August 31, 1998, the Company acquired Computer City from Tandy. Following
the acquisition, the Company operated 37 former Computer City stores as
CompUSA Computer Superstores and two former Computer City "small market"
stores in fiscal 1999. Of the 37 former Computer City stores operated as
CompUSA Computer Superstores, the Company closed four of such stores in July
1999. The acquisition of Computer City has been accounted for under the
purchase accounting method. See Note 4 of Notes to Consolidated Financial
Statements.
(3) For a discussion of the Company's fiscal 1999 non-recurring and
restructuring charges, see Note 2 of Notes to Consolidated Financial
Statements.
(4) For a discussion of the Company's fiscal 1998 non-recurring amortization
charge, see Note 3 of Notes to Consolidated Financial Statements.
(5) On May 30, 1996, the Company acquired PCs Compleat, Inc. ("PCs Compleat"),
which became a wholly-owned subsidiary through which the Company conducted
mail order, fulfillment, and retail Internet sales operations under the name
CompUSA Direct subsequent to the acquisition. The acquisition was accounted
for under the pooling of interests method of accounting. Accordingly, the
Company has restated its consolidated financial statements for all periods
prior to the acquisition to include the results of operations of PCs
Compleat. In March 1999, the net assets of CompUSA Direct were contributed
to CompUSA Net.com and PCs Compleat was merged into the Company.
(6) All references in this table to the number of shares, basic earnings (loss)
per share, and diluted earnings (loss) per share prior to November 18, 1996
have been adjusted on a retroactive basis to reflect the two-for-one stock
splits declared by the Company's Board of Directors effective April 8, 1996
and November 18, 1996, and the issuance of shares in connection with the
Company's acquisition of PCs Compleat.
(7) Calculated using net sales divided by gross square footage of Computer
Superstores open at the end of the period, weighted by the number of months
open during the period. For purposes of calculating average net sales per
gross square foot, net sales are comprised of net sales generated from the
Company's Computer Superstores as well as the net sales of the Company's
national accounts group to corporate, government, and education customers,
but exclude sales of CompUSA Net.com.
(8) Comparable store sales are net sales for the Computer Superstores open the
same months in both the indicated and previous periods, including stores
that were relocated or expanded during either period. For purposes of
calculating the change in comparable store sales, net sales are comprised of
net sales generated from the Company's Computer Superstores as well as the
net sales of the Company's national accounts group to corporate, government,
and education customers, but exclude sales of CompUSA Net.com. The sales of
the 37 former Computer City stores are not included in the calculation of
the change in comparable store sales for fiscal 1999. The comparable store
sales increase for fiscal 1997 was calculated by comparing net sales for the
fifty-two weeks ended June 28, 1997 with net sales for the fifty-two weeks
ended June 29, 1996. The comparable store sales increase for fiscal 1996 was
calculated by comparing net sales for the fifty-three weeks ended June 29,
1996, with net sales for the fifty-three weeks ended July 1, 1995.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Annual Report on Form 10-K contains forward-looking statements about
the business, financial condition 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 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 the 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
corporate customers. The Company's focus on its retail Internet business through
CompUSA Net.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 under "--Results
of Operations--Fiscal 1999 compared with Fiscal 1998," 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 Annual
Report on Form 10-K, 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.
ACQUISITION OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City
from Tandy for an aggregate price of approximately $175 million. The purchase
price is subject to post-closing adjustments that the Company anticipates
finalizing with Tandy in the second quarter of fiscal 2000. See "--Liquidity and
Capital Resources." The acquisition has been accounted for under the purchase
accounting method.
As of June 26, 1999, the Company operated 37 former Computer City stores in
the United States as CompUSA Computer Superstores and two Computer City "small
market" stores. Such stores were converted to the CompUSA information systems,
format, and merchandise mix in fiscal 1999. The Company closed 55 acquired
Computer City stores in the United States in fiscal 1999. Inventory liquidation
sales were conducted at the majority of such stores through mid-October, at
which time the
13
<PAGE>
stores were closed and the remaining merchandise inventories were transferred to
CompUSA Computer Superstores, including former Computer City stores, for final
liquidation. Effective November 1, 1998, the Company sold the seven Canadian
Computer City supercenters acquired by the Company to Future Shop Ltd. for
approximately $7.0 million in cash and the assumption of certain liabilities.
The Company closed four additional former Computer City stores in July 1999 in
connection with its Fourth Quarter Initiatives (as described below).
The 55 Computer City stores the Company closed in fiscal 1999 were generally
in closer proximity to, and therefore the Company believes would have been more
directly competitive with, existing CompUSA Computer Superstores than the 37
former Computer City stores in the United States that remained open as CompUSA
Computer Superstores as of June 26, 1999. Of the four additional former Computer
City stores closed in July 1999, one was located in a market with an existing
CompUSA Computer Superstore. Of the 33 stores acquired from Computer City that
remain open as CompUSA Computer Superstores, 28 are located in markets in which
there are existing CompUSA Computer Superstores. The Company believes its
decision to continue to operate these 28 stores is consistent with its strategy
of opening additional Computer Superstores in existing markets to increase
market penetration and to provide customers with more convenience and better
service. However, the continued operation of these 28 stores may cause the rate
of comparable store sales growth for the CompUSA Computer Superstores already in
operation in such markets to be lower than it would have been if these 28 former
Computer City stores had been closed and the sales from these 28 stores had been
transferred to the existing CompUSA Computer Superstores.
COMPUSA NET.COM
In March 1999, the Company completed the formation of CompUSA Net.com by
contributing to it the net assets of CompUSA Direct, the Company's former mail
order, fulfillment, and retail Internet sales division. CompUSA Net.com offers
desktop and notebook computers, software, printers, scanners, accessories, and
other electronic and digital products via the Internet. 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.
GENERAL
All references herein to "fiscal 1999" relate to the fifty-two weeks ended
June 26, 1999. References to "fiscal 2000" relate to the fifty-two weeks ending
June 24, 2000, references to "fiscal 1998" relate to the fifty-two weeks ended
June 27, 1998, and references to "fiscal 1997" relate to the fifty-two weeks
ended June 28, 1997.
14
<PAGE>
The following table sets forth certain items expressed as percentages of net
sales for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
<S> <C> <C> <C>
JUNE 26, JUNE 27, JUNE 28,
1999(1) 1998 1997
----------- ----------- -----------
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of sales and occupancy costs............................. 87.3 85.9 85.7
----- ----- -----
Gross profit.................................................. 12.7 14.1 14.3
Operating expenses............................................ 10.5 9.6 8.7
Pre-opening expenses.......................................... 0.1 0.1 0.2
General and administrative expenses........................... 2.7 2.2 2.0
Restructuring charge.......................................... 0.3 -- --
Non-recurring amortization charge(2).......................... -- 1.1 --
----- ----- -----
Operating income (loss)....................................... (0.9) 1.1 3.4
Interest expense and other income, net........................ 0.3 0.1 0.1
----- ----- -----
Income (loss) before income taxes............................. (1.2) 1.0 3.3
Income tax expense (benefit).................................. (0.5) 0.4 1.3
----- ----- -----
Net income (loss)............................................. (0.7)% 0.6% 2.0%
----- ----- -----
----- ----- -----
</TABLE>
- ------------------------
(1) For a discussion of the Company's fiscal 1999 non-recurring and
restructuring charges, see Note 2 of Notes to Consolidated Financial
Statements.
(2) For a discussion of the Company's fiscal 1998 non-recurring amortization
charge, see Note 3 of Notes to Consolidated Financial Statements.
The following table sets forth certain operating data for the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
<S> <C> <C> <C>
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
--------- --------- ---------
Stores open at end of the year.............................. 211 162 129
Computer City stores acquired during the year(1)............ 37 -- --
Stores opened during the year............................... 14 33 24
Stores closed during the year(2)............................ 2 -- --
Stores relocated during the year............................ 4 2 --
Average net sales per gross square foot(3):
CompUSA stores............................................ $ 1,177 $ 1,290 $ 1,364
Former Computer City stores(4)............................ $ 711 N/A N/A
Total stores.............................................. $ 1,139 $ 1,290 $ 1,364
Average net sales per Computer Superstore (in thousands):
CompUSA stores............................................ $ 32,292 $ 35,289 $ 37,381
Former Computer City stores(4)............................ $ 17,094 N/A N/A
Total stores.............................................. $ 30,131 $ 35,289 $ 37,381
Comparable store sales increase (decrease)(5)............... (3.4)% 1.7% 5.9%
</TABLE>
- ------------------------
(1) On August 31, 1998, the Company acquired 37 Computer City stores that the
Company was operating as CompUSA Computer Superstores as of June 26, 1999.
Four of these stores were closed in July 1999 in connection with the
Company's Fourth Quarter Initiatives.
NOTES CONTINUED ON FOLLOWING PAGE.
15
<PAGE>
NOTES CONTINUED FROM PRECEDING PAGE.
(2) Two CompUSA Computer Superstores were closed in the third quarter of fiscal
1999 in markets where a former Computer City store remained open in close
proximity to the closed CompUSA Computer Superstore.
(3) Calculated using net sales divided by gross square footage of the Company's
Computer Superstores open at the end of the period, weighted by the number
of months open during the period. For purposes of calculating average net
sales per gross square foot, net sales are comprised of net sales generated
from the Company's Computer Superstores as well as net sales of the
Company's national accounts group to corporate, government, and education
customers, but exclude sales of CompUSA Net.com.
(4) Average net sales per gross square foot and average net sales per store for
the former Computer City stores have been calculated for the period from the
acquisition date of August 31, 1998 through June 26, 1999.
(5) Comparable store sales are net sales for 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. For purposes of
calculating the change in comparable store sales, net sales are comprised of
net sales generated from the Company's Computer Superstores as well as net
sales of the Company's national accounts group to corporate, government, and
education customers, but exclude sales of CompUSA Net.com. The sales of the
37 former Computer City stores are not included in the calculation of the
change in comparable store sales for fiscal 1999. The comparable store sales
increase for fiscal 1997 has been calculated by comparing net sales for the
fifty-two weeks ended June 28, 1997 with net sales for the fifty-two weeks
ended June 29, 1996.
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."
The results of operations of the Company for fiscal 1999 include the results
of operations of the 37 former Computer City stores that the Company operated as
CompUSA Computer Superstores and two former Computer City "small market" stores
from the acquisition date of August 31, 1998 through June 26, 1999. The results
of operations for fiscal 1999 exclude the operating results of the 55 Computer
City stores in the United States closed by the Company and the seven Canadian
Computer City supercenters sold by the Company in fiscal 1999.
FISCAL 1999 COMPARED WITH FISCAL 1998
In fiscal 1999, the Company incurred non-recurring and restructuring charges
aggregating approximately $93.8 million related to various programs and
initiatives undertaken by the Company ("Fiscal 1999 Initiatives"). The Fiscal
1999 Initiatives 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 transition of the former
Computer City stores to the CompUSA Computer Superstore format (the "Computer
City Transition"), (3) the formation of CompUSA Net.com and its transition to an
Internet-only business (the "CompUSA Net.com Realignment"), and (4) information
technology initiatives (the "IT Initiatives").
16
<PAGE>
The following table summarizes the financial statement classification of the
charges related to the Fiscal 1999 Initiatives:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOURTH COMPUTER COMPUSA
QUARTER CITY NET.COM IT
INITIATIVES TRANSITION REALIGNMENT INITIATIVES TOTAL
----------- ----------- ------------- ----------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cost of sales and occupancy costs..................... $ 37,559 $ -- $ 2,165 $ -- $ 39,724
Operating expenses.................................... 8,603 5,718 1,367 -- 15,688
General and administrative expenses................... -- 4,134 2,191 9,907 16,232
Restructuring charge.................................. 20,103 -- 835 -- 20,938
Other expense......................................... 1,265 -- -- -- 1,265
----------- ----------- ------ ----------- ---------
$ 67,530 $ 9,852 $ 6,558 $ 9,907 $ 93,847
----------- ----------- ------ ----------- ---------
----------- ----------- ------ ----------- ---------
</TABLE>
The following table summarizes the nature of the charges related to the
Fiscal 1999 Initiatives:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOURTH COMPUTER COMPUSA
QUARTER CITY NET.COM IT
INITIATIVES TRANSITION REALIGNMENT INITIATIVES TOTAL
----------- ----------- ------------- ----------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-cash charges for asset write-downs, primarily
commercial inventories and store fixed assets....... $ 46,162 $ -- $ 2,976 $ -- $ 49,138
Personnel costs and professional fees................. -- 9,852 2,747 9,907 22,506
----------- ----------- ------ ----------- ---------
46,162 9,852 5,723 9,907 71,644
Restructuring charge:
Non-cash charges, primarily fixed asset write-downs
related to closed/abandoned facilities............ 14,270 -- 90 -- 14,360
Reserves for future rental obligations, carrying
costs and other closing costs related to
closed/abandoned facilities....................... 3,479 -- -- -- 3,479
Legal and consulting fees........................... 1,000 -- -- -- 1,000
Severance and other personnel costs................. 1,354 -- 745 -- 2,099
----------- ----------- ------ ----------- ---------
20,103 -- 835 -- 20,938
Other expense......................................... 1,265 -- -- -- 1,265
----------- ----------- ------ ----------- ---------
$ 67,530 $ 9,852 $ 6,558 $ 9,907 $ 93,847
----------- ----------- ------ ----------- ---------
----------- ----------- ------ ----------- ---------
</TABLE>
Cash requirements related to the Fiscal 1999 Initiatives aggregated
approximately $30.3 million, a substantial portion of which were paid prior to
June 26, 1999 from cash generated from operations.
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 are designed to increase
gross margins, reduce operating costs, improve customer service, and position
the Company to take advantage of additional strategic opportunities. Costs of
approximately $67.5 million were recorded in the fourth quarter of fiscal 1999
in connection with the Fourth Quarter Initiatives. The Company anticipates
incurring additional non-recurring charges related to the Fourth Quarter
Initiatives in fiscal 2000 of approximately $10 to $15 million, including, among
other things, severance actions taken by the Company in the first quarter of
fiscal 2000. In addition, the Company anticipates incurring approximately $8 to
$10 million of transition costs in fiscal 2000 related to the
17
<PAGE>
implementation of the Fourth Quarter Initiatives, primarily related to the
hiring and training of personnel. The Company anticipates that the majority of
the transition expenses will be incurred in the first quarter of fiscal 2000.
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 the fourth quarter of fiscal 1999 in connection with the
Fourth Quarter Initiatives 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 sales and fulfillment 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 services business, the Company implemented a vertical,
market-based organizational structure. Previously, each store operated as an
independent training organization with a local focus. Costs of approximately
$600,000, primarily related to the severance of approximately 125 employees and
other personnel costs, were incurred as a result of the training initiative in
the fourth quarter of fiscal 1999. The training initiative was substantially
completed in July 1999.
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 of
approximately $600,000, primarily related to the severance of approximately 150
employees and other personnel costs, were incurred as a result of the technical
services initiative in the fourth quarter of fiscal 1999. The technical services
initiative was also substantially completed in July 1999.
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 sales, fulfillment, and configuration activities to corporate,
government, and education customers by (1) outsourcing the product sales,
fulfillment, and configuration operations and (2) consolidating the Company's
direct sales force.
In connection with the outsourcing of the fulfillment of its sales orders
from corporate, government, and education customers, the Company has implemented
a plan to liquidate the related inventories in its fulfillment and configuration
facility and its retail stores. As a result, the Company recorded a charge of
approximately $37.0 million in the fourth quarter of fiscal 1999 to write down
the carrying values of such inventories to management's estimates of the net
realizable value of such inventories to be realized through vendor returns,
liquidation through third parties, and promotional activities in the Company's
stores. Such liquidation efforts are expected to be substantially completed by
the end of the second quarter of fiscal 2000.
Costs incurred in the fourth quarter of fiscal 1999 in connection with the
expected abandonment of the Company's fulfillment and configuration facility
activities consisted primarily of a $13.2 million write-down of the fixed assets
having no future utility to the Company and a $2.2 million charge for the
estimated remaining lease rentals and other carrying costs, net of estimated
subrental income, associated with that facility prior to the expiration of the
lease term in 2008. 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, sales orders for
corporate, government, and education customers began to be fulfilled by Ingram
Micro.
In August 1999, the Company organized a centralized direct sales and support
function and opened a new 80,000 square foot call center in Dallas to
accommodate these functions. Previously, each store maintained a separate direct
sales force. As a result of the centralization of the direct sales force, the
Company severed approximately 2,200 employees in August 1999 previously
responsible for the direct sales
18
<PAGE>
activities conducted through the Company's stores. In connection with these
severance actions and other activities related to the redesign of the Company's
sales, fulfillment, and configuration activities to its corporate, government,
and education customers, the Company anticipates incurring approximately $10 to
$15 million of costs in fiscal 2000.
EVALUATION OF 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. In
connection with the closing of these four stores, the Company incurred costs of
approximately $2.6 million, primarily related to the write-down of fixed assets
having no future utility to the Company and the liquidation of inventories. In
addition, the Company determined that the carrying values of the long-lived
assets at 15 of the Company's stores exceeded the estimated undiscounted future
cash flows to be generated by those stores. Accordingly, the Company wrote down
the carrying values of the long-lived assets at those stores, primarily store
fixtures and leasehold improvements, by approximately $6.5 million. After the
write-down, the carrying values of such assets equal their estimated fair values
based on the net present value of the stores' estimated future cash flows.
CHANGE IN EXTENDED SERVICE PLAN PROGRAM--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 approximately $2.0
million associated with certain unresolved issues with 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 under 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 experience difficulty in obtaining services from the administrator
of the Prior ESP Program. 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 first half 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
first half 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 record a charge for the estimated
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.
COMPUTER CITY TRANSITION--The Company incurred costs of approximately $9.9
million in fiscal 1999 related to the training of personnel at the former
Computer City stores and other costs necessary to convert the former Computer
City stores to CompUSA Computer Superstores. These costs included a $2.4 million
charge taken in the first quarter of fiscal 1999 for the closure of CompUSA
Computer Superstores in markets where a former Computer City store remained open
in close proximity to the closed CompUSA Computer Superstore.
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 connection with
the CompUSA Net.com Realignment, the Company incurred costs of
19
<PAGE>
approximately $6.6 million. The primary components of such costs were (1) costs
aggregating approximately $3.3 million associated with the phaseout of the
previous mail order and other non-Internet sales operations of CompUSA Direct,
primarily costs related to the severance of approximately 200 employees and the
write-down of inventories not consistent with the Internet-only operations to be
conducted by CompUSA Net.com, and (2) costs of approximately $2.8 million
associated with the development and implementation of the Internet-only
strategy, primarily consulting and professional fees.
The Company anticipates additional costs will be incurred in fiscal 2000
related to the implementation of its Internet-only strategy for CompUSA Net.com.
The Company anticipates pre-tax operating losses at CompUSA Net.com in the first
quarter of fiscal 2000 of approximately $10 to $15 million. The Company plans to
explore strategic partnerships and/or to access the capital markets over the
next three to six months to fund the growth of CompUSA Net.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 fiscal 1999, the Company incurred non-recurring expenses of
approximately $9.9 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 the IT Initiatives, the Company expects to incur
additional costs of approximately $5 to $7 million in each fiscal quarter of
fiscal 2000. The Company anticipates the completion of the IT Initiatives in the
fourth quarter of fiscal 2000.
NET SALES--Net sales for fiscal 1999 increased 19.6% to $6.32 billion from
$5.29 billion for fiscal 1998. The increase in net sales was due to sales of
approximately $630.4 million attributable to the new stores opened subsequent to
fiscal 1998 and sales of approximately $559.2 million generated by the former
Computer City stores, partially offset by a decline in comparable store sales.
In addition, sales at CompUSA Net.com increased approximately 22.3% to $252.8
million in fiscal 1999 from $206.8 million in fiscal 1998.
Despite an increase in overall sales and the number of personal computer
systems sold in fiscal 1999, average net sales per store for fiscal 1999
decreased approximately 15% from fiscal 1998. The Company believes average net
sales per store were negatively impacted by, among other things, declines in
average selling prices for certain of the Company's products, including desktop
and notebook computers and monitors, an increase in sales of lower-end computer
systems as a percentage of total computer systems sold, and lower sales per
store at the 37 former Computer City stores compared with other CompUSA Computer
Superstores.
Comparable store sales by the CompUSA Computer Superstores decreased 3.4%
from fiscal 1998. The sales of the 37 former Computer City stores are not
included in the calculation of the change in comparable store sales for fiscal
1999. The Company believes comparable store sales were negatively impacted by,
among other things, declines in average selling prices for certain of the
Company's products, including desktop and notebook computers and monitors, and
increased sales of lower-end computer systems as a percentage of total computer
systems sold. The Company also believes the change in comparable store sales was
negatively impacted by a decline in sales of the CompUSA Computer Superstores
during fiscal 1999 as a result of (1) the transfer of sales from existing
CompUSA Computer Superstores to the former Computer City stores located in
markets in which there are existing CompUSA Computer Superstores, (2) inventory
liquidation sales conducted at the Computer City stores closed by the Company in
September and October 1998, and (3) promotional sales activities conducted in
the former Computer City stores in the second quarter of fiscal 1999.
20
<PAGE>
While the Company believes the opening of additional Computer Superstores in
existing markets, as well as the acquisition of Computer City stores in existing
markets, has resulted in some reductions in the rate of comparable store sales
growth, CompUSA has historically opened additional stores in existing markets
largely to increase market penetration and to provide customers with more
convenience and better service, to increase its awareness with local consumers,
to enhance its competitive position in such markets, and to create efficiencies
in advertising and management. Management plans to continue its strategy of
opening additional Computer Superstores in existing markets because it believes
such strategy is in the Company's long-term best interest.
GROSS PROFIT--Gross profit was $803.1 million, or 12.7% of net sales, in
fiscal 1999, compared with $745.3 million, or 14.1% of net sales, in fiscal
1998. Excluding costs associated with the Fiscal 1999 Initiatives aggregating
approximately $39.7 million, gross profit was $842.8 million, or 13.3% of net
sales. The decline in gross profit as a percentage of net sales to 13.3% in
fiscal 1999 from 14.1% in fiscal 1998 was primarily due to the following: (1) an
increase in product costs as a percentage of net sales, (2) an increase in
controllable costs, such as freight and inventory shrinkage, as a percentage of
net sales, and (3) an increase in occupancy costs as a percentage of net sales.
In fiscal 1999, product costs increased as a percentage of net sales by
approximately 0.13% compared with fiscal 1998. The increase in product costs as
a percentage of net sales was due to lower average selling prices in general as
well as promotional sales activities. The Company conducted promotional sales
activities in the former Computer City stores as well as seasonal promotions in
the second quarter of fiscal 1999. In addition, the Company took aggressive
pricing actions in the third quarter of fiscal 1999 in reaction to lower than
anticipated demand.
Gross profit also decreased in fiscal 1999 due to an increase in freight and
inventory shrinkage expenses by approximately 0.17% as a percentage of net sales
compared with fiscal 1998. Freight expense, which is generally a fixed cost
based on the number of units sold, increased as a percentage of net sales due to
the decline in average selling prices. In addition, freight expense increased as
a percentage of net sales due to the increased use of expedited freight in the
second quarter of fiscal 1999 in order to ensure the timely receipt of
merchandise inventories in the Company's Computer Superstores. The increase in
inventory shrinkage expense was primarily attributable to higher expenses as a
percentage of net sales incurred in the operation of the former Computer City
stores.
Occupancy costs increased by approximately 0.40% as a percentage of net
sales in fiscal 1999 compared with fiscal 1998. Occupancy costs, which are
generally fixed in nature, increased as a percentage of net sales in fiscal
1999, primarily as a result of lower average net sales per store compared with
fiscal 1998, particularly at the former Computer City stores.
In connection with the Fourth Quarter Initiatives, the Company incurred a
charge of approximately $37.6 million, or 0.59% of net sales, in fiscal 1999
related to the estimated costs of liquidation of commercial products held in
both the Company's centralized distribution and configuration facility located
in the Dallas/Fort Worth area and the Company's retail stores as well as the
liquidation of inventories held by the four stores closed in July 1999.
In addition, the Company incurred costs of approximately $2.2 million, or
0.03% of net sales, in connection with the CompUSA Net.com Realignment related
primarily to the estimated costs of liquidation of inventories not consistent
with the Internet-only operations to be conducted by CompUSA Net.com in the
future.
OPERATING EXPENSES--Operating expenses were $661.8 million, or 10.5% of net
sales, in fiscal 1999, compared with $507.2 million, or 9.6% of net sales, in
fiscal 1998. Excluding costs associated with the Fiscal 1999 Initiatives
aggregating approximately $15.7 million, operating expenses were $646.1 million
in fiscal 1999, or 10.2% of net sales. The increase in operating expenses as a
percentage of net sales to 10.2% in fiscal 1999 from 9.6% in fiscal 1998 was due
to increases in personnel, facility, and certain selling
21
<PAGE>
expenses as percentages of net sales, partially offset by a decrease in
advertising expense as a percentage of net sales.
Excluding personnel costs of approximately $2.3 million incurred in
connection with the Fiscal 1999 Initiatives, personnel expenses in fiscal 1999
increased 0.55% 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, particularly at the 37 former Computer City stores.
Facility expenses, excluding costs of approximately $600,000 related to the
Fiscal 1999 Initiatives, increased by approximately 0.15% as a percentage of net
sales in fiscal 1999 compared with fiscal 1998. Facility expenses, which are
generally fixed in nature, increased as a percentage of net sales in fiscal
1999, primarily as a result of lower average net sales per store, particularly
at the 37 former Computer City stores.
The increase in operating expenses for fiscal 1999 compared with fiscal 1998
was also due to an increase in credit card discount fees charged by third
parties and bad debt expenses as percentages of net sales. Such costs increased
by approximately 0.16% as a percentage of net sales for fiscal 1999 compared
with fiscal 1998.
The above increases were partially offset by lower advertising expense as a
percentage of net sales. Net advertising expense decreased by approximately
0.29% as a percentage of net sales in fiscal 1999 due to increased vendor
participation and advertising economies-of-scale related to the addition of
stores in multi-store markets, primarily as a result of the acquisition of the
Computer City stores. This decrease in net advertising expense was partially
offset by advertising expenses related to the promotional sales activities
conducted in the former Computer City stores in the second quarter of fiscal
1999.
In connection with the Fourth Quarter Initiatives, the Company recorded a
charge of approximately $2.0 million, or 0.03% of net sales, for estimated
losses associated with the resolution of certain issues with the administrator
of the Prior ESP Program. In addition, the Company determined that the carrying
values of the long-lived assets at 15 of the Company's stores exceeded the
undiscounted cash flows expected to be generated by those assets. As a result,
the Company recorded a $6.5 million charge, or 0.10% of net sales, to write down
the assets to estimated fair value.
The Company incurred costs of approximately $3.3 million, or 0.05% of net
sales, in fiscal 1999 related to the Computer City Transition, which includes
costs of training of personnel at the former Computer City stores and other
costs necessary to convert the former Computer City stores to CompUSA Computer
Superstores. Additionally, in the first quarter of fiscal 1999, the Company
recorded a charge of $2.4 million, or 0.04% of net sales, for the closure of
certain CompUSA Computer Superstores in markets where a former Computer City
store remained open in close proximity to a CompUSA Computer Superstore.
In addition, the Company incurred costs of approximately $1.4 million, or
0.02% of net sales, in connection with the CompUSA Net.com Realignment,
consisting primarily of employee severance payments and legal and consulting
fees.
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 fiscal 1999, the Company incurred $4.5 million in
pre-opening expenses in connection with the opening of 14 Computer Superstores
and the relocation of four Computer Superstores, compared with $8.7 million in
pre-opening expenses in fiscal 1998 incurred in connection with the opening of
33 Computer Superstores and the relocation of two Computer Superstores.
22
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
were $170.0 million, or 2.7% of net sales, in fiscal 1999, compared with $116.4
million, or 2.2% of net sales, in fiscal 1998. Excluding costs associated with
the Fiscal 1999 Initiatives aggregating approximately $16.2 million, general and
administrative expenses were $153.8 million in fiscal 1999, or 2.4% of net
sales. The increase in general and administrative expenses as a percentage of
net sales to 2.4% in fiscal 1999 from 2.2% in fiscal 1998 was primarily due to
the following: (1) increased personnel and facility expenses as percentages of
net sales and (2) other costs related to the acquisition of Computer City.
Excluding personnel costs of approximately $10.2 million incurred in
connection with the Fiscal 1999 Initiatives, personnel expenses in fiscal 1999
increased as a percentage of net sales by approximately 0.09%. This increase in
personnel expenses as a percentage of net sales is primarily attributable to
lower average net sales per store in fiscal 1999 compared with fiscal 1998,
particularly at the 37 former Computer City stores.
Facility expenses, excluding costs of approximately $400,000 related to the
Fiscal 1999 Initiatives, increased by approximately 0.05% as a percentage of net
sales in fiscal 1999 compared with fiscal 1998. Facility expenses, which are
generally fixed in nature, increased as a percentage of net sales in fiscal 1999
primarily as a result of lower average net sales per store. In addition,
facility expenses increased in fiscal 1999 as a result of the expansion of the
Company's corporate facilities.
The Company recorded approximately $4.4 million, or 0.07% of net sales, of
amortization expense in fiscal 1999 related to the goodwill associated with the
acquisition of Computer City.
In connection with the Computer City Transition, the Company incurred costs
of approximately $4.1 million, or 0.07% of net sales, in fiscal 1999 for the
training of personnel at the former Computer City stores and other costs
necessary to convert the former Computer City stores to CompUSA Computer
Superstores.
The Company incurred fiscal 1999 expenses of approximately $2.2 million, or
0.03% of net sales, related to the CompUSA Net.com Realignment, consisting
primarily of employee severance payments and consulting and legal fees.
In fiscal 1999, the Company incurred expenses of approximately $9.9 million,
or 0.16% 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 implementation of its
ERM System.
INTEREST EXPENSE AND OTHER INCOME, NET--Interest expense and other income,
net, was $19.0 million, or 0.3% of net sales, in fiscal 1999, compared with $5.9
million, or 0.1% of net sales, in fiscal 1998. The increase in interest expense
and other income, net, was primarily due to interest expense of approximately
$10.7 million, or 0.17% of net sales, recorded on the $136 million note payable
to Tandy related to the acquisition of Computer City. See "--Liquidity and
Capital Resources."
INCOME TAXES--The Company's effective tax rate was 37.5% in fiscal 1999 and
38.5% in fiscal 1998. The effective tax rate for fiscal 1999 and fiscal 1998
differed from the federal statutory rate primarily due to state income taxes and
the benefits of tax-exempt interest earned by the Company.
At June 26, 1999, the Company had net deferred tax assets aggregating $53.8
million. Based on its tax planning strategies and current projections of future
taxable income, the Company believes it is more likely than not that the Company
will realize the recorded deferred tax assets. Accordingly, no valuation
allowance was established at June 26, 1999.
NET LOSS--As a result of the above, the net loss for fiscal 1999 was $45.7
million, or $.50 per diluted share, compared with net income of $31.5 million,
or $.33 per diluted share, for fiscal 1998.
23
<PAGE>
FISCAL 1998 COMPARED WITH FISCAL 1997
NET SALES--Net sales for fiscal 1998 increased 14.7% to $5.29 billion from
$4.61 billion for fiscal 1997. The increase in net sales was primarily due to
the additional sales volume attributable to the new stores opened subsequent to
fiscal 1997 and an increase in comparable store sales of 1.7%. Despite an
increase in overall sales and the number of personal computer systems sold in
fiscal 1998, sales were negatively impacted by, among other things, declines in
average selling prices for certain of the Company's products, including desktop
and notebook computers and monitors, as well as increased sales of lower-end
computer systems. Additionally, in fiscal 1998, average net sales per Computer
Superstore decreased approximately 6% from fiscal 1997. The Company believes
average net sales per Computer Superstore were negatively impacted by decreases
in average selling prices, an increase in sales of lower-end computer systems,
and an increase in the number of the Company's stores open less than two years.
In general, less mature stores generate lower sales than more mature stores.
GROSS PROFIT--Gross profit was $745 million, or 14.1% of net sales, in
fiscal 1998, compared with $657 million, or 14.3% of net sales, in fiscal 1997.
The decline in gross profit as a percentage of net sales in fiscal 1998 compared
with fiscal 1997 was due, in part, to costs associated with the CompUSA PC line
of build-to-order personal computers, increases in inventory shrinkage and
freight expense, and the deleveraging of occupancy costs, which are generally
fixed in nature. These declines were partially offset by an increase in the
ratio of service revenues to total revenues. Service revenues typically have
higher gross margins than merchandise sales.
OPERATING EXPENSES--Operating expenses were $507 million, or 9.6% of net
sales, in fiscal 1998, compared with $402 million, or 8.7% of net sales, in
fiscal 1997. The increase in operating expenses as a percentage of net sales was
due primarily to the deleveraging of facilities expenses, an increase in the
ratio of service revenues to total revenues, and the Company's efforts to expand
certain of its businesses, offset by lower incentive compensation. Facilities
expenses are generally fixed in nature and deleveraged in fiscal 1998 as a
result of lower average net sales per store. The increase in the ratio of
service revenues to total revenues had the effect of increasing operating
expenses as a percentage of net sales because operating expenses are generally
higher for service revenues than for merchandise sales.
PRE-OPENING EXPENSES--Pre-opening expenses consist primarily of personnel
expenses incurred prior to a store's opening and promotional costs associated
with the opening. Through fiscal 1998, the Company's policy was to expense all
pre-opening expenses in the month of the store's grand opening. See Note 1 of
Notes to Consolidated Financial Statements. In fiscal 1998, the Company incurred
$8.7 million in pre-opening expenses in connection with the opening of 33
Computer Superstores and the relocation of two Computer Superstores, compared
with $6.2 million in pre-opening expenses incurred in fiscal 1997 in connection
with the opening of 24 Computer Superstores.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
were $116 million, or 2.2% of net sales, in fiscal 1998, compared with $92.2
million, or 2.0% of net sales, in fiscal 1997. The increase in general and
administrative expenses as a percentage of net sales was primarily due to costs
related to the expansion of the Company's corporate facilities to support the
Company's growth as well as the deleveraging of corporate facilities expenses,
which are generally fixed in nature. In addition, general and administrative
expenses increased as a result of costs associated with the Company's efforts to
expand certain of its businesses as well as to develop new business
opportunities. These increases were partially offset by lower incentive
compensation. General and administrative expenses per store were approximately
$812,000 in fiscal 1998, compared with $785,000 in fiscal 1997.
NON-RECURRING AMORTIZATION CHARGE--During the fourth quarter of fiscal 1998,
the Company committed to a plan to implement a new IT strategy. In fiscal 1999,
pursuant to the strategy, the Company signed an agreement to outsource
substantially all of its IT processes and began the implementation of an ERM
system. In February 1999, the Company completed an agreement for the outsourcing
of substantially all of
24
<PAGE>
its IT development and support for the Company's Computer Superstores and
related businesses, such as technical services, training, build-to-order, call
center operations, and support for the Company's implementation of a new ERM
system. Implementation of the ERM system will result in the replacement of a
substantial portion of the Company's existing IT systems, as well as certain
systems previously under development. As a result of the adoption of this new
strategy, the Company incurred a non-recurring, pre-tax amortization charge in
fiscal 1998 of $55.9 million (approximately $34.4 million after tax) related to
the impairment of existing IT systems and the abandonment of certain systems
under development. See Note 3 of Notes to Consolidated Financial Statements.
INTEREST EXPENSE AND OTHER INCOME, NET--Interest expense and other income,
net, of $5.9 million, or 0.1% of net sales, in fiscal 1998, remained relatively
constant as a percentage of net sales compared with $4.3 million, or 0.1% of net
sales, in fiscal 1997. See "--Liquidity and Capital Resources."
INCOME TAXES--The Company's effective tax rate was 38.5% for both fiscal
1998 and fiscal 1997. The effective tax rate for both fiscal 1998 and fiscal
1997 differed from the federal statutory rate primarily due to state income
taxes, offset, in part, by the benefits of tax-exempt interest earned by the
Company.
NET INCOME--As a result of the above, net income for fiscal 1998 was $31.5
million, or $0.33 per diluted share, compared with net income of $93.9 million,
or $0.99 per diluted share, for fiscal 1997.
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, net sales and
earnings are generally lower during the first and fourth fiscal quarters than in
the second and third fiscal quarters. See Note 16 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 26, 1999, total assets were $1.47 billion, $1.10 billion of which
were current assets, including $173.4 million of cash and cash equivalents. Net
cash provided by operating activities for fiscal 1999 was $130.1 million
compared with $127.8 million in fiscal 1998.
Approximately three-fourths of the Company's net sales during both fiscal
1999 and fiscal 1998 were sales for which the Company received payment at the
time of sale either in cash, by check, or by third-party credit card. The
remaining net sales were primarily sales for which the Company provided credit
terms to corporate, government, and education customers.
Merchandise inventories increased to $667.5 million at June 26, 1999, from
$520.8 million at June 27, 1998. The increase in merchandise inventories is
primarily attributable to inventories at the 14 Computer Superstores opened in
fiscal 1999 and the 37 former Computer City stores and higher inventories held
at the Company's distribution and configuration facility. Inventory per store
was approximately $3.0 million at June 26, 1999, compared with approximately
$3.1 million at June 27, 1998.
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Capital expenditures during fiscal 1999 were $85.3 million, compared with
$138.1 million of capital expenditures during fiscal 1998. The following table
sets forth the capital expenditures for fiscal 1999 and fiscal 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------
JUNE 26, JUNE 27,
1999 1998
--------- ----------
<S> <C> <C>
New stores............................................................. $ 8,259 $ 42,673
Existing stores........................................................ 19,900 36,388
Computer City store conversions........................................ 10,719 --
Information technology initiatives..................................... 23,702 36,665
Corporate and other.................................................... 22,700 22,372
--------- ----------
Total capital expenditures............................................. $ 85,280 $ 138,098
--------- ----------
--------- ----------
</TABLE>
The Company opened 14 Computer Superstores during fiscal 1999 and 33
Computer Superstores during fiscal 1998. The Company plans to open approximately
ten Computer Superstores in fiscal 2000. The Company anticipates capital
expenditures of approximately $12 million in connection with fiscal 2000 new
store openings and approximately $83 to $113 million in connection with other
capital programs, including the 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.
The Credit Agreement replaces a previous $230 million secured credit facility.
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 pursuant to the Credit Agreement are secured by substantially all the
Company's assets, excluding those of CompUSA Net.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. At June 26, 1999, the Company had no amounts outstanding
under its previous secured credit facility. As of August 31, 1999, the Company
had approximately $485.5 million of total availability under the Credit
Agreement against which the Company had $40.0 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 (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
26
<PAGE>
three years of payments are interest only, with the first principal payment due
in December 2001. The unpaid principal amount of the Seller Note may be prepaid,
in whole or in part, at any time at the option of the Company, without premium
or penalty.
The Company is currently transitioning CompUSA Net.com to an Internet-only
operation. The Company currently plans to explore strategic partnerships and/or
access the capital markets over the next three to six months to fund the growth
of CompUSA Net.com. There can be no assurance that such strategic partnerships
can be effected and/or such funding can be accomplished through the capital
markets on terms acceptable to the Company.
The Company believes that its available cash and cash equivalents, funds
generated by operations, currently available vendor and floor plan financing,
lease financing, and funds available under the Credit Agreement should be
sufficient 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. The level of future expansion of both the Company and CompUSA Net.com will
be contingent upon the availability of additional capital.
INFLATION
While inflation has not had, and the Company does not expect it to have, a
material impact upon operating results, there can be no assurances that the
Company's business will not be affected by inflation in the future.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. The Company has adopted the
annual disclosure requirements of SFAS No. 131 in the preparation of this Annual
Report on Form 10-K for the fiscal year ended June 26, 1999, while the quarterly
disclosure requirements will be adopted in fiscal 2000. The American Institute
of Certified Public Accountants (the "AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use," which is effective for fiscal years beginning after December
15, 1998. The Company's current policy falls within the guidelines of SOP 98-1.
Also, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998. The Company adopted the provisions of SOP 98-5 in the preparation of the
Quarterly Report on Form 10-Q for the thirteen weeks ended September 26, 1998.
The adoption of SOP 98-5 had no material impact on the Company's financial
statements.
YEAR 2000 ISSUES
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, and telephone/PBX systems, cash registers,
hand-held terminals, scanning equipment, and other miscellaneous systems, as
well as systems that are not commonly thought of as IT systems, such as alarm
systems, sprinkler systems, fax machines, or other miscellaneous systems. Both
27
<PAGE>
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 October 31, 1999, and
that such efforts will be completed prior to any currently anticipated impact on
its computer equipment and software. The Company estimates that as of June 26,
1999, it had completed approximately 85% 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 15% of
the initiatives are in process and expected to be completed by October 31, 1999.
As non-IT system issues are identified and assessed, remediation and testing of
the non-IT system issues will be ongoing through December 31, 1999.
<TABLE>
<CAPTION>
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............................ 3/98-9/99 90%
Remediation and testing regarding store and distribution system issues.................. 8/98-9/99 90%
Upgrades to telephone/PBX and other systems............................................. 3/98-3/99 100%
Electronic data interchange trading partner conversions................................. 3/98-9/99 90%
Identification, assessment, remediation, and testing regarding desktop and individual
system issues......................................................................... 2/98-10/99 80%
Identification and assessment regarding non-IT system issues............................ 4/98-12/99 95%
Remediation and testing regarding non-IT system issues.................................. 2/99-12/99 90%
Integrated company-wide testing......................................................... 9/99-12/99 50%
</TABLE>
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with many strategic customers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from or by such
entities are Year 2000 compliant. As of June 26, 1999, the Company had received
responses from approximately 56% of such third parties, and 81% of the companies
that have responded have provided written assurances that they expect to address
all their significant Year 2000 issues on a timely basis.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation, and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $5 million, which expenditures will be funded from
operating cash flows. Such amount represents approximately 3% of the Company's
total actual and anticipated IT expenditures for fiscal 1997 through fiscal
1999. As of June 26, 1999, the Company had incurred costs of approximately $4.0
million related to its Year 2000 identification, assessment, remediation, and
testing efforts. All of the $4.0 million relates to analysis, repair, or
replacement of existing software, upgrades to existing software, or evaluation
of information received from significant vendors, service providers, or
customers. Other non-Year 2000 IT efforts have not been materially delayed or
impacted by Year 2000 initiatives. The Company presently believes that the Year
2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation, and testing are not effected timely with respect to Year 2000
problems that are identified, there can be no assurance that the Year 2000 issue
will not materially adversely impact the Company's results of operations or
adversely affect the Company's relationships with customers, vendors, or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
28
<PAGE>
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts 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 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. The
Company's Credit Agreement provides for borrowings which bear interest at
variable rates based on either a prime rate or the London Interbank Offering
Rate. At June 26, 1999, the Company had no amounts outstanding under its
previous secured credit facility. As of August 31, 1999, the Company had
approximately $485.5 million of total availability under the Credit Agreement
against which the Company had $40.0 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 $40.0
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1. Supplementary
quarterly financial information for the Company is included in Note 16 of Notes
to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in connection
with the Company's Annual Meeting of Stockholders to be held November 3, 1999
under the heading "PROPOSAL NO. 1--ELECTION OF DIRECTORS," which information is
incorporated herein by reference. Information concerning each executive officer
of the Company is set forth in the Proxy Statement under the heading
"MANAGEMENT--Executive Officers," which information is incorporated herein by
reference. Information concerning compliance by directors, officers, and 10%
stockholders of the Company with the filing requirements of Section 16(a) of the
Securities Exchange Act of 1934 is set forth in the Proxy Statement under the
heading "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE," which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "EXECUTIVE COMPENSATION," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "PRINCIPAL
STOCKHOLDERS AND MANAGEMENT OWNERSHIP," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the heading "CERTAIN TRANSACTIONS," which
information is incorporated herein by reference.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K.
1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Exhibits:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and among the
Company, Snowstorm Merger Corp., a Delaware corporation and a wholly-
owned subsidiary of the Company, and PCs Compleat, pursuant to which
the Company acquired PCs Compleat, Inc.(1)
2.2 Stock Purchase Agreement dated as of June 21, 1998 ("Stock Purchase
Agreement") by and between Tandy Corporation and the Company for the
purchase and sale of all outstanding capital stock of Computer City,
Inc.(2)
2.3 Amendment to Stock Purchase Agreement dated August 31, 1998.(2)
3.1 Restated and Amended Certificate of Incorporation.(3)
3.2 Restated and Amended Bylaws.(4)
4.1 Specimen Common Stock Certificate (as amended).(5)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000.(6)
4.3 Indenture dated June 17, 1993 (the "Indenture") among CompUSA Inc., as
Issuer, Compudyne Products, Inc., Compudyne Direct, Inc., CompFinance
Inc., CompService Inc., as Guarantors and U.S. Trust Company of Texas,
N.A., as Trustee relating to 9 1/2% Senior Subordinated Notes Due
2000.(7)
4.4 First Supplemental Indenture dated as of December 1, 1995 among the
Company, CompTeam Inc., CompFinance Inc., CompService Inc., and U.S.
Trust Company of Texas, N.A., as Trustee.(8)
4.5 Second Supplemental Indenture dated as of February 7, 1996 among the
Company, CompTeam Inc., CompFinance Inc., CompService Inc., CompUSA
Holdings II Inc., and U.S. Trust Company of Texas, N.A., as Trustee.(9)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among the Company,
CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA Holdings II
Inc., Snowstorm Merger Corp. and U.S. Trust Company of Texas, N.A., as
Trustee.(9)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among the Company,
CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA Holdings II
Inc., PCs Compleat, Inc. and U.S. Trust Company of Texas, N.A., as
Trustee.(9)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996 among the
Company, CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA
Management Company, CompUSA Stores L.P., CompUSA Holdings Company and
U.S. Trust Company of Texas, N.A., as Trustee.(9)
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
4.9 Sixth Supplemental Indenture dated as of August 31, 1998 among the
Company, CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc.,
CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA Holdings Company,
CompUSA Management Company, Computer City, Inc. and U.S. Trust Company
of Texas, N.A., as Trustee.(10)
4.10 Subsidiary Guarantees of the Company's indebtedness under the Indenture
executed by CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat,
Inc., CompUSA Holdings I Inc., CompUSA Management Company, CompUSA
Stores L.P. and CompUSA Holdings Company.(9)
4.11 Subsidiary Guaranty dated as of August 31, 1998, of the Company's
indebtedness under the Indenture executed by Computer City, Inc.(10)
4.12 Seventh Supplemental Indenture dated as of June 28, 1999 among the
Company, CompTeam Inc., CompUSA Holdings II Inc., CompUSA Holdings I
Inc., CompUSA Stores L.P., CompUSA Holdings Company, CompUSA Management
Company, CompUSA PC Operating Company, CompUSA GP Holdings Company and
CompUSA PC Inc.(11)
4.13 Subsidiary Guarantee dated as of June 28, 1999, of the Company's
indebtedness under the Indenture as executed by CompUSA PC Inc.(11)
4.14 Subsidiary Guarantee dated as of June 28, 1999, of the Company's
indebtedness under the Indenture as executed by CompUSA GP Holdings
Company.(11)
4.15 Subsidiary Guarantee dated as of June 28. 1999, of the Company's
indebtedness under the Indenture as executed by CompUSA PC Operating
Company.(11)
4.16 Rights Agreement dated April 29, 1994, between the Company and Bank One,
Texas, N.A., as Rights Agent.(4)
4.17 Letter of the Company dated August 16, 1996, appointing American Stock
Transfer & Trust Company as substitute Rights Agent under the Rights
Agreement.(9)
4.18 Subordinated Promissory Note dated August 31, 1998, in the principal
amount of $136,000,000 issued in favor of Tandy Corporation.(2)
10.1 $500,000,000 Loan and Security Agreement dated as of June 30, 1999 (the
"Loan Agreement") among the Company, CompUSA Stores L.P., certain
lenders of the Company and CompUSA L.P. and NationsBank, N.A., as
administrative agent and a lender.(11)
10.2 $300,000,000 Second Amended and Restated Credit Agreement dated March 12,
1998, among the Company, certain lenders and NationsBank, N.A. (as
successor to NationsBank of Texas, N.A.), as administrative lender (the
"Credit Agreement"). (Superseded by the Loan Agreement)(12)
10.3 First Amendment to the Credit Agreement, dated June 16, 1998, among the
Company, certain lenders and NationsBank, N.A., as administrative
lender. (Superseded by the Loan Agreement)(10)
10.4 Second Amendment to the Credit Agreement, dated August 31, 1998, among
the Company, certain lenders and NationsBank, N.A., as administrative
lender. (Superseded by the Loan Agreement)(10)
10.5 Third Amendment to the Credit Agreement, dated effective as of March 27,
1999, among the Company, certain lenders and NationsBank, N.A., as
administrative lender. (Superseded by the Loan Agreement)(14)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
10.6 The Addison Office Lease Agreement dated September 1, 1992, between
Carter-Crowley Properties, Inc. as Landlord and CompUSA Inc. as
Tenant.(13)
10.7 Form of Employment Agreement between the Company and each of J. Samuel
Crowley, Rick L. Fountain, J. Robert Gary, Ronald J. Gilmore, Harold D.
Greenberg, Alann R. Hurlebaus, Melvin D. McCall, Barry C. McCook,
Lawrence N. Mondry, Honorio J. Padron, R. Stephen Polley, Paul Poyfair,
Bob Sayewitz, James E. Skinner, Mark R. Walker, and Anthony A.
Weiss.(10)
10.8 Form of Employment Agreement between the Company and each of Michael D.
Bryk, Jeff Dill, Richard Foster, Ronald E. Freeman, Robert M. Howe III,
Edmund G. Jurica, Jr., Leslie C. Marshall, Kellie J. McCluskey, T. Dale
Stapleton, Robert J. Verhagen, Catherine Witt, and Blake A. Wolff.(10)
10.9 Form of Employment Agreement dated as of August 16, 1996, between the
Company and James F. Halpin.(9)
10.10 Form of Employment Agreement dated as of August 16, 1996, between the
Company and Harold F. Compton.(9)
10.11 CompSavings Plan for Employees of CompUSA Inc. Plan and Trust Agreement,
as Amended and Restated effective January 1, 1998 (the "CompSavings
Plan").(10)
10.12 Amendment No. 1 to CompSavings Plan dated September 1, 1998.(14)
10.13 Amendment No. 2 to CompSavings Plan dated May 3, 1999.(11)
10.14 Amended and Restated CompUSA Inc. Deferred Compensation Plan (the
"Deferred Compensation Plan").(5)
10.15 Amendment No. 1 to Deferred Compensation Plan dated November 23,
1998.(11)
10.16 CompUSA Inc. Long-Term Incentive Plan.(15)
10.17 PCs Compleat, Inc. 1991 Stock Option Plan.(16)
10.18 CompUSA Inc. Officers' Bonus Plan.(10)
10.19 CompUSA Inc. Nonstatutory Option Plan.(11)
10.20 CompUSA Inc. Supplemental Bonus and Retention Plan.(11)
10.21 CompUSA Inc. Restricted Stock Plan.(11)
10.22 Products and Services Agreement dated effective as of August 28, 1999,
between the Company and Ingram Micro Inc. (Portions of this exhibit
have been excluded pursuant to a request for confidential
treatment.)(11)
21 Subsidiaries.(11)
23 Consent of Ernst & Young LLP.(11)
27 Financial Data Schedule.(17)
Exhibits 10.7 through 10.21 constitute management compensatory plans or contracts.
</TABLE>
(b) Reports on Form 8-K
None.
(c) Exhibits.
See Exhibit Index following page F-31.
- ------------------------
(1) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996.
NOTES CONTINUED ON FOLLOWING PAGE.
33
<PAGE>
NOTES CONTINUED FROM PRECEDING PAGE.
(2) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
September 15, 1998, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 27, 1997, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996, and incorporated
herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Registration Statement No.
33-62884 on Form S-3 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996, and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1996, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 27, 1998, and incorporated herein by
reference.
(11) Filed herewith.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1998, and incorporated herein
by reference.
(13) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended June 27, 1992, and incorporated
herein by reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 27, 1999, and incorporated herein
by reference.
(15) Previously filed as an exhibit to the Company's Registration Statement No.
333-18033 on Form S-8 and incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Registration Statement No.
333-06235 on Form S-8 and incorporated herein by reference.
(17) Included with EDGAR version only.
34
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COMPUSA INC.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JAMES F. HALPIN
- ------------------------------ President and Chief September 14, 1999
James F. Halpin Executive Officer
Executive Vice President
/s/ JAMES E. SKINNER and Chief Financial
- ------------------------------ Officer (Principal September 14, 1999
James E. Skinner Financial and Accounting
Officer)
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GILES H. BATEMAN
- ------------------------------ Chairman of the Board of September 14, 1999
Giles H. Bateman Directors
/s/ JAMES F. HALPIN
- ------------------------------ Director September 14, 1999
James F. Halpin
/s/ LEONARD L. BERRY, PH.D.
- ------------------------------ Director September 14, 1999
Leonard L. Berry, Ph.D.
/s/ WARREN D. FELDBERG
- ------------------------------ Director September 14, 1999
Warren D. Feldberg
/s/ LAWRENCE MITTMAN
- ------------------------------ Director September 14, 1999
Lawrence Mittman
/s/ KEVIN J. ROCHE
- ------------------------------ Director September 14, 1999
Kevin J. Roche
/s/ MORTON E. HANDEL
- ------------------------------ Director September 14, 1999
Morton E. Handel
/s/ BARRY L. WILLIAMS
- ------------------------------ Director September 14, 1999
Barry L. Williams
</TABLE>
35
<PAGE>
COMPUSA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of CompUSA Inc. are included
in response to Item 8:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of June 26, 1999 and June 27, 1998.......................................... F-3
Consolidated Statements of Operations for the fiscal years ended June 26, 1999, June 27, 1998, and June 28,
1997..................................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 26, 1999, June 27, 1998,
and June 28, 1997........................................................................................ F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 26, 1999, June 27, 1998, and June 28,
1997..................................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Schedule II--Valuation and Qualifying Acccounts............................................................ F-32
</TABLE>
Separate financial statements relating to the Company's subsidiaries are
omitted since all of them are wholly-owned and each, excluding CompUSA Net.com
Inc., guaranteed the Company's 9 1/2% Senior Subordinated Notes due 2000
("Senior Subordinated Notes") on a full, unconditional and joint and several
basis and the Company does not consider such separate financial statements to be
material to investors. In addition, summarized financial information with
respect to the subsidiaries who were guarantors of the Senior Subordinated Notes
is omitted from the accompanying notes to consolidated financial statements
because the Senior Subordinated Notes were paid in full on August 3, 1999.
All other financial statement schedules have been omitted because the
required information is not present or is not present in amounts sufficient to
require submission of the schedule or because the information required is
included in the financial statements, including the notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CompUSA Inc.
We have audited the accompanying consolidated balance sheets of CompUSA Inc.
(the "Company") as of June 26, 1999 and June 27, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 26, 1999. Our audits also
included the financial statement schedule listed in the accompanying index to
consolidated financial statements. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CompUSA Inc. at
June 26, 1999 and June 27, 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 26,
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
August 20, 1999
F-2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JUNE 26, JUNE 27,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 173,350 $ 151,779
Accounts receivable, net of allowance for doubtful accounts of $4,317 and $3,524 at
June 26, 1999 and June 27, 1998, respectively..................................... 214,960 214,084
Merchandise inventories............................................................. 667,514 520,762
Deferred income taxes (Note 7)...................................................... 27,188 9,762
Prepaid expenses and other.......................................................... 20,607 26,480
------------ ------------
Total current assets.............................................................. 1,103,619 922,867
Property and equipment, net (Note 5).................................................. 227,113 210,528
Deferred income taxes (Note 7)........................................................ 26,571 18,076
Costs in excess of net assets of acquired businesses, net............................. 103,515 3,069
Other assets.......................................................................... 5,030 5,970
------------ ------------
$ 1,465,848 $ 1,160,510
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 653,795 $ 534,620
Accrued liabilities (Note 6)........................................................ 188,936 98,714
Senior Subordinated Notes (Note 10)................................................. 110,000 --
Current portion of capital lease obligations (Note 8)............................... 828 666
------------ ------------
Total current liabilities......................................................... 953,559 634,000
Capital lease obligations (Note 8).................................................... 169 1,872
Senior Subordinated Notes (Note 10)................................................... -- 110,000
Note payable to Tandy Corporation..................................................... 136,000 --
Commitments and contingencies (Notes 8 and 11)........................................ -- --
Stockholders' equity (Note 13):
Preferred stock, $.01 per share par value, 10,000 shares authorized, none issued.... -- --
Common stock, $.01 per share par value; 325,000,000 shares authorized, with
94,105,525 shares issued at June 26, 1999, and 93,372,545 shares issued at June
27, 1998.......................................................................... 941 934
Paid-in capital..................................................................... 281,056 278,000
Retained earnings................................................................... 152,298 198,045
------------ ------------
434,295 476,979
Less: Treasury stock, at cost, with 2,339,678 shares at June 26, 1999, and 2,507,227
shares at June 27, 1998........................................................... (58,175) (62,341)
------------ ------------
Total stockholders' equity........................................................ 376,120 414,638
------------ ------------
$ 1,465,848 $ 1,160,510
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 6,321,391 $ 5,286,041 $ 4,610,523
Cost of sales and occupancy costs....................................... 5,518,330 4,540,717 3,953,407
------------ ------------ ------------
Gross profit.......................................................... 803,061 745,324 657,116
Operating expenses...................................................... 661,830 507,180 401,722
Pre-opening expenses.................................................... 4,461 8,704 6,220
General and administrative expenses..................................... 170,048 116,399 92,183
Restructuring charge (Note 2)........................................... 20,938 -- --
Non-recurring amortization charge (Note 3).............................. -- 55,885 --
------------ ------------ ------------
Operating income (loss)............................................... (54,216) 57,156 156,991
Other expense (income):
Interest expense...................................................... 25,906 12,331 12,229
Other income, net..................................................... (6,926) (6,463) (7,900)
------------ ------------ ------------
18,980 5,868 4,329
------------ ------------ ------------
Income (loss) before income taxes....................................... (73,196) 51,288 152,662
Income tax expense (benefit) (Note 7)................................... (27,449) 19,745 58,776
------------ ------------ ------------
Net income (loss)....................................................... $ (45,747) $ 31,543 $ 93,886
------------ ------------ ------------
------------ ------------ ------------
Basic earnings (loss) per share......................................... $ (0.50) $ 0.35 $ 1.03
Diluted earnings (loss) per share....................................... $ (0.50) $ 0.33 $ 0.99
Weighted average common shares.......................................... 91,490 91,369 90,835
Weighted average common shares assuming dilution........................ 91,490 94,616 94,589
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
<S> <C> <C> <C> <C> <C> <C>
PAR PAID-IN RETAINED TREASURY
SHARES VALUE CAPITAL EARNINGS STOCK TOTAL
------------ --------- ---------- ---------- ---------- ----------
Balance at June 29, 1996............................ 90,215,716 $ 902 $ 255,216 $ 72,616 $ (2,829) $ 325,905
Issuance of Common Stock upon exercise of stock
options and other................................. 1,547,656 16 6,927 -- -- 6,943
Sale of treasury stock to benefit plan.............. -- -- 765 -- 468 1,233
Net income.......................................... -- -- -- 93,886 -- 93,886
------------ --------- ---------- ---------- ---------- ----------
Balance at June 28, 1997............................ 91,763,372 918 262,908 166,502 (2,361) 427,967
Issuance of Common Stock upon exercise of stock
options and other................................. 1,609,173 16 15,092 -- -- 15,108
Purchase of treasury stock.......................... -- -- -- -- (59,980) (59,980)
Net income.......................................... -- -- -- 31,543 -- 31,543
------------ --------- ---------- ---------- ---------- ----------
Balance at June 27, 1998............................ 93,372,545 934 278,000 198,045 (62,341) 414,638
Issuance of Common Stock upon exercise of stock
options and other................................. 732,980 7 6,143 -- -- 6,150
Sale of treasury stock to benefit plan.............. -- -- (3,087) -- 4,166 1,079
Net loss............................................ -- -- -- (45,747) -- (45,747)
------------ --------- ---------- ---------- ---------- ----------
Balance at June 26, 1999............................ 94,105,525 $ 941 $ 281,056 $ 152,298 $ (58,175) $ 376,120
------------ --------- ---------- ---------- ---------- ----------
------------ --------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss)........................................................ $ (45,747) $ 31,543 $ 93,886
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization (including non-recurring amortization
charge of $55,885 for the fiscal year ended June 27, 1998) (Note
3)................................................................... 69,038 104,852 35,625
Non-cash restructuring and other non-recurring charges (Note 2)........ 63,498 -- --
Deferred income tax.................................................... (25,921) (24,691) 753
Other.................................................................. 2,410 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................................ 39,598 484 (66,459)
Merchandise inventories............................................ (33,436) (19,336) (102,585)
Prepaid expenses and other......................................... 9,239 (14,792) (2,852)
Other assets....................................................... (305) (507) (2,387)
Increase in accounts payable and accrued liabilities................. 51,772 50,296 116,291
----------- ----------- -----------
Total adjustments................................................ 175,893 96,306 (21,614)
----------- ----------- -----------
Net cash provided by operating activities........................ 130,146 127,849 72,272
Cash flows used in investing activities:
Capital expenditures..................................................... (85,280) (138,098) (74,168)
Payment for purchase of Computer City, net of cash acquired.............. (35,878) -- --
Proceeds from sale of Canadian stores.................................... 6,991 -- --
Other.................................................................... 595 123 929
----------- ----------- -----------
Net cash used in investing activities............................ (113,572) (137,975) (73,239)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock................................... 6,150 15,108 6,943
Purchase of treasury stock............................................... -- (59,980) --
Sale of treasury stock to benefit plan................................... 1,079 -- 1,233
Payments under capital lease obligations................................. (2,232) (3,152) (4,894)
----------- ----------- -----------
Net cash provided by (used in) financing activities.............. 4,997 (48,024) 3,282
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents....................... 21,571 (58,150) 2,315
Cash and cash equivalents at beginning of year............................. 151,779 209,929 207,614
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 173,350 $ 151,779 $ 209,929
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--CompUSA Inc. (the "Company") is a retailer and reseller of
personal computer hardware, software, accessories, and related products and
services conducting its operations principally through its Computer
Superstores(SM) in the United States. The Company operated 211 Computer
Superstores at June 26, 1999, 162 Computer Superstores at June 27, 1998, and 129
Computer Superstores at June 28, 1997. In addition to the retail sales of its
stores, the Company's operations also include direct sales to corporate,
government, and education customers. In addition, the Company conducts a retail
Internet sales operation through its wholly-owned subsidiary, CompUSA Net.com
Inc. ("CompUSA Net.com") and sells build-to-order desktop and notebook personal
computers and servers through its wholly-owned subsidiary, CompUSA PC Inc. The
Company also provides training and technical services to its retail and
corporate, government, and education customers.
FISCAL YEAR--The Company's fiscal year is a 52/53-week year ending on the
last Saturday of each June. All references to fiscal 1999 relate to the
fifty-two weeks ended July 26, 1999. All references to fiscal 1998 relate to the
fifty-two weeks ended June 27, 1998. All references to fiscal 1997 relate to the
fifty-two weeks ended June 28, 1997.
CONSOLIDATION--The financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
USE OF ESTIMATES--The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets, liabilities, revenues, and expenses and the
disclosure of gain and loss contingencies at the date of the consolidated
financial statements. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash on hand in stores, deposits in banks, and
short-term investments with original maturities of three months or less are
considered cash and cash equivalents. Cash and cash equivalents are carried at
cost, which approximates fair value.
ACCOUNTS RECEIVABLE--Accounts receivable represent amounts due from
customers related to the sale of the Company's products and services. Such
receivables are generally due from a diverse group of corporate, government, and
education customers located throughout the United States and, accordingly, do
not include any specific concentrations of credit risk. The Company believes it
has provided adequate reserves for potentially uncollectible accounts. The
Company's bad debt expense was $3.4 million in fiscal 1999, $1.6 million in
fiscal 1998, and $959,000 in fiscal 1997.
MERCHANDISE INVENTORIES--Merchandise inventories are valued at the lower of
cost, determined on a weighted average basis, or market.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is provided in amounts sufficient to charge the cost of the
respective assets to operations over their estimated service lives on a
straight-line basis. Estimated service lives are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment.... 3 to 10 years
Leasehold improvements and equipment Lower of the estimated useful life of
under capital leases............... asset or life of lease, generally 10
to 15 years
</TABLE>
F-7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION--The Company generally recognizes revenues at the time
of sale to retail customers and upon shipment to corporate, government, and
education customers. As to training and technical service sales, the Company
generally recognizes revenues upon delivery of services to the customer.
The Company sells extended service plans on behalf of unrelated third
parties and, to a lesser extent, sells its own extended service plans 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 and all
performance obligations and risk of loss with respect to such contracts are
transferred to unrelated third parties at the time the contracts are sold by the
Company. Revenues and all costs related to such revenues are recognized at the
time of sale.
ADVERTISING EXPENSES--Advertising expenses are expensed in the month
incurred, subject to reduction by reimbursement from vendors. Net advertising
expenses were not a significant component of store operating expenses in fiscal
1999, fiscal 1998, or fiscal 1997.
PRE-OPENING COSTS--The American Institute of Certified Public Accountant's
(the "AICPA") Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP
is effective for financial statements for fiscal years beginning after December
15, 1998. The SOP requires that entities expense start-up costs and organization
costs as they are incurred. Beginning in the first quarter of fiscal 1999, the
Company adopted the provisions of SOP 98-5 and began expensing all pre-opening
costs, which consist primarily of personnel and advertising expenses incurred
prior to a store's opening and promotional costs associated with the opening, as
they are incurred. Before the adoption of SOP 98-5, pre-opening costs were
deferred prior to the date of the store's grand opening and were expensed in the
month of the store's grand opening. The adoption of the provisions of SOP 98-5
had no material impact on the Company's financial statements.
INCOME TAXES--Income taxes are maintained in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
whereby deferred income tax assets and liabilities result from temporary
differences. Temporary differences are differences between the tax bases of
assets and liabilities and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years.
INCOME (LOSS) PER SHARE--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.
F-8
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of basic and diluted earnings (loss) per share is summarized
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss)......................................................... $ (45,747) $ 31,543 $ 93,886
Weighted average common shares outstanding................................ 91,490 91,369 90,835
---------- --------- ---------
Basic earnings (loss) per share........................................... $ (0.50) $ 0.35 $ 1.03
---------- --------- ---------
---------- --------- ---------
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss)......................................................... $ (45,747) $ 31,543 $ 93,886
Weighted average common shares outstanding................................ 91,490 91,369 90,835
Incremental shares assuming dilution...................................... -- 3,247 3,754
---------- --------- ---------
Weighted average common shares assuming dilution.......................... 91,490 94,616 94,589
---------- --------- ---------
Diluted earnings (loss) per share......................................... $ (0.50) $ 0.33 $ 0.99
---------- --------- ---------
---------- --------- ---------
</TABLE>
For fiscal 1999, approximately 1.2 million incremental shares assuming
dilution related to the Company's outstanding stock options were excluded from
the calculation of the diluted loss per share since the impact was
anti-dilutive. Outstanding stock options for which the exercise prices exceeded
the fair market value of the Common Stock aggregated 6,809,313 at June 26, 1999,
5,155,455 at June 27, 1998, and 4,054,111 at June 28, 1997.
On November 6, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a stock dividend to stockholders of record
on November 18, 1996, payable on December 2, 1996. Stock options and all other
agreements payable in Common Stock were adjusted automatically by their
respective terms to reflect the stock split. Amounts equal to the par value of
shares issued in connection with the stock split were transferred from
additional paid-in capital to the common stock account.
LONG-LIVED ASSETS--In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that losses on the impairment of
long-lived assets used in operations be recorded when indicators of impairment
are present and the undiscounted cash flows to be generated by those assets are
less than the assets' carrying amounts.
SEGMENT REPORTING--In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
standards requiring public business enterprises to report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997, and therefore the Company has adopted the annual
disclosure requirements in the
F-9
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
preparation of this Annual Report on Form 10-K for the fiscal year ended June
26, 1999 (see Note 15), while the quarterly disclosure requirements will be
adopted in fiscal 2000.
2. FISCAL 1999 NON-RECURRING AND RESTRUCTURING CHARGES
In fiscal 1999, the Company incurred non-recurring and restructuring charges
aggregating approximately $93.8 million related to various programs and
initiatives undertaken by the Company ("Fiscal 1999 Initiatives"). The Fiscal
1999 Initiatives included (1) initiatives announced in the fourth quarter of
fiscal 1999 as result of the Company's extensive evaluation of its core
businesses (the "Fourth Quarter Initiatives"), (2) the transition of the former
Computer City stores to the CompUSA Computer Superstore format (the "Computer
City Transition"), (3) the formation of CompUSA Net.com and its transition to an
Internet-only business (the "CompUSA Net.com Realignment"), and (4) information
technology initiatives (the "IT Initiatives").
The following table summarizes the financial statement classification of the
charges related to the Fiscal 1999 Initiatives:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
---------------------------------------------------------------
FOURTH COMPUTER COMPUSA
QUARTER CITY NET.COM IT
INITIATIVES TRANSITION REALIGNMENT INITIATIVES TOTAL
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN
THOUSANDS)
Cost of sales and occupancy costs....... $ 37,559 $ -- $ 2,165 $ -- $ 39,724
Operating expenses...................... 8,603 5,718 1,367 -- 15,688
General and administrative expenses..... -- 4,134 2,191 9,907 16,232
Restructuring charges................... 20,103 -- 835 -- 20,938
Other expense........................... 1,265 -- -- -- 1,265
----------- ----------- ------ ----------- ---------
$ 67,530 $ 9,852 $ 6,558 $ 9,907 $ 93,847
----------- ----------- ------ ----------- ---------
----------- ----------- ------ ----------- ---------
</TABLE>
F-10
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FISCAL 1999 NON-RECURRING AND RESTRUCTURING CHARGES (CONTINUED)
The following table summarizes the nature of the charges related to the
Fiscal 1999 Initiatives:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
-------------------------------------------------------------
FOURTH COMPUTER COMPUSA
QUARTER CITY NET.COM IT
INITIATIVES TRANSITION REALIGNMENT INITIATIVES TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN
THOUSANDS)
Non-cash charges for asset
write-downs, primarily commercial
inventories and store fixed
assets.............................. $ 46,162 $ -- $ 2,976 $ -- $ 49,138
Personnel costs and professional
fees................................ -- 9,852 2,747 9,907 22,506
----------- ----------- ----------- ----------- ---------
46,162 9,852 5,723 9,907 71,644
Restructuring charge:
Non-cash charges, primarily fixed
asset write-downs related to closed/
abandoned facilities................ 14,270 -- 90 -- 14,360
Reserves for future rental
obligations, carrying costs and
other closing costs related to
closed/abandoned facilities......... 3,479 -- -- -- 3,479
Legal and consulting fees............. 1,000 -- -- -- 1,000
Severance and other personnel costs... 1,354 -- 745 -- 2,099
----------- ----------- ----------- ----------- ---------
20,103 -- 835 -- 20,938
Other expense........................... 1,265 -- -- -- 1,265
----------- ----------- ----------- ----------- ---------
$ 67,530 $ 9,852 $ 6,558 $ 9,907 $ 93,847
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
Cash requirements related to the Fiscal 1999 Initiatives aggregated
approximately $30.3 million, a substantial portion of which were paid prior to
June 26, 1999 from cash generated from operations.
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 are designed to increase
gross margins, reduce operating costs, improve customer service, and position
the Company to take advantage of additional strategic opportunities. Costs of
approximately $67.5 million were recorded in the fourth quarter of fiscal 1999
in connection with the Fourth Quarter Initiatives. The Company anticipates
incurring additional non-recurring charges related to the Fourth Quarter
Initiatives in fiscal 2000 primarily related to, among other things, severance
actions taken by the Company in the first quarter of fiscal 2000.
Charges recorded in the fourth quarter of fiscal 1999 in connection with the
Fourth Quarter Initiatives 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 sales and fulfillment 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 services business, the Company implemented a vertical,
market-based organizational structure. Previously, each
F-11
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FISCAL 1999 NON-RECURRING AND RESTRUCTURING CHARGES (CONTINUED)
store operated as an independent training organization with a local focus. Costs
of approximately $600,000, primarily related to the severance of approximately
125 employees and other personnel costs, were incurred as a result of the
training initiative in the fourth quarter of fiscal 1999. The training
initiative was substantially completed in July 1999.
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 of
approximately $600,000, primarily related to the severance of approximately 150
employees and other personnel costs, were incurred as a result of the technical
services initiative in the fourth quarter of fiscal 1999. The technical services
initiative was also substantially completed in July 1999.
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 sales, fulfillment, and configuration activities to corporate,
government, and education customers by (1) outsourcing the product sales,
fulfillment, and configuration operations and (2) consolidating the Company's
direct sales force.
In connection with the outsourcing of the fulfillment of its sales orders
from corporate, government, and education customers, the Company has implemented
a plan to liquidate the related inventories in its fulfillment and configuration
facility and its retail stores. As a result, the Company recorded a charge of
approximately $37.0 million in the fourth quarter of fiscal 1999 to write down
the carrying values of such inventories to management's estimates of the net
realizable value of such inventories to be realized through vendor returns,
liquidation through third parties, and promotional activities in the Company's
stores. Such liquidation efforts are expected to be substantially completed by
the end of the second quarter of fiscal 2000.
Costs incurred in the fourth quarter of fiscal 1999 in connection with the
expected abandonment of the related Company's fulfillment and configuration
facility activities consisted primarily of a $13.2 million write-down of the
fixed assets having no future utility to the Company and a $2.2 million charge
for the estimated remaining lease rentals and other carrying costs, net of
estimated subrental income, associated with that facility prior to the
expiration of the lease term in 2008. 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,
sales orders for corporate, government, and education customers began to be
fulfilled by a third-party distribution partner.
In August 1999, the Company organized a centralized direct sales and support
function and opened a new 80,000 square foot call center in Dallas to accomodate
these functions. Previously, each store maintained a separate direct sales
force. As a result of the centralization of the direct sales force, the Company
severed approximately 2,200 employees in August 1999 previously responsible for
the direct sales activities conducted through the Company's stores. The costs of
these severance actions will be expensed by the Company in the first quarter of
fiscal 2000.
EVALUATION OF 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. In
connection with the closing of these four stores, the Company incurred costs of
approximately $2.6 million, primarily related to the write-down of fixed assets
having no future utility to the Company and the liquidation of inventories. In
addition, the Company determined that the carrying values of the
F-12
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FISCAL 1999 NON-RECURRING AND RESTRUCTURING CHARGES (CONTINUED)
long-lived assets at 15 of the Company's stores exceeded the estimated
undiscounted future cash flows to be generated by those stores. Accordingly, the
Company wrote down the carrying values of the long-lived assets at those stores,
primarily store fixtures and leasehold improvements, by approximately $6.5
million. After the write-down, the carrying values of such assets equal their
estimated fair values based on the net present value of the stores' estimated
future cash flows.
CHANGE IN EXTENDED SERVICE PLAN PROGRAM--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 approximately $2.0
million associated with certain unresolved issues with 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 under 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 experience difficulty in obtaining services from the administrator
of the Prior ESP Program. 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 first half 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
first half 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 record a charge for the estimated
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.
COMPUTER CITY TRANSITION--The Company incurred costs of approximately $9.9
million in fiscal 1999 related to the training of personnel at the former
Computer City stores and other costs necessary to convert the former Computer
City stores to CompUSA Computer Superstores. These costs included a $2.4 million
charge taken in the first quarter of fiscal 1999 for the closure of CompUSA
Computer Superstores in markets where a former Computer City store remained open
in close proximity to the closed CompUSA Computer Superstore.
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 connection with
the CompUSA Net.com Realignment, the Company incurred costs of approximately
$6.6 million. The primary components of such costs were (1) costs aggregating
approximately $3.8 million associated with the phaseout of the previous mail
order and other non-Internet sales operations of CompUSA Direct, primarily costs
related to the severance of approximately 200 employees and the write-down of
inventories not consistent with the Internet-only operations to be conducted by
F-13
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FISCAL 1999 NON-RECURRING AND RESTRUCTURING CHARGES (CONTINUED)
CompUSA Net.com, and (2) costs of approximately $2.8 million associated with the
development and implementation of the Internet-only strategy, primarily
consulting and professional fees.
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 fiscal 1999, the Company incurred non-recurring expenses of
approximately $9.9 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.
3. FISCAL 1998 NON-RECURRING AMORTIZATION CHARGE
During the fourth quarter of fiscal 1998, the Company committed to a plan to
implement a new IT strategy. In fiscal 1999, pursuant to the strategy, the
Company signed an agreement to outsource substantially all of its IT processes
and began the implementation of the ERM system. In February 1999, the Company
completed an agreement for the outsourcing of substantially all of its IT
development and support for the Company's Computer Superstores and related
operations, such as technical services, training, CompUSA PC build-to-order,
call center, and support for the implementation of the ERM system.
Implementation of the ERM system will result in the replacement of a substantial
portion of the Company's existing IT systems, as well as certain systems
previously under development. The Company completed the first phase of the ERM
system implementation on June 26, 1999 with future installations slated for
September 1999 and the first half of calendar 2000.
As a result of the decision made in the fourth quarter of fiscal 1998 to
implement the ERM system, the Company recorded a non-recurring, pre-tax
amortization charge of $55.9 million (approximately $34.4 million after tax).
The $55.9 million charge was comprised of (1) a $52.3 million write-off of costs
incurred in connection with a previous development project and (2) a $3.6
million charge for non-cancelable lease obligations related to IT assets
abandoned and other losses incurred as a result to the decision to implement the
ERM system.
With the decision to implement the ERM system, the Company abandoned a
previous IT development project to replace and integrate many of the Company's
current IT systems. In connection with this previous development project, the
Company incurred approximately $81.7 million of costs related to the purchase,
development, enhancement, integration and customization of various IT
applications and modules in order to develop an overall integrated system.
F-14
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FISCAL 1998 NON-RECURRING AMORTIZATION CHARGE (CONTINUED)
Of the costs incurred in connection with the previous development project,
the Company incurred approximately $30.1 million of development costs related to
IT systems, primarily retail point-of-sale applications, never placed into
service by the Company. As a result of the decision to implement the ERM system,
further development activities with respect to the retail point-of-sale
applications were abandoned in the fourth quarter of fiscal 1998 and the Company
wrote off such costs. The Company will continue to use its existing retail
point-of-sale applications until replacement applications are installed in
connection with the ERM system in fiscal 2000, at which time the existing retail
point-of-sale applications will be fully depreciated.
Additional costs of approximately $40.5 million were incurred in connection
with the previous development project related to IT systems, primarily
commercial sales and distribution applications and inventory management
applications, for which only certain of the developed modules were placed into
service by the Company prior to the decision to implement the ERM system. With
the decision to implement the ERM system, further development activities with
respect to the commercial sales and distribution and inventory management
applications were abandoned in the fourth quarter of fiscal 1998. The estimated
costs of the developed modules placed into service by the Company, primarily the
commercial sales module, are approximately $18.3 million and the net carrying
value of such assets was approximately $16.9 million at June 27, 1998. The
remaining costs related to modules developed in connection with this portion of
the development project but not placed into service by the Company aggregated
approximately $22.2 million and these costs were written off in the fourth
quarter of fiscal 1998. The Company will continue to use and depreciate the
modules placed into service until replacement applications are placed into
service in connection with the ERM system in fiscal 2000, at which time the
existing modules will be fully depreciated.
4. PURCHASE OF COMPUTER CITY
On August 31, 1998, the Company completed its acquisition of Computer City,
Inc. ("Computer City") from Tandy Corporation ("Tandy"), for an aggregate
purchase price of approximately $175 million, payable in a note and cash. The
purchase price is subject to post-closing adjustments that the Company
anticipates finalizing with Tandy in the second quarter of fiscal 2000.
In connection with the acquisition of Computer City, the Company issued a
$136 million subordinated promissory note payable to Tandy (the "Seller Note").
The Seller Note bears interest at a rate of 9.48% per annum and provides for its
repayment in semi-annual installments over a period of ten years. The first
three years of payments are interest only, with the first principal payment due
in December 2001. The unpaid principal amount of the Seller Note may be prepaid,
in whole or in part, at any time at the option of the Company, without premium
or penalty.
Effective November 1, 1998, the Company sold the seven Canadian Computer
City supercenters acquired by the Company to Future Shop Ltd. for approximately
$7.0 million in cash and the assumption of certain liabilities.
The purchase of Computer City has been accounted for under the purchase
method of accounting. Accordingly, the purchase price has been allocated to the
acquired assets and liabilities based on fair values as of the acquisition date.
The excess of the purchase price paid over the estimated fair values of the
acquired assets and liabilities (goodwill) of approximately $105 million is
being amortized over 20 years on a straight-line basis, resulting in a net
carrying value of approximately $100.6 million at June 26, 1999.
F-15
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASE OF COMPUTER CITY (CONTINUED)
A summary of the purchase price paid to acquire Computer City and the
allocation of the purchase price to the net assets acquired is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 26, 1999
----------------------
<S> <C> <C>
(IN THOUSANDS)
Purchase price paid to acquire Computer City:
Cash paid at closing.................................................................... $ 36,450
Seller Note issued to Tandy............................................................. 136,000
Transaction costs....................................................................... 2,921
----------
Total consideration paid.................................................................. 175,371
Net assets acquired at net book value..................................................... $ 220,851
Adjustments to state net assets acquired at fair value:
Write-down of merchandise inventories................................................. (50,517)
Write-down of fixed assets............................................................ (49,946)
Future rental obligations and related carrying costs for closed stores................ (29,000)
Other................................................................................. (21,017)
----------
Estimated fair value of net assets acquired............................................... 70,371
----------
Costs in excess of net assets acquired.................................................... $ 105,000
----------
----------
</TABLE>
The net assets acquired at estimated fair value consisted of inventories of
$167.3 million, accounts receivable and other current assets of $65.8 million
and property and equipment of $25.2 million, net of accounts payable and accrued
liabilities of $158.9 million and the $29.0 million reserve for future rental
obligations and related carrying costs for closed stores.
The Company will periodically assess the recoverability of costs in excess
of net assets acquired based on existing facts and circumstances and projected
earnings before interest, depreciation, and amortization, on an undiscounted
basis. Should the Company's assessment indicate an impairment of this asset in
the future, an appropriate write-down will be recorded.
The accompanying statement of operations for fiscal 1999, includes the
results of operations from the acquisition date for the 37 former Computer City
stores in the United States that the Company operated as CompUSA Computer
Superstores and two former Computer City "small market" stores in fiscal 1999.
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 fiscal 1999 statement of
operations, 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 periods indicated as if Computer City had been acquired as of
the beginning of fiscal 1998. The pro forma results given below are not
necessarily
F-16
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASE OF COMPUTER CITY (CONTINUED)
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>
FISCAL YEAR ENDED
--------------------------
<S> <C> <C>
JUNE 26, JUNE 27,
1999 1998
------------ ------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales......................................................... $ 6,444,658 $ 6,074,076
Net loss.......................................................... (66,598) (22,096)
Diluted loss per share............................................ (0.73) (0.24)
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------
<S> <C> <C>
JUNE 26, JUNE 27,
1999 1998
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures, and equipment.................................... $ 236,284 $ 199,946
Leasehold improvements................................................ 128,585 112,965
Equipment under capital leases........................................ 23,600 23,726
Land.................................................................. 9,720 9,720
Capital projects in progress.......................................... 27,776 7,991
---------- ----------
425,965 354,348
Less accumulated depreciation and amortization........................ 198,852 143,820
---------- ----------
$ 227,113 $ 210,528
---------- ----------
---------- ----------
</TABLE>
F-17
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------
<S> <C> <C>
JUNE 26, JUNE 27,
1999 1998
---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Salaries and benefits.................................................. $ 54,147 $ 41,074
Taxes, other than income and payroll................................... 25,828 22,398
Reserves for future rental obligations, carrying costs and other
closing costs related to closed/abandoned facilities................. 24,631 --
Rent................................................................... 20,568 16,106
Income tax payable..................................................... 8,587 --
Interest............................................................... 7,243 625
Royalties.............................................................. 5,366 1,744
Other.................................................................. 42,566 16,767
---------- ---------
$ 188,936 $ 98,714
---------- ---------
---------- ---------
</TABLE>
A rollforward of the reserve for future rental obligations, carrying costs
and other closing costs related to closed/abandoned facilities is as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Present value of estimated future rental obligations and related carrying costs
for closed Computer City stores recorded in connection with the purchase
price allocation............................................................. $ 29,000
Charge for closed/abandoned facilities recorded in connection with Fiscal 1999
Initiatives 3,479
Payments of rents and other carrying costs..................................... (14,107)
Cash received upon the assumption of certain leases by a third party........... 4,190
Accretion of imputed interest at 9.5% per annum................................ 2,069
-------------
Balance as of June 26, 1999.................................................... $ 24,631
-------------
-------------
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
<S> <C> <C> <C>
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
---------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit):
Current:
Federal................................................. $ (1,624) $ 38,183 $ 49,894
State................................................... 96 6,253 8,129
Deferred.................................................. (25,921) (24,691) 753
---------- --------- ---------
$ (27,449) $ 19,745 $ 58,776
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-18
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The reconciliation of income tax expense (benefit) to the amount calculated
based on the federal statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
<S> <C> <C> <C>
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
---------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate.............. $ (25,619) $ 17,951 $ 53,432
State income taxes, less federal benefit.................... (1,775) 1,769 5,114
Non-taxable income.......................................... (435) (1,402) (1,501)
Other....................................................... 380 1,427 1,731
---------- --------- ---------
$ (27,449) $ 19,745 $ 58,776
---------- --------- ---------
---------- --------- ---------
</TABLE>
The tax effects of temporary differences giving rise to the deferred tax
asset (liability) at June 26, 1999, and June 27, 1998, are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
----------------------------------------------
<S> <C> <C> <C> <C>
JUNE 26, 1999 JUNE 27, 1998
---------------------- ----------------------
<CAPTION>
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Property and equipment........................ $ -- $ 17,290 $ -- $ 10,540
Accounts receivable........................... 2,055 -- 1,371 --
Merchandise inventories....................... 17,947 -- (2,874) --
Prepaid expenses and other deferrals.......... (554) 1,088 (641) 1,335
Deferred rentals.............................. 4,755 7,464 -- 6,201
Accrued liabilities and other................. 2,985 729 11,906 --
--------- ----------- --------- -----------
$ 27,188 $ 26,571 $ 9,762 $ 18,076
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
At June 26, 1999, the Company had net deferred tax assets aggregating $53.8
million. Based on its tax planning strategies and current projections of future
taxable income, the Company believes it is more likely than not that the Company
will realize the recorded deferred tax assets. Accordingly, no valuation
allowance was established at June 26, 1999.
F-19
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LEASES
The Company leases equipment under capital and operating leases that expire
at various dates through 2004. The Company operates in facilities leased under
non-cancelable operating leases that expire at various dates through 2016 and
the majority of which contain renewal options and require the Company to pay a
proportionate share of common area maintenance.
At June 26, 1999, future minimum lease payments under all leases with
initial or remaining non-cancelable lease terms in excess of one year, including
remaining lease obligations for the acquired Computer City stores closed by the
Company and other facilities closed/abandoned by the Company, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- ------------------------------------------------------------------ --------- ------------
<S> <C> <C>
(IN THOUSANDS)
2000.............................................................. $ 894 $ 121,176
2001.............................................................. 173 111,900
2002.............................................................. -- 99,665
2003.............................................................. -- 92,282
2004.............................................................. -- 81,165
Thereafter........................................................ -- 568,356
--------- ------------
Total minimum lease payments...................................... 1,067 $ 1,074,544
------------
------------
Less amount representing interest................................. 70
---------
Present value of minimum lease payments........................... 997
Less current portion.............................................. 828
---------
Capital lease obligations due after one year...................... $ 169
---------
---------
</TABLE>
Rental expense of the Company amounted to $112.9 million in fiscal 1999,
$79.0 million in fiscal 1998, and $56.3 million in fiscal 1997.
9. 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.
The Credit Agreement replaces a previous $230 million secured credit facility.
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 pursuant to the Credit Agreement are secured by substantially all of
the Company's assets, excluding those of CompUSA Net.com. The funds available
under the Credit Agreement may be used for any corporate purpose. At June 26,
1999, the Company had no borrowings outstanding under its previous secured
credit facility.
F-20
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CREDIT AGREEMENT (CONTINUED)
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either a prime rate or a rate based on the London Interbank Offering
Rate (LIBOR) plus a specified margin. 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.
10. SENIOR SUBORDINATED NOTES
In June 1993, the Company issued $110,000,000 in principal amount of 9 1/2%
Senior Subordinated Notes due June 15, 2000. Interest on the Senior Subordinated
Notes was payable semi-annually on each June 15 and December 15. The Senior
Subordinated Notes were paid in full on August 3, 1999.
The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $110.0 million at June 26, 1999, and $111.7 million at
June 27, 1998.
11. 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. The plaintiffs
have until September 20, 1999, to file an amended complaint. 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 file an amended complaint and 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, a nonclass lawsuit, Tom Johnson v. Circuit City Stores,
Inc., et al., was filed by plaintiff Tom Johnson on behalf of himself and the
California public against Circuit City Store, Inc. and seven other computer
products retailers, including the Company. Without identifying any specific acts
by any specific retailers, Johnson's complaint alleges that such retailers have
(1) misrepresented the Year 2000
F-21
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
("Y2K") compliance of products sold by them, (2) sold unnecessary Y2K fixes,
and/or (3) failed to disclose the need for Y2K fixes or upgrades. Johnson's
complaint requests (1) the freezing of the retailers' assets, (2) the
restitution of all funds acquired by the retailers since January 15, 1995, by
means of the alleged conduct, (3) an injunction requiring the retailers to
disclose the nature of the Y2K problem, a means to determine Y2K compliance and
what fixes are available to all of their customers who have bought products
since January 15, 1995, and (4) attorneys' fees. Together with the other
defendants, the Company has filed a Motion to Dismiss the complaint and such
motion is currently pending. 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.
12. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution profit-sharing plan (the "401(k)
Plan") covering employees of the Company and its subsidiaries who are at least
21 years of age. Effective April 1, 1998, eligible employees may become
participants as of the first day of the next calendar quarter after their hire
date. The 401(k) Plan is intended to constitute a qualified profit sharing plan
within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), which includes a qualified cash or deferred arrangement
within the meaning of Code section 401(k). In addition, the Company sponsors a
deferred compensation plan that permits eligible officers and employees to defer
a portion of their compensation. Contributions to both the 401(k) Plan and the
deferred compensation plan consist of employee pre-tax contributions determined
as a percentage of each participating employee's compensation and the Company's
matching contributions up to a specified limit. The Company may make additional
contributions to either or both plans at the discretion of the Company's Board
of Directors. The Company's expense for contributions to the 401(k) Plan and the
deferred compensation plan aggregated $1.6 million for fiscal 1999, $2.3 million
for fiscal 1998, and $1.4 million for fiscal 1997.
13. STOCKHOLDERS' EQUITY
TREASURY STOCK--In September 1997, the Company's Board of Directors
authorized the purchase of up to $60 million of Common Stock. As of June 27,
1998, the Company had purchased 2.2 million shares of Common Stock, to be held
as treasury stock, for approximately $60.0 million (approximately $27.34 per
share), pursuant to the September 1997 authorization, and as a result, no
additional treasury stock purchases can currently be made by the Company
pursuant to such authorization.
In March 1997, the Company made a cash contribution to the 401(k) Plan to
effect the Company's required contribution to the plan for calendar 1996, which
the plan used to purchase 62,833 shares of treasury stock from the Company. In
March 1999, the Company made a cash contribution to the 401(k)
F-22
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (CONTINUED)
Plan to effect the Company's required contribution to the plan for calendar
1998, which the plan used to purchase 167,549 shares of treasury stock from the
Company.
STOCK-BASED INCENTIVE COMPENSATION PLANS--The CompUSA Inc. Long-Term
Incentive Plan (the "Long-Term Incentive Plan") provides for the granting of
stock-based incentive compensation in the form of stock options, restricted
stock grants, stock appreciation rights, performance share awards, and stock
unit awards, or a combination thereof. The Long-Term Incentive Plan, as restated
and amended through June 26, 1999, authorizes the issuance of up to 16,788,736
shares of Common Stock upon the exercise of such incentive awards to employees,
nonemployee directors, and advisors of the Company. Under the Long-Term
Incentive Plan, stock option awards may be granted in the form of incentive
stock options or nonstatutory stock options that generally become exercisable in
cumulative installments over periods of three to four years and expire after ten
years. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of the Common Stock on the grant date.
The CompUSA Inc. Nonstatutory Option Plan (the "Nonstatutory Option Plan")
provides for the granting of stock-based compensation in the form of
nonstatutory stock options. The Nonstatutory Option Plan authorizes the issuance
of up to 1,000,000 shares of Common Stock. Any employee of the Company or its
subsidiaries who is not also an officer or director of the Company is eligible
for an award pursuant to the Nonstatutory Option Plan. The Compensation
Committee has discretion to determine the option periods, the exercise prices,
and how the options granted under the Nonstatutory Option Plan become
exercisable.
The CompUSA Inc. Restricted Stock Plan (the "Restricted Stock Plan")
provides for the granting of stock-based incentive compensation in the form of
restricted stock. The Restricted Stock plan authorizes the issuance of up to
1,000,000 shares of Common Stock to officers of the Company and its
subsidiaries. Restricted stock granted pursuant to the Restricted Stock Plan
will be restricted for a period of time to be determined by the Compensation
Committee at the time of award, which period shall not exceed ten years. The
restricted stock will be forfeited if a participant's employment is terminated
prior to the end of the restriction period. The restrictions on the stock
prohibit the sale, assignment, transfer, pledge or other encumbrance of the
restricted stock.
Stock option transactions related to the Company's various stock-based
incentive plans are summarized in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
JUNE 26, 1999 JUNE 27, 1998 JUNE 28, 1997
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.................. 7,897,732 $ 20.05 8,699,954 $ 16.21 5,944,456 $ 4.77
Granted........................................... 1,880,956 12.53 834,229 30.53 4,764,394 26.88
Exercised......................................... (405,706) 4.42 (1,521,023) 4.31 (1,473,030) 2.95
Canceled.......................................... (491,748) 21.35 (115,428) 13.65 (535,866) 20.57
---------- ----------- -----------
Outstanding at end of year........................ 8,881,234 $ 19.10 7,897,732 $ 20.05 8,699,954 $ 16.21
---------- ----------- -----------
---------- ----------- -----------
Exercisable at end of year........................ 5,521,542 $ 18.71 4,334,409 $ 15.70 3,427,312 $ 10.78
</TABLE>
F-23
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at June 26, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES SHARES REMAINING LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------- ---------- ------------------------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
$0.27-4.91.................. 728,275 5.2 $ 3.53 718,516 $ 3.53
5.63-13.00.................. 1,974,690 6.2 7.21 1,501,940 7.27
13.06-23.25................. 2,745,305 8.2 18.44 1,061,462 22.00
24.81-34.82................. 3,432,964 7.5 29.77 2,239,624 29.69
---------- ----------
8,881,234 5,521,542
---------- ----------
---------- ----------
</TABLE>
The Company granted restricted stock awards to the Company's officers for
405,189 shares of Common Stock in fiscal 1999, 88,150 shares of Common Stock in
fiscal 1998, and 80,002 shares of Common Stock in fiscal 1997. The restricted
stock awards vest to the employees no later than the fifth anniversary of the
grant date. The vesting period may be accelerated to a minimum of three years if
specified performance goals are met. A provision for restricted shares is made
ratably over the vesting period. Expense recognized under the plan for
restricted shares was $1.6 million for fiscal 1999, $1.3 million for fiscal
1998, and $729,500 for fiscal 1997.
At June 26, 1999, the Company had an aggregate of 2,143,195 shares of Common
Stock available for future grants under its stock-based incentive compensations
plans.
The Company has adopted the pro forma disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As required by SFAS 123, pro forma
information regarding net income (loss) and net income (loss) per share has been
determined as if the Company had accounted for employee stock options and
stock-based awards granted subsequent to June 24, 1995 under the fair value
method provided for under SFAS 123. The fair value for those options was
estimated at the date of grant using a Black-Sholes option pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rates.............................................. 4.55-5.46% 5.38-6.15% 5.67-6.60%
Dividend yield........................................................ 0% 0% 0%
Expected volatility rate.............................................. 56.9% 51.9% 52.6%
Weighted average expected life (in years)............................. 3.37-5.00 2.52-3.61 1.66-3.75
</TABLE>
F-24
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average exercise prices and the weighted average fair values of
employee stock options and restricted stock awards granted is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JUNE 26, 1999 JUNE 27, 1998 JUNE 28, 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR
PRICE VALUE PRICE VALUE PRICE VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price of award on grant date:
Less than market value.......................... $ 0.00 $17.17 $ 0.00 $24.81 $ 0.00 $17.09
Equals market value............................. 12.53 5.57 30.53 12.68 20.58 7.95
Exceeds market value............................ -- -- -- -- 27.50 7.67
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting period.
Because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to June 24, 1995, its pro forma effect will not be fully reflected
until the completion of one full vesting cycle. The Company's pro forma
information is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $ (45,747) $ 31,543 $ 93,886
Pro forma................................................. (56,191) 24,174 89,156
Basic earnings (loss) per share:
As reported............................................... $ (0.50) $ 0.35 $ 1.03
Pro forma................................................. (0.61) 0.26 0.98
Diluted earnings (loss) per share:
As reported............................................... $ (0.50) $ 0.33 $ 0.99
Pro forma................................................. (0.61) 0.26 0.94
</TABLE>
F-25
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK--The Company has authorized 10,000 shares of preferred
stock, $.01 per share par value, none of which was issued and outstanding as of
June 26, 1999. However, the Board of Directors has the authority, without
further stockholder approval, to issue shares of preferred stock in one or more
series and to determine the dividend rights, any conversion rights or rights of
exchange, voting rights, rights and terms of redemption (including sinking fund
provisions), liquidation preferences, and any other rights, preferences,
privileges, and restrictions of any series of preferred stock, and the number of
shares constituting such series and the designation thereof. The Company has no
present plans to issue any shares of preferred stock.
RIGHTS AGREEMENT--On April 29, 1994, the Board of Directors of the Company
declared a dividend of one right to purchase preferred stock (a "Right") for
each outstanding share of Common Stock. As a result of the two-for-one stock
splits declared by the Board of Directors effective April 8, 1996 and November
18, 1996, the number of Rights associated with each outstanding share of Common
Stock has been decreased to one-fourth of a Right in accordance with the
provisions of the Rights Agreement. The Rights will expire on April 28, 2004.
Each Right will entitle its holder, in certain circumstances, to buy one
ten-thousandth of a newly issued share of Series A Junior Participating
Preferred Stock (the "Junior Preferred Stock") of the Company at the purchase
price of $120 (the "Purchase Price").
The Rights will be exercisable and transferable apart from the Common Stock
only if a person or group acquires beneficial ownership of 20% or more of the
outstanding Common Stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 20% or more of
the outstanding Common Stock.
The Company will generally be entitled to redeem the Rights at $.001 per
Right at any time until a person or group has become the beneficial owner of 20%
or more of the outstanding Common Stock. Under the Rights' "flip-in" feature, if
any person or group becomes the beneficial owner of 20% or more of the
outstanding Common Stock, then each Right not owned by such person or group of
certain related parties will entitle its holder to purchase, at the then current
Purchase Price, shares of Common Stock (or in certain circumstances as
determined by the Board of Directors, cash, other property, or other securities)
having a value of twice the Purchase Price. Alternatively, if a person or group
has become the beneficial owner of 20% or more, but less than 50%, of the
outstanding Common Stock, the Company may at its option exchange each Right of a
holder (other than such person or any member of such group) for one share of
Common Stock.
Under the Rights' "flip-over" provision, if, after any person or group
becomes the beneficial owner of 20% or more of the outstanding Common Stock, the
Company is involved in a merger or other business combination transaction with
another person, or sells 50% or more of its assets or earning power to another
person in one or more transactions, each Right will entitle its holder to
purchase, at the then current Purchase Price, shares of common stock of such
other person having a value of twice the Purchase Price.
The Junior Preferred Stock will not be redeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, will be subordinate to all other series of the Company's preferred stock.
Each share of Junior Preferred Stock will represent the right to receive, when
and if declared, a quarterly dividend at an annual rate equal to the greater of
$1.00 per share or 10,000 times the quarterly per share cash dividends declared
on the Common Stock during the immediately preceding fiscal year. In addition,
each share of Junior Preferred Stock will represent the right to receive
F-26
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (CONTINUED)
10,000 times any non-cash dividends (other than dividends payable in Common
Stock) declared on the Common Stock, in like kind. In the event of the
liquidation, dissolution or winding up of the Company, each share of Junior
Preferred Stock will represent the right to receive a liquidation payment in an
amount equal to the greater of $1.00 per share or 10,000 times the liquidation
payment made per share of Common Stock. Each share of Junior Preferred Stock
will have 10,000 votes, voting together with the Common Stock. In the event of
any merger, consolidation, or other transaction in which common shares are
exchanged, each share of Junior Preferred Stock will represent the right to
receive 10,000 times the amount received per share of Common Stock. The rights
of the Junior Preferred Stock as to dividends, liquidation, voting rights, and
merger participation are protected by anti-dilution provisions.
EXECUTIVE SEVERANCE ARRANGEMENTS--The Company has severance arrangements for
all officers that provide severance pay benefits in the event of a change in
control of the Company, as defined in the severance agreements. The Company's
officers (33 persons) have employment agreements containing provisions pursuant
to which those persons will receive lump sum severance payments in an amount up
to 2.99 times the sum of (i) their current base salary at the time of
termination, (ii) two times their target bonus for the bonus period in which the
change in control occurs, and (iii) their annualized automobile allowance,
together with payments in lieu of continued group insurance benefits.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (received) during the periods for:
Interest.................................................. $ 15,151 $ 10,957 $ 11,154
Income taxes.............................................. (23,585) 48,623 59,823
Investing activities not affecting cash are as follows:
Additions to property and equipment under capital
leases.................................................. $ 646 $ 93 $ 1,043
Financing activities not affecting cash are as follows:
Seller Note issued in connection with the Computer City
acquisition............................................. $ 136,000 $ -- $ --
</TABLE>
15. SEGMENT REPORTING
The Company's operations are conducted through four segments: Retail,
Direct, CompUSA PC, 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.
F-27
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT REPORTING (CONTINUED)
DIRECT--The Direct segment is comprised of sales of products and services to
corporate, government, and education customers. In fiscal 1999, 1998, and 1997,
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. As more fully described in Note 2, the Company committed
to a plan to redesign its sales, fulfillment and configuration activities to
corporate, government, and education customers in connection with the Fourth
Quarter Initiatives.
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 mail order,
fulfillment, and retail Internet sales operations previously conducted by the
CompUSA Direct division of the Company. As more fully described in Note 2, in
the third quarter of fiscal 1999, the Company contributed the net assets of the
CompUSA Direct division to CompUSA Net.com and announced plans to change the
operations of CompUSA Net.com to an Internet-only business. As a result, the
mail order and other non-Internet sales operations previously conducted by the
CompUSA Direct division and contributed to CompUSA Net.com were phased out or
transferred to the Company beginning in the fourth quarter of fiscal 1999.
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 as described in Note 1. Intersegment sales and profits are eliminated
in the preparation of the Company's consolidated financial statements.
Net sales for training and technical services aggregated $272.3 million in
fiscal 1999, $200.9 million in fiscal 1998, and $126.9 million in fiscal 1997.
Such sales are included in the sales of the Company's segments shown below.
F-28
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT REPORTING (CONTINUED)
The following tables summarize the results of operations and other
information for the Company's segments:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 26, 1999
---------------------------------------------------------------------
DEPRECIATION
OPERATING AND CAPITAL
NET SALES INCOME (LOSS) AMORTIZATION EXPENDITURES ASSETS(1)
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail........................................... $ 4,186,079 $ 201,318 $ 27,637 $ 38,787 $ 783,683
Direct........................................... 1,896,148 (1,558) 16,741 6,487 45,142
CompUSA PC....................................... 119,022 (4,604) 410 2,208 13,237
CompUSA Net.com.................................. 252,830 (2,974) 2,154 975 17,874
------------ ------------- ------------ ------------ ------------
6,454,079 192,182 46,942 48,457 859,936
Intersegment sales............................... (132,688) -- -- -- --
Unallocated:
General and administrative expenses............ -- (170,048) 22,096 -- --
Non-recurring and restructuring charges(2)..... -- (76,350) -- -- --
Corporate assets................................. -- -- -- 36,823 605,912
------------ ------------- ------------ ------------ ------------
$ 6,321,391 $ (54,216) $ 69,038 $ 85,280 $ 1,465,848
------------ ------------- ------------ ------------ ------------
------------ ------------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 27, 1998
---------------------------------------------------------------------
DEPRECIATION
OPERATING AND CAPITAL
NET SALES INCOME (LOSS) AMORTIZATION EXPENDITURES ASSETS(1)
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail........................................... $ 3,387,579 $ 206,646 $ 20,966 $ 57,473 $ 656,325
Direct........................................... 1,698,145 33,291 9,781 26,024 65,482
CompUSA PC....................................... 66,430 (9,042) 33 252 902
CompUSA Net.com.................................. 206,783 (1,455) 2,076 1,039 35,296
------------ ------------- ------------ ------------ ------------
5,358,937 229,440 32,856 84,788 758,005
Intersegment sales............................... (72,896) -- -- -- --
Unallocated:
General and administrative expenses............ -- (116,399) 16,111 -- --
Non-recurring amortization charge.............. -- (55,885) 55,885 -- --
Corporate assets................................. -- -- -- 53,310 402,505
------------ ------------- ------------ ------------ ------------
$ 5,286,041 $ 57,156 $ 104,852 $ 138,098 $ 1,160,510
------------ ------------- ------------ ------------ ------------
------------ ------------- ------------ ------------ ------------
</TABLE>
- ------------------------
NOTES ON FOLLOWING PAGE.
F-29
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 28, 1997
-----------------------------------------
DEPRECIATION
OPERATING AND
NET SALES INCOME (LOSS) AMORTIZATION
------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Retail............................................ $ 3,002,621 $ 190,859 $ 16,714
Direct............................................ 1,420,968 51,086 6,843
CompUSA Net.com................................... 186,934 7,229 1,236
------------ ------------- ------------
4,610,523 249,174 24,793
Unallocated:
General and administrative expenses............. -- (92,183) 10,832
------------ ------------- ------------
$ 4,610,523 $ 156,991 $ 35,625
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
- ------------------------
(1) Certain assets in place in the Company's Computer Superstores are used
primarily in the operations of the Retail segment. To a lesser extent, such
assets are also used in the Direct segment operations conducted in the
Company's Computer Superstores. The Company's accounting systems do not
allow for the assets or related capital expenditures that are shared by
multiple business segments to be allocated to specific segments. As a
result, assets in place in the Company's Computer Superstores that are used
in the operations of multiple segments and the capital expenditures relating
to such assets are presented above for the Retail segment.
(2) As more fully described in Note 2, the Company incurred various
non-recurring and restructuring charges in connection with the Fiscal 1999
Initiatives. Of such charges, $39.7 million were charged to cost of sales
and occupancy costs and $15.7 million were charged to operating expenses,
which amounts were excluded from the determination of the operating income
(loss) of the Company's segments above. In addition, the Company recorded
$20.9 million of restructuring charges in fiscal 1999. Of the aggregate of
such non-recurring and restructuring charges, the Company estimates that
$11.9 million related to the Retail segment, $59.1 million related to the
Direct segment, and $4.4 million related to the CompUSA Net.com segment.
F-30
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 26, 1999:
Net sales................................................ $ 1,392,140 $ 1,776,374 $ 1,691,350 $ 1,461,527
Cost of sales and occupancy costs........................ 1,195,786 1,536,611 1,474,843 1,311,090
Gross profit............................................. 196,354 239,763 216,507 150,437
Restructuring charge .................................... -- -- -- 20,938
Operating income (loss).................................. 16,051 28,849 (2,689) (96,427)
Net income (loss)........................................ 8,140 15,571 (4,940) (64,518)
Basic earnings (loss) per share.......................... $ 0.09 $ 0.17 $ (0.05) $ (0.70)
Diluted earnings (loss) per share........................ $ 0.09 $ 0.17 $ (0.05) $ (0.70)
Weighted average common shares........................... 91,243 91,408 91,553 91,755
Weighted average common shares assuming
dilution............................................... 93,041 92,834 91,553 91,755
YEAR ENDED JUNE 27, 1998:
Net sales................................................ $ 1,191,812 $ 1,456,725 $ 1,451,819 $ 1,185,685
Cost of sales and occupancy costs........................ 1,016,213 1,241,979 1,246,634 1,035,891
Gross profit............................................. 175,599 214,746 205,185 149,794
Non-recurring amortization charge (2).................... -- -- -- 55,885
Operating income (loss).................................. 39,283 56,267 42,631 (81,025)
Net income (loss)........................................ 23,459 34,067 25,438 (51,421)
Basic earnings (loss) per share.......................... $ 0.26 $ 0.37 $ 0.28 $ (0.57)
Diluted earnings (loss) per share........................ $ 0.25 $ 0.36 $ 0.27 $ (0.57)
Weighted average common shares........................... 91,659 91,405 91,518 90,893
Weighted average common shares assuming dilution......... 95,514 95,508 94,692 90,893
</TABLE>
- ------------------------
(1) In the fourth quarter of fiscal 1999, the Company recorded non-recurring and
restructuring charges aggregating approximately $80.2 million, see Note 2 of
Notes to Consolidated Financial Statements.
(2) For a discussion of the Company's fiscal 1998 non-recurring amortization
charge, see Note 3 of Notes to Consolidated Financial Statements.
F-31
<PAGE>
COMPUSA INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED JUNE 26, 1999, JUNE 27, 1998, AND JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCES DEDUCTED FROM ACCOUNTS RECEIVABLE FOR
ESTIMATED UNCOLLECTIBLE AMOUNTS:
Fiscal year ended June 26, 1999................... $ 3,524 $ 3,432 $ -- $ 2,639 $ 4,317
Fiscal year ended June 27, 1998................... 2,883 1,601 -- 960 3,524
Fiscal year ended June 28, 1997................... 1,692 959 -- (232) 2,883
RESERVE FOR FUTURE RENTAL OBLIGATIONS, CARRYING
COSTS AND OTHER CLOSING COSTS RELATED TO
CLOSED/ABANDONED FACILITIES:
Fiscal year ended June 26, 1999................... $ -- $ 5,548 $ 29,000(a) $ 9,917(b) $ 24,631
RESERVE FOR SEVERANCE COSTS RELATED TO THE FOURTH
QUARTER INITIATIVES:
Fiscal year ended June 26, 1999................... $ -- $ 2,099 $ -- $ 1,452 $ 647
</TABLE>
- ------------------------
(a) Recorded in connection with the acquisition of Computer City.
(b) Net of $4,190 of cash received upon the assumption of certain leases by a
third party.
F-32
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and among the Company, Snowstorm Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, and PCs Compleat,
pursuant to which the Company acquired PCs Compleat, Inc.(1)
2.2 Stock Purchase Agreement dated as of June 21, 1998 ("Stock Purchase Agreement") by and between Tandy
Corporation and the Company for the purchase and sale of all outstanding capital stock of Computer
City, Inc.(2)
2.3 Amendment to Stock Purchase Agreement dated August 31, 1998.(2)
3.1 Restated and Amended Certificate of Incorporation.(3)
3.2 Restated and Amended Bylaws.(4)
4.1 Specimen Common Stock Certificate (as amended).(5)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000.(6)
4.3 Indenture dated June 17, 1993 (the "Indenture") among CompUSA Inc., as Issuer, Compudyne Products,
Inc., Compudyne Direct, Inc., CompFinance Inc., CompService Inc., as Guarantors and U.S. Trust
Company of Texas, N.A., as Trustee relating to 9 1/2% Senior Subordinated Notes Due 2000.(7)
4.4 First Supplemental Indenture dated as of December 1, 1995 among the Company, CompTeam Inc.,
CompFinance Inc., CompService Inc., and U.S. Trust Company of Texas, N.A., as Trustee.(8)
4.5 Second Supplemental Indenture dated as of February 7, 1996 among the Company, CompTeam Inc.,
CompFinance Inc., CompService Inc., CompUSA Holdings II Inc., and U.S. Trust Company of Texas,
N.A., as Trustee.(9)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., Snowstorm Merger Corp. and U.S. Trust
Company of Texas, N.A., as Trustee.(9)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc. and U.S. Trust
Company of Texas, N.A., as Trustee.(9)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996 among the Company, CompFinance Inc.,
CompService Inc., CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I
Inc., CompUSA Management Company, CompUSA Stores L.P., CompUSA Holdings Company and U.S. Trust
Company of Texas, N.A., as Trustee.(9)
4.9 Sixth Supplemental Indenture dated as of August 31, 1998 among the Company, CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA
Holdings Company, CompUSA Management Company, Computer City, Inc. and U.S. Trust Company of Texas,
N.A., as Trustee.(10)
4.10 Subsidiary Guarantees of the Company's indebtedness under the Indenture executed by CompTeam Inc.,
CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA Management Company,
CompUSA Stores L.P. and CompUSA Holdings Company.(9)
4.11 Subsidiary Guaranty dated as of August 31, 1998, of the Company's indebtedness under the Indenture
executed by Computer City, Inc.(10)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.12 Seventh Supplemental Indenture dated as of June 28, 1999 among the Company, CompTeam Inc., CompUSA
Holdings II Inc., CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA Holdings Company, CompUSA
Management Company, CompUSA PC Operating Company, CompUSA GP Holdings Company and CompUSA PC
Inc.(11)
4.13 Subsidiary Guarantee dated as of June 28, 1999, of the Company's indebtedness under the Indenture as
executed by CompUSA PC Inc.(11)
4.14 Subsidiary Guarantee dated as of June 28, 1999, of the Company's indebtedness under the Indenture as
executed by CompUSA GP Holdings Company.(11)
4.15 Subsidiary Guarantee dated as of June 28. 1999, of the Company's indebtedness under the Indenture as
executed by CompUSA PC Operating Company.(11)
4.16 Rights Agreement dated April 29, 1994, between the Company and Bank One, Texas, N.A., as Rights
Agent.(4)
4.17 Letter of the Company dated August 16, 1996, appointing American Stock Transfer & Trust Company as
substitute Rights Agent under the Rights Agreement.(9)
4.18 Subordinated Promissory Note dated August 31, 1998, in the principal amount of $136,000,000 issued in
favor of Tandy Corporation.(2)
10.1 $500,000,000 Loan and Security Agreement dated as of June 30, 1999 (the "Loan Agreement") among the
Company, CompUSA Stores L.P., certain lenders of the Company and CompUSA L.P. and NationsBank,
N.A., as administrative agent and a lender.(11)
10.2 $300,000,000 Second Amended and Restated Credit Agreement dated March 12, 1998, among the Company,
certain lenders and NationsBank, N.A. (as successor to NationsBank of Texas, N.A.), as
administrative lender (the "Credit Agreement"). (Superseded by the Loan Agreement)(12)
10.3 First Amendment to the Credit Agreement, dated June 16, 1998, among the Company, certain lenders and
NationsBank, N.A., as administrative lender. (Superseded by the Loan Agreement)(10)
10.4 Second Amendment to the Credit Agreement, dated August 31, 1998, among the Company, certain lenders
and NationsBank, N.A., as administrative lender. (Superseded by the Loan Agreement)(10)
10.5 Third Amendment to the Credit Agreement, dated effective as of March 27, 1999, among the Company,
certain lenders and NationsBank, N.A., as administrative lender. (Superseded by the Loan
Agreement)(14)
10.6 The Addison Office Lease Agreement dated September 1, 1992, between Carter-Crowley Properties, Inc.
as Landlord and CompUSA Inc. as Tenant.(13)
10.7 Form of Employment Agreement between the Company and each of J. Samuel Crowley, Rick L. Fountain, J.
Robert Gary, Ronald J. Gilmore, Harold D. Greenberg, Alann R. Hurlebaus, Melvin D. McCall, Barry C.
McCook, Lawrence N. Mondry, Honorio J. Padron, R. Stephen Polley, Paul Poyfair, Bob Sayewitz, James
E. Skinner, Mark R. Walker, and Anthony A. Weiss.(10)
10.8 Form of Employment Agreement between the Company and each of Michael D. Bryk, Jeff Dill, Richard
Foster, Ronald E. Freeman, Robert M. Howe III, Edmund G. Jurica, Jr., Leslie C. Marshall, Kellie J.
McCluskey, T. Dale Stapleton, Robert J. Verhagen, Catherine Witt, and Blake A. Wolff.(10)
10.9 Form of Employment Agreement dated as of August 16, 1996, between the Company and James F. Halpin.(9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.10 Form of Employment Agreement dated as of August 16, 1996, between the Company and Harold F.
Compton.(9)
10.11 CompSavings Plan for Employees of CompUSA Inc. Plan and Trust Agreement, as Amended and Restated
effective January 1, 1998 (the "CompSavings Plan").(10)
10.12 Amendment No. 1 to CompSavings Plan dated September 1, 1998.(14)
10.13 Amendment No. 2 to CompSavings Plan dated May 3, 1999.(11)
10.14 Amended and Restated CompUSA Inc. Deferred Compensation Plan (the "Deferred Compensation Plan").(5)
10.15 Amendment No. 1 to Deferred Compensation Plan dated November 23, 1998.(11)
10.16 CompUSA Inc. Long-Term Incentive Plan.(15)
10.17 PCs Compleat, Inc. 1991 Stock Option Plan.(16)
10.18 CompUSA Inc. Officers' Bonus Plan.(10)
10.19 CompUSA Inc. Nonstatutory Option Plan.(11)
10.20 CompUSA Inc. Supplemental Bonus and Retention Plan.(11)
10.21 CompUSA Inc. Restricted Stock Plan.(11)
10.22 Products and Services Agreement dated effective as of August 28, 1999, between the Company and Ingram
Micro Inc. (Portions of this exhibit have been excluded pursuant to a request for confidential
treatment.)(11)
21 Subsidiaries.(11)
23 Consent of Ernst & Young LLP.(11)
27 Financial Data Schedule.(17)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996.
(2) Previously filed as an exhibit to the Company's Report on Form 8-K filed on
September 15, 1998, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 27, 1997, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996, and incorporated
herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Registration Statement No.
33-62884 on Form S-3 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996, and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1996, and incorporated herein by
reference.
NOTES CONTINUED ON FOLLOWING PAGE.
<PAGE>
NOTES CONTINUED FROM PRECEDING PAGE.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 27, 1998, and incorporated herein by
reference.
(11) Filed herewith.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1998, and incorporated herein
by reference.
(13) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended June 27, 1992, and incorporated
herein by reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 27, 1999, and incorporated herein
by reference.
(15) Previously filed as an exhibit to the Company's Registration Statement No.
333-18033 on Form S-8 and incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Registration Statement No.
333-06235 on Form S-8 and incorporated herein by reference.
(17) Included with EDGAR version only.
<PAGE>
COMPUSA INC.,
as Issuer,
COMPTEAM INC.
COMPUSA HOLDINGS II INC.
COMPUSA HOLDINGS I INC.
COMPUSA STORES L.P.
COMPUSA HOLDINGS COMPANY
COMPUSA MANAGEMENT COMPANY
COMPUSA PC OPERATING COMPANY
COMPUSA GP HOLDINGS COMPANY
and
COMPUSA PC INC.
as Guarantors,
and
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
-----------
SEVENTH SUPPLEMENTAL INDENTURE
Dated as of June 28, 1999
- --------------------------------------------------------------------------------
Supplement to Indenture dated as of June 17, 1993, among CompUSA
Inc., as Issuer, Compudyne Products, Inc., Compudyne Direct, Inc.,
CompFinance Inc., and CompService Inc., as Guarantors, and U.S. Trust Company
of Texas, N.A., as Trustee, relating to CompUSA Inc.'s $110,000,000 principal
amount of 9 1/2% Senior Subordinated Notes due 2000
- --------------------------------------------------------------------------------
<PAGE>
SEVENTH SUPPLEMENTAL INDENTURE
SEVENTH SUPPLEMENTAL INDENTURE, dated as of June 28, 1999, among
CompUSA Inc., a corporation duly organized and existing under the laws of the
State of Delaware (the "Issuer"), CompUSA Management Company, CompUSA Holdings
Company, CompUSA PC Operating Company and CompUSA GP Holdings Company, each a
business trust duly organized and existing under the laws of the State of
Delaware, CompUSA Stores L.P., a limited partnership duly organized and existing
under the laws of the State of Texas, and CompTeam Inc., CompUSA Holdings II
Inc., CompUSA Holdings I Inc. and CompUSA PC Inc., all corporations duly
organized and existing under the laws of the State of Delaware (collectively,
the "Guarantors"), and U.S. Trust Company of Texas, N.A., a national banking
association duly organized and existing under the laws of the United States (the
"Trustee"), as Trustee under the Indenture hereinafter mentioned.
WITNESSETH:
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., Compudyne
Products, Inc. and Compudyne Direct, Inc. heretofore executed and delivered to
the Trustee an Indenture dated as of June 17, 1993 (the "Indenture"), providing
for the issuance of $110,000,000 principal amount of the Issuer's 9 1/2% Senior
Subordinated Notes due 2000 (the "Securities"); and
WHEREAS, Compudyne Products, Inc. and Compudyne Direct, Inc. have been
merged with and into the Issuer and are therefore no longer in existence; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc. and CompTeam
Inc. heretofore executed and delivered to the Trustee the First Supplemental
Indenture dated as of December 1, 1995, by which CompTeam Inc. was added as a
Guarantor of the Indenture; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.
and CompUSA Holdings II Inc. heretofore executed and delivered to the Trustee
the Second Supplemental Indenture dated as of February 7, 1996, by which CompUSA
Holdings II Inc. was added as a Guarantor of the Indenture; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II Inc. and Snowstorm Merger Corp. heretofore executed and
delivered to the Trustee the Third Supplemental Indenture dated as of May 14,
1996, by which Snowstorm Merger Corp. was added as a Guarantor of the Indenture;
and
WHEREAS, Snowstorm Merger Corp. has been merged with and into PCs
Compleat, Inc. and is therefore no longer in existence; and
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II Inc. and PCs Compleat, Inc. heretofore executed and
delivered to the Trustee the Fourth Supplemental Indenture dated as of May 30,
1996, by which PCs Compleat, Inc. was added as a Guarantor of the Indenture; and
<PAGE>
WHEREAS, the Issuer, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II, Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA
Stores L.P., CompUSA Holdings Company and CompUSA Management Company heretofore
executed and delivered to the Trustee the Fifth Supplemental Indenture dated as
of June 14, 1996, by which CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA
Holdings Company and CompUSA Management Company were added as Guarantors of the
Indenture; and
WHEREAS, CompService Inc. has been merged with and into CompFinance
Inc. and CompFinance Inc. has been merged with and into the Issuer, and
CompService Inc. and CompFinance Inc. are therefore no longer in existence; and
WHEREAS, the Issuer, CompTeam Inc., CompUSA Holdings II, Inc., PCs
Compleat, Inc., CompUSA Holdings I Inc., CompUSA Stores L.P., CompUSA Holdings
Company and CompUSA Management Company heretofore executed and delivered to the
Trustee the Sixth Supplemental Indenture dated as of August 31, 1998, by which
Computer City, Inc., a Delaware corporation, was added as a Guarantor; and
WHEREAS, PCs Compleat, Inc. has been merged with and into Issuer and
Computer City, Inc. has been merged with and into CompUSA Holdings Company, and
PCs Compleat, Inc. and Computer City, Inc. are therefore no longer in existence;
and
WHEREAS, CompUSA GP Holdings Company and CompUSA PC Inc. are now wholly
owned subsidiaries of the Issuer and CompUSA PC Operating Company is now a
wholly owned subsidiary of CompUSA PC Inc.; and
WHEREAS, CompUSA GP Holdings Company, CompUSA PC Inc. and CompUSA PC
Operating Company wish to guarantee Issuer's obligations with respect to the
repayment of the Securities; and
WHEREAS, Section 9.01 of Indenture, "Amendment -- Without Consent of
Securityholders", provides that provisions of the Indenture may be amended or
supplemented without the consent of the Holders with respect to certain matters
therein identified; and
WHEREAS, all conditions necessary to authorize the execution and
delivery of this Seventh Supplemental Indenture and to make this Seventh
Supplemental Indenture valid and binding have been complied with or have been
done or performed;
NOW, THEREFORE, in consideration of the above premises, and in
accordance with the terms of the Indenture, the Issuer, the Guarantors and the
Trustee agree as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01. For all purposes of the Indenture and this Seventh
Supplemental Indenture, except as otherwise expressly provided or unless the
context otherwise requires:
-2-
<PAGE>
(a) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to the Indenture and this Seventh
Amendment to Indenture as a whole and not to any particular Article,
Section or subdivision; and
(b) capitalized terms used but not defined herein shall have
the meanings assigned to them in the Indenture.
ARTICLE TWO
AMENDMENT AND SUPPLEMENT
SECTION 2.01. The definition of "Guarantor," which follows the
definition of "Guarantee" in Section 1.01 of the Indenture, is hereby deleted
and replaced with the following new definition:
"Guarantor" means each of CompTeam Inc., CompUSA Holding II Inc.,
CompUSA Holdings I Inc., CompUSA Management Company, CompUSA Stores
L.P., CompUSA Holdings Company, CompUSA PC Operating Company, CompUSA
GP Holdings Company, CompUSA PC Inc. and any other direct or indirect
Subsidiary of the Company that executes a Subsidiary Guarantee after
the date hereof, and their respective successors or assigns.
SECTION 2.02. CompUSA PC Operating Company, CompUSA GP Holdings Company
and CompUSA PC Inc. hereby agree to be bound by all of the terms and conditions
of the Indenture as a Guarantor and to execute such documents, including without
limitation a written Subsidiary Guarantee, as shall be necessary to evidence its
status as a Guarantor.
ARTICLE THREE
MISCELLANEOUS
SECTION 3.01. Except as amended by the First Supplemental Indenture,
the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth
Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental
Indenture and this Seventh Supplemental Indenture, the Indenture remains in full
force and effect in accordance with its terms.
SECTION 3.02. The Trustee accepts the modification of the Indenture
effected by this Seventh Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture. Without limiting the generality of the
foregoing, the Trustee assumes no responsibility for the correctness of the
recitals herein contained, which shall be taken as the statements of the Issuer.
The Trustee makes no representation and shall have no responsibility as to the
validity of this Seventh Supplemental Indenture.
SECTION 3.03. In case any provision in this Seventh Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Seventh Supplemental
Indenture or the Indenture shall not in any way be affected or impaired thereby.
-3-
<PAGE>
SECTION 3.04. This Seventh Supplemental Indenture shall be governed by
and construed in accordance with the laws of the jurisdiction which governs the
Indenture and its construction.
SECTION 3.05. This Seventh Supplemental Indenture may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same instrument.
SECTION 3.06. The address for any notice or communication to CompUSA PC
Operating Company, CompUSA GP Holdings Company or CompUSA PC Inc. is:
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: President
IN WITNESS WHEREOF, the Issuer, the Guarantors and the Trustee have
caused their names to be signed hereto by their respective officers thereunto
duly authorized and their respective corporate seals, duly attested, to be
hereunto duly affixed, all as of the day and the year first above written.
CompUSA Inc.
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Sr. Vice President - Chief Financial
Officer
/s/ Mark Walker
- ----------------------
CompTeam Inc.
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
-4-
<PAGE>
CompUSA Holdings II Inc.
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
CompUSA Holdings I Inc.
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
CompUSA Stores L.P.
[SEAL] By: CompUSA Inc., General Partner
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Sr. Vice President - Chief Financial
Officer
/s/ Mark Walker
- ----------------------
CompUSA Holdings Company
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
CompUSA Management Company
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
-5-
<PAGE>
CompUSA PC Operating Company
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
CompUSA PC Inc.
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
CompUSA GP Holdings Company
[SEAL]
By:/s/ Robert Gary
-------------------------------------------
Attest: Name:
Title: Vice President - Controller
/s/ Mark Walker
- ----------------------
U.S. Trust Company of Texas, N.A.,
[SEAL] as Trustee
By:/s/ MELISSA SCOTT
-------------------------------------------
Attest: Name:
Title: Vice President
/s/ John C. Stohlmann
- ----------------------
Vice President
-6-
<PAGE>
SUBSIDIARY GUARANTEE
CompUSA PC Inc., a Delaware corporation ("Guarantor"), hereby executes
this Subsidiary Guarantee (this "Subsidiary Guarantee") on behalf of its sole
stockholder, CompUSA Inc., a Delaware corporation (the "Company") in connection
with that certain Indenture (the "Indenture") dated as of June 17, 1993, among
the Company, certain of its subsidiaries (collectively, with the Guarantor, the
"Guarantors") and U.S. Trust Company of Texas, N.A. (the "Trustee"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Securities and the obligations of the Company thereunder, that:
(a) the principal of and interest on the Securities will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Securities, if any,
if lawful, and all other obligations of the Company to the Securityholders or
the Trustee under the Indenture and the Securities will be promptly paid in full
or performed, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantor will be jointly and severally obligated (together with the other
Guarantors) to pay the same immediately. The Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or the Indenture, the absence of
any action to enforce the same, any waiver or consent by any Securityholder with
respect to any provisions thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance that might
otherwise constitute a legal or equitable discharge or defense of the Guarantor.
The Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Subsidiary Guarantee will not be
discharged except by complete performance of the obligations contained in the
Securities and the Indenture. If any Securityholder or the Trustee is required
by any court or otherwise to return to the Company or any Guarantor, or any
Custodian, Trustee, liquidator or other similar official acting in relation to
either the Company or the Guarantors, any amount paid by either to the Trustee
or such Securityholder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. The Guarantor agrees
that it shall not be entitled to any right of subrogation in relation to the
Securityholders in respect of any obligations guaranteed hereby until payment in
full of all obligations guaranteed hereby. The Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Securityholders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed thereunder, and (y) in the event of any declaration of acceleration
of such obligations as provided in Article 6 of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary Guarantee. The Guarantor shall
have the right to seek
<PAGE>
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Securityholders under this Subsidiary
Guarantee.
The Guarantor agrees to pay any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing
any rights under this Subsidiary Guarantee; PROVIDED, HOWEVER, that the maximum
liability of the Guarantor pursuant to this Subsidiary Guarantee shall be
limited by the following paragraph.
The Guarantor hereby confirms that it is the intention of all parties
that the guarantee by the Guarantor pursuant to this Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law. To effectuate the foregoing intention, the
Guarantor hereby irrevocably agrees that the obligations of such Guarantor under
this Subsidiary Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of the Guarantor and
after giving effect to any collection from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Subsidiary Guarantee, result in the obligations of the Guarantor under this
Subsidiary Guarantee not constituting such fraudulent transfer or conveyance.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Guarantor shall have any personal liability under this
Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
This Subsidiary Guarantee shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any transfer
or assignment of rights by any Securityholder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
The obligations of the Guarantor to the Securityholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
subordinated to the extent set forth in Article 11 of the Indenture and
reference is hereby made to such Indenture for the precise terms of such
subordination.
Concurrently with a sale or other disposition of assets or all of the
capital stock of the Guarantor in compliance with the terms and conditions set
forth in the Indenture, including Sections 4.10 and 11.04 thereof, such assets
shall automatically be released from any Liens in favor of the Trustee and, if
the assets sold or otherwise disposed of include all or substantially all of the
assets of the Guarantor or all of the capital stock of the Guarantor, then the
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Guarantor) or the purchaser of the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) shall automatically be released from and relieved of any obligations
under the Subsidiary Guarantee without any action required on the part of the
Trustee or any Securityholder.
-2-
<PAGE>
EXECUTED as of the 28th day of June, 1999.
CompUSA PC Inc.
By: /s/ Mark R. Walker
----------------------------
Name:
Title: Sr. Vice President, General Counsel &
Secretary
-3-
<PAGE>
SUBSIDIARY GUARANTEE
CompUSA GP Holdings Company, a Delaware business trust ("Guarantor"),
hereby executes this Subsidiary Guarantee (this "Subsidiary Guarantee") on
behalf of its sole shareholder, CompUSA Inc., a Delaware corporation, in
connection with that certain Indenture (the "Indenture") dated as of June 17,
1993, among CompUSA Inc., a Delaware corporation (the "Company"), certain of its
subsidiaries (collectively, with the Guarantor, the "Guarantors") and U.S. Trust
Company of Texas, N.A. (the "Trustee"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Indenture.
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Securities and the obligations of the Company thereunder, that:
(a) the principal of and interest on the Securities will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Securities, if any,
if lawful, and all other obligations of the Company to the Securityholders or
the Trustee under the Indenture and the Securities will be promptly paid in full
or performed, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantor will be jointly and severally obligated (together with the other
Guarantors) to pay the same immediately. The Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or the Indenture, the absence of
any action to enforce the same, any waiver or consent by any Securityholder with
respect to any provisions thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance that might
otherwise constitute a legal or equitable discharge or defense of the Guarantor.
The Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Subsidiary Guarantee will not be
discharged except by complete performance of the obligations contained in the
Securities and the Indenture. If any Securityholder or the Trustee is required
by any court or otherwise to return to the Company or any Guarantor, or any
Custodian, Trustee, liquidator or other similar official acting in relation to
either the Company or the Guarantors, any amount paid by either to the Trustee
or such Securityholder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. The Guarantor agrees
that it shall not be entitled to any right of subrogation in relation to the
Securityholders in respect of any obligations guaranteed hereby until payment in
full of all obligations guaranteed hereby. The Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Securityholders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed thereunder, and (y) in the event of any declaration of acceleration
of such obligations as provided in Article 6 of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary Guarantee. The Guarantor shall
have the right to seek
<PAGE>
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Securityholders under this Subsidiary
Guarantee.
The Guarantor agrees to pay any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing
any rights under this Subsidiary Guarantee; PROVIDED, HOWEVER, that the maximum
liability of the Guarantor pursuant to this Subsidiary Guarantee shall be
limited by the following paragraph.
The Guarantor hereby confirms that it is the intention of all parties
that the guarantee by the Guarantor pursuant to this Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law. To effectuate the foregoing intention, the
Guarantor hereby irrevocably agrees that the obligations of such Guarantor under
this Subsidiary Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of the Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Subsidiary Guarantee, result in the obligations of the Guarantor under this
Subsidiary Guarantee not constituting such fraudulent transfer or conveyance.
No stockholder, officer or trustee, as such, past, present or future,
of the Guarantor shall have any personal liability under this Subsidiary
Guarantee by reason of his or its status as such stockholder, officer or
trustee.
This Subsidiary Guarantee shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any transfer
or assignment of rights by any Securityholder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
The obligations of the Guarantor to the Securityholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
subordinated to the extent set forth in Article 11 of the Indenture and
reference is hereby made to such Indenture for the precise terms of such
subordination.
Concurrently with a sale or other disposition of assets or all of the
capital stock of the Guarantor in compliance with the terms and conditions set
forth in the Indenture, including Sections 4.10 and 11.04 thereof, such assets
shall automatically be released from any Liens in favor of the Trustee and, if
the assets sold or otherwise disposed of include all or substantially all of the
assets of the Guarantor or all of the capital stock of the Guarantor, then the
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Guarantor) or the purchaser of the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) shall automatically be released from and relieved of any obligations
under the Subsidiary Guarantee without any action required on the part of the
Trustee or any Securityholder.
-2-
<PAGE>
EXECUTED as of the 28th day of June, 1999.
CompUSA GP Holdings Company
By: /s/ Mark R. Walker
----------------------------
Name:
Title: Sr. Vice President, General Counsel &
Secretary
-3-
<PAGE>
SUBSIDIARY GUARANTEE
CompUSA PC Operating Company, a Delaware business trust ("Guarantor"),
hereby executes this Subsidiary Guarantee (this "Subsidiary Guarantee") on
behalf of its ultimate parent entity, CompUSA Inc., a Delaware corporation, in
connection with that certain Indenture (the "Indenture") dated as of June 17,
1993, among CompUSA Inc., a Delaware corporation (the "Company"), certain of its
subsidiaries (collectively, with the Guarantor, the "Guarantors") and U.S. Trust
Company of Texas, N.A. (the "Trustee"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Indenture.
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Securities and the obligations of the Company thereunder, that:
(a) the principal of and interest on the Securities will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Securities, if any,
if lawful, and all other obligations of the Company to the Securityholders or
the Trustee under the Indenture and the Securities will be promptly paid in full
or performed, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantor will be jointly and severally obligated (together with the other
Guarantors) to pay the same immediately. The Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or the Indenture, the absence of
any action to enforce the same, any waiver or consent by any Securityholder with
respect to any provisions thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance that might
otherwise constitute a legal or equitable discharge or defense of the Guarantor.
The Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Subsidiary Guarantee will not be
discharged except by complete performance of the obligations contained in the
Securities and the Indenture. If any Securityholder or the Trustee is required
by any court or otherwise to return to the Company or any Guarantor, or any
Custodian, Trustee, liquidator or other similar official acting in relation to
either the Company or the Guarantors, any amount paid by either to the Trustee
or such Securityholder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. The Guarantor agrees
that it shall not be entitled to any right of subrogation in relation to the
Securityholders in respect of any obligations guaranteed hereby until payment in
full of all obligations guaranteed hereby. The Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Securityholders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed thereunder, and (y) in the event of any declaration of acceleration
of such obligations as provided in Article 6 of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary Guarantee. The Guarantor shall
have the right to seek
<PAGE>
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Securityholders under this Subsidiary
Guarantee.
The Guarantor agrees to pay any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing
any rights under this Subsidiary Guarantee; PROVIDED, HOWEVER, that the maximum
liability of the Guarantor pursuant to this Subsidiary Guarantee shall be
limited by the following paragraph.
The Guarantor hereby confirms that it is the intention of all parties
that the guarantee by the Guarantor pursuant to this Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law. To effectuate the foregoing intention, the
Guarantor hereby irrevocably agrees that the obligations of such Guarantor under
this Subsidiary Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of the Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Subsidiary Guarantee, result in the obligations of the Guarantor under this
Subsidiary Guarantee not constituting such fraudulent transfer or conveyance.
No stockholder, officer or trustee, as such, past, present or future,
of the Guarantor shall have any personal liability under this Subsidiary
Guarantee by reason of his or its status as such stockholder, officer or
trustee.
This Subsidiary Guarantee shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any transfer
or assignment of rights by any Securityholder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
The obligations of the Guarantor to the Securityholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
subordinated to the extent set forth in Article 11 of the Indenture and
reference is hereby made to such Indenture for the precise terms of such
subordination.
Concurrently with a sale or other disposition of assets or all of the
capital stock of the Guarantor in compliance with the terms and conditions set
forth in the Indenture, including Sections 4.10 and 11.04 thereof, such assets
shall automatically be released from any Liens in favor of the Trustee and, if
the assets sold or otherwise disposed of include all or substantially all of the
assets of the Guarantor or all of the capital stock of the Guarantor, then the
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Guarantor) or the purchaser of the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) shall automatically be released from and relieved of any obligations
under the Subsidiary Guarantee without any action required on the part of the
Trustee or any Securityholder.
-2-
<PAGE>
EXECUTED as of the 28th day of June, 1999.
CompUSA PC Operating Company
By: /s/ Mark R. Walker
----------------------------
Name:
Title: Sr. Vice President, General Counsel &
Secretary
-3-
<PAGE>
BANK OF AMERICA
BANK OF AMERICA BUSINESS CREDIT
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
among
COMPUSA STORES L.P.
THE OTHER LOAN PARTIES FROM TIME TO TIME PARTY HERETO
NATIONSBANK, N.A.
as
ADMINISTRATIVE AGENT
and a Lender
and
CONGRESS FINANCIAL CORPORATION
as
DOCUMENTATION AGENT
and
THE CHASE MANHATTAN BANK
and
FOOTHILL CAPITAL CORPORATION
AS CO-AGENTS
and
THE OTHER LENDERS, IF ANY, FROM TIME TO TIME PARTY HERETO
Dated as of June 30, 1999
NATIONSBANK, N.A.
LEAD ARRANGER AND SOLE BOOK RUNNER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 1 - DEFINITIONS..........................................................................1
Section 1.1 DEFINITIONS...........................................................1
Section 1.2 GENERAL..............................................................43
Section 1.3 EXHIBITS AND SCHEDULES...............................................44
ARTICLE 2 - REVOLVING CREDIT FACILITY...........................................................44
Section 2.1 REVOLVING CREDIT LOANS...............................................44
Section 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS...........................44
Section 2.3 REPAYMENT OF REVOLVING CREDIT LOANS..................................46
Section 2.4 REVOLVING CREDIT NOTE................................................46
Section 2.5 BORROWING BASE.......................................................46
Section 2.6 EXTENSION OF REVOLVING CREDIT FACILITY...............................47
ARTICLE 3 - LETTER OF CREDIT FACILITY...........................................................47
Section 3.1 AGREEMENT TO ISSUE...................................................47
Section 3.2 AMOUNTS..............................................................47
Section 3.3 CONDITIONS...........................................................47
Section 3.4 ISSUANCE OF LETTERS OF CREDIT........................................48
Section 3.5 DUTIES OF L/C ISSUER.................................................49
Section 3.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS.................................49
Section 3.7 PARTICIPATIONS.......................................................50
Section 3.8 INDEMNIFICATION, EXONERATION.........................................51
Section 3.9 L/C CASH COLLATERAL ACCOUNT..........................................53
Section 3.10 SUPPORTING LETTER OF CREDIT..........................................55
Section 3.11 EXISTING LETTERS OF CREDIT...........................................55
ARTICLE 4 - RESERVED............................................................................55
ARTICLE 5 - GENERAL LOAN PROVISIONS.............................................................55
Section 5.1 PROCEDURE FOR BORROWING AND DISBURSEMENT OF LOANS....................55
Section 5.2 INTEREST.............................................................56
Section 5.3 INTEREST RATE OPTION.................................................57
Section 5.4 CERTAIN FEES.........................................................58
Section 5.5 MANNER OF PAYMENT....................................................59
Section 5.6 GENERAL..............................................................59
Section 5.7 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT.................................59
Section 5.8 TERMINATION OF AGREEMENT.............................................60
Section 5.9 MAKING OF LOANS......................................................60
Section 5.10 SETTLEMENT AMONG LENDERS.............................................62
Section 5.11 MANDATORY PREPAYMENTS................................................65
Section 5.12 PREPAYMENT AND TERMINATION...........................................65
i
<PAGE>
ARTICLE 6 - CHANGE OF CIRCUMSTANCES.............................................................66
Section 6.1 INCREASED COST AND REDUCED RETURN....................................66
Section 6.2 LIMITATION ON TYPES OF LOANS.........................................67
Section 6.3 ILLEGALITY...........................................................68
Section 6.4 TREATMENT OF AFFECTED LOANS..........................................68
Section 6.5 COMPENSATION.........................................................69
Section 6.6 TAXES................................................................69
ARTICLE 7 - CONDITIONS PRECEDENT................................................................71
Section 7.1 CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT..................71
Section 7.2 ALL LOANS; ISSUANCE OF LETTERS OF CREDIT.............................75
ARTICLE 8 - REPRESENTATIONS AND WARRANTIES......................................................76
Section 8.1 REPRESENTATIONS AND WARRANTIES.......................................76
Section 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC......................87
ARTICLE 9 - SECURITY............................................................................88
Section 9.1 SECURITY INTEREST....................................................88
Section 9.2 PERFECTION AND CONTINUED PRIORITY OF SECURITY INTEREST...............89
Section 9.3 GUARANTIES; LOAN PARTY JOINDER.......................................90
Section 9.4 LIMITATION IN RESPECT OF CERTAIN LOAN PARTIES........................90
ARTICLE 10 - COLLATERAL COVENANTS...............................................................91
Section 10.1 COLLECTION OF RECEIVABLES............................................91
Section 10.2 VERIFICATION AND NOTIFICATION........................................92
Section 10.3 DISPUTES, RETURNS AND ADJUSTMENTS....................................92
Section 10.4 INVOICES.............................................................92
Section 10.5 DELIVERY OF INSTRUMENTS..............................................93
Section 10.6 SALES OF INVENTORY...................................................93
Section 10.7 OWNERSHIP AND DEFENSE OF TITLE.......................................93
Section 10.8 INSURANCE............................................................93
Section 10.9 LOCATION OF OFFICES AND COLLATERAL...................................94
Section 10.10 RECORDS RELATING TO COLLATERAL.......................................94
Section 10.11 INSPECTION; APPRAISALS...............................................95
Section 10.12 INFORMATION AND REPORTS..............................................96
Section 10.13 POWER OF ATTORNEY....................................................97
Section 10.14 ADDITIONAL REAL ESTATE AND LEASES....................................98
Section 10.15 ASSIGNMENT OF CLAIMS ACT.............................................98
Section 10.16 VOTING RIGHTS, DISTRIBUTIONS, ETC., IN RESPECT OF
INVESTMENT PROPERTY.................................................................98
ARTICLE 11 - AFFIRMATIVE COVENANTS..............................................................99
Section 11.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS.......................99
Section 11.2 COMPLIANCE WITH APPLICABLE LAW.....................................100
ii
<PAGE>
Section 11.3 MAINTENANCE OF PROPERTY.............................................100
Section 11.4 CONDUCT OF BUSINESS.................................................100
Section 11.5 INSURANCE...........................................................100
Section 11.6 PAYMENT OF TAXES AND CLAIMS.........................................100
Section 11.7 ACCOUNTING METHODS AND FINANCIAL RECORDS............................101
Section 11.8 USE OF PROCEEDS.....................................................101
Section 11.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS..........101
ARTICLE 12 - INFORMATION.......................................................................102
Section 12.1 FINANCIAL STATEMENTS................................................102
Section 12.2 RESERVED............................................................103
Section 12.3 OFFICER'S CERTIFICATE...............................................103
Section 12.4 COPIES OF OTHER REPORTS.............................................104
Section 12.5 NOTICE OF LITIGATION AND OTHER MATTERS..............................104
Section 12.6 ERISA...............................................................105
Section 12.7 ACCURACY OF INFORMATION.............................................106
Section 12.8 REVISIONS OR UPDATES TO SCHEDULES...................................106
Section 12.9 YEAR 2000 COMPLIANCE................................................106
Section 12.10 ANNUAL PROJECTIONS..................................................106
ARTICLE 13 - NEGATIVE COVENANTS................................................................106
Section 13.1 FIXED CHARGE COVERAGE RATIO. ......................................107
Section 13.2 INDEBTEDNESS........................................................107
Section 13.3 GUARANTIES..........................................................108
Section 13.4 INVESTMENTS.........................................................108
Section 13.5 RESTRICTED DIVIDEND PAYMENTS, RESTRICTED PAYMENTS AND RESTRICTED
PURCHASES..........................................................................108
Section 13.6 LIQUIDATION, DISPOSITION OR ACQUISITION OF ASSETS, MERGER, NEW
SUBSIDIARIES.......................................................................108
Section 13.7 TRANSACTIONS WITH AFFILIATES........................................110
Section 13.8 LIENS...............................................................110
Section 13.9 CAPITAL EXPENDITURES. .............................................110
Section 13.10 PLANS...............................................................110
Section 13.11 SALES AND LEASEBACKS................................................111
ARTICLE 14 - DEFAULT...........................................................................112
Section 14.1 EVENTS OF DEFAULT...................................................112
Section 14.2 REMEDIES............................................................115
Section 14.3 APPLICATION OF PROCEEDS.............................................118
Section 14.4 POWER OF ATTORNEY...................................................118
Section 14.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES........................119
Section 14.6 REGISTRATION RIGHTS; PRIVATE SALES; ETC.............................120
ARTICLE 15 - ASSIGNMENTS.......................................................................122
iii
<PAGE>
Section 15.1 ASSIGNMENTS AND PARTICIPATIONS......................................122
Section 15.2 REPRESENTATION OF LENDERS...........................................123
ARTICLE 16 - AGREEMENTS AMONG CREDIT PARTIES...................................................124
Section 16.1 APPOINTMENT, POWERS, AND IMMUNITIES.................................124
Section 16.2 RELIANCE BY AGENT...................................................125
Section 16.3 DEFAULTS............................................................125
Section 16.4 RIGHTS AS LENDER....................................................125
Section 16.5 LIMITATION OF LIABILITY; INDEMNIFICATION............................126
Section 16.7 LENDER CREDIT DECISION; NON-RELIANCE ON AGENT AND OTHER LENDERS.....127
Section 16.8 RESIGNATION OF AGENT................................................127
ARTICLE 17 - MISCELLANEOUS.....................................................................128
Section 17.1 NOTICES.............................................................128
Section 17.2 EXPENSES............................................................128
Section 17.3 STAMP AND OTHER TAXES...............................................130
Section 17.4 RIGHT OF SET-OFF; ADJUSTMENTS.......................................130
Section 17.5 LITIGATION; WAIVER OF TRIAL BY JURY.................................131
Section 17.6 CONSENT TO ADVERTISING AND PUBLICITY................................131
Section 17.7 REVERSAL OF PAYMENTS................................................132
Section 17.8 INJUNCTIVE RELIEF...................................................132
Section 17.9 ACCOUNTING MATTERS..................................................132
Section 17.10 AMENDMENTS; WAIVERS.................................................132
Section 17.11 ASSIGNMENT..........................................................134
Section 17.12 PERFORMANCE OF DUTIES...............................................134
Section 17.13 INDEMNIFICATION.....................................................134
Section 17.14 ALL POWERS COUPLED WITH INTEREST....................................135
Section 17.15 SURVIVAL............................................................135
Section 17.16 TITLES AND CAPTIONS.................................................136
Section 17.17 SEVERABILITY OF PROVISIONS..........................................136
Section 17.18 GOVERNING LAW.......................................................136
Section 17.19 COUNTERPARTS........................................................136
Section 17.20 REPRODUCTION OF DOCUMENTS...........................................136
Section 17.21 TERM OF AGREEMENT...................................................137
Section 17.22 PRO-RATA PARTICIPATION..............................................137
Section 17.23 INTEREST LIMITATION.................................................138
Section 17.24 MUTUAL BENEFIT......................................................138
Section 17.25 EXPRESS WAIVERS BY LOAN PARTIES IN RESPECT OF CROSS GUARANTIES AND
CROSS COLLATERALIZATION............................................................139
Section 17.26 DETERMINATION BY THE LENDERS CONCLUSIVE AND BINDING.................140
Section 17.27 EXCEPTION TO COVENANTS..............................................141
Section 17.28 JUDGMENT CURRENCY...................................................141
Section 17.29 REPLACEMENT/RESTATEMENT OF EXISTING CREDIT AGREEMENT................141
</TABLE>
iv
<PAGE>
EXHIBITS
EXHIBIT "A" Form of Revolving Credit Note
- -----------
EXHIBIT "B" Reserved
- -----------
EXHIBIT "C" Form of Borrowing Base Certificate
- -----------
EXHIBIT "D" Form of Assignment and Acceptance
- -----------
EXHIBIT "E" Form of Notice of Borrowing, Conversion or Continuation
- -----------
EXHIBIT "F" Form of Compliance Certificate
- -----------
EXHIBIT "G" Form of Joinder Agreement
- -----------
SCHEDULES
Schedule 1.1A Existing Letters of Credit
Schedule 1.1B Parent's Investment Policy
Schedule 1.1C Permitted Investments
Schedule 1.1D Permitted Liens
Schedule 8.1(a) Organization, Qualifications
Schedule 8.1(d) Subsidiaries; Ownership of Stock
Schedule 8.1(f) No Conflicts
Schedule 8.1(h) Governmental Approvals; Applicable Law
Schedule 8.1(i) Title to Properties
Schedule 8.1(k) Indebtedness for Money Borrowed and Guaranties
Schedule 8.1(l) Litigation
Schedule 8.1(m) Tax Returns and Payments
Schedule 8.1(o) Material Liabilities
Schedule 8.1(q) ERISA
Schedule 8.1(u) FIT No.; Location of Chief Executive Office; Records
Schedule 8.1(v) Location of Inventory
Schedule 8.1(y) Corporate Name
Schedule 8.1(bb) Employee Relations
Schedule 8.1(cc) Proprietary Rights
Schedule 8.1(dd) Trade Names
Schedule 8.1(gg) Existing Store Locations
Schedule 8.1(hh) Deposit Accounts and Merchant Account Agreements
Schedule 9.2 Purchase Money Liens
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT"), dated as of June 30,
1999 is executed and entered into by and among COMPUSA STORES L.P., a Texas
limited partnership ("BORROWER"), COMPUSA INC., a Delaware corporation
("PARENT") and each of the other Loan Parties (as defined hereinbelow) from
time to time party hereto (Borrower, Parent and each such other Loan Party,
individually a "LOAN PARTY" and collectively the "LOAN PARTIES"), each of the
lending institutions which is a party hereto or any permitted successor or
assignee thereof permitted pursuant to SECTION 15.1 (individually, a "LENDER"
and collectively, the "LENDERS"), the L/C Issuer (as such term is defined
herein) and NATIONSBANK, N.A., a national banking association, as
administrative agent for itself and the other Lenders (in such capacity,
together with its successors and assigns in such capacity, "AGENT").
RECITALS:
A. Borrower has requested that the Lenders extend a credit
facility to Borrower for revolving loans and letters of credit.
B. The Lenders have agreed to provide such loan facilities
upon and subject to the terms and conditions set forth in this Agreement and
the other Loan Documents (as defined below).
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"ACCOUNTS" means, with respect to a Person, all of such Person's now
owned and hereafter acquired rights to payment for goods sold or leased or
for services rendered which is not evidenced by an instrument or chattel
paper, whether or not it has been earned by performance, and any other
property or interest in property that is classified as an account pursuant to
the UCC.
"ACCOUNT DEBTOR" means a Person who is obligated on a Receivable.
"ACQUIRE" or "ACQUISITION", as to a Loan Party or Restricted
Subsidiary, means any transaction pursuant to which such Loan Party or
Restricted Subsidiary, (a) whether by means of a capital contribution or
purchase or other acquisition of Capital Stock, (i) acquires (or after giving
effect to such transaction owns) more than 50% of the Capital Stock in any
other Person pursuant to a solicitation by such Loan Party or Restricted
Subsidiary of tenders of equity securities of such
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE>
Person, or through one or more negotiated block, market, private or other
transactions (other than formation and capitalization of a new Wholly-Owned
Subsidiary of such Loan Party or Restricted Subsidiary), or a combination of
any of the foregoing, or (ii) makes any Person a Subsidiary of such Loan
Party or Restricted Subsidiary, or causes any Person, other than a Loan Party
or Restricted Subsidiary, to be merged into such Loan Party or Restricted
Subsidiary (or agrees to be merged into any other Person other than a Loan
Party), or (b) purchases in one transaction or a series of related
transactions all or any part of the business or assets of any Person.
"ACQUISITION CONSIDERATION" means the consideration given by a Loan
Party for an Acquisition, including but not limited to the sum of (without
duplication) (a) the fair market value of any cash, property (including
capital stock or other equity securities or interests) or services given,
PLUS (b) consideration paid with proceeds of Indebtedness permitted pursuant
to this Agreement, PLUS (c) the amount of any Indebtedness and Operating
Leases (calculated to be the product of annual rentals multiplied by six)
assumed, incurred or guaranteed in connection with such Acquisition by a
Person that is a Loan Party prior to such Acquisition.
"ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by Agent to be equal to the quotient
obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for
such Interest Period by (b) one (1) minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"AFFECTED LOANS" has the meaning set forth in SECTION 6.4 of this
Agreement
"AFFECTED TYPE" has the meaning set forth in SECTION 6.4 of this
Agreement.
"AFFILIATE" means, with respect to any Person, (a) any shareholder
or partner (if record or beneficial owner of more than twenty percent (20.0%)
of the outstanding Capital Stock of such Person), officer, director, employee
or managing agent of such Person, (b) any Subsidiary of such Person, (c) any
other Person (other than a Subsidiary) that, (i) directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such Person, (ii) directly or indirectly beneficially
owns or holds twenty percent (20.0%) or more of any class of Voting Stock of
such Person or any Subsidiary of such Person, or (iii) twenty percent (20.0%)
or more of the Voting Stock of which is directly or indirectly beneficially
owned or held by such Person or a Subsidiary of such Person and (d) without
limiting the foregoing, with respect to a Loan Party also includes each other
Loan Party. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of a Person, whether through ownership of Voting Stock, by contract or
otherwise.
"AGENCY ACCOUNT" means an account of Parent for itself and the other
Loan Parties maintained by it with a Clearing Bank pursuant to an Agency
Account Agreement.
"AGENCY ACCOUNT AGREEMENT" means any agreement (required pursuant to
SECTION 10.1) among the Loan Parties, Agent and a Clearing Bank, in form and
substance satisfactory to Agent,
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE>
which designates an Agency Account for the deposit of checks and items
constituting proceeds of Receivables or any other Collateral, and establishes
the terms for transferring balances therein to Agent.
"AGENT" means NationsBank in its capacity as administrative agent
for the Credit Parties as provided by this Agreement, or any successor in
such capacity.
"AGREEMENT" means and includes this Agreement and all exhibits,
schedules, addenda and other attachments hereto, and any renewal, extension,
amendment, modification, restatement or supplement hereof.
"AGREEMENT DATE" means the date as of which this Agreement is dated
in the preamble.
"APPLICABLE LAW" means, with respect to any Person, all provisions
of constitutions, statutes, rules, regulations and orders of any Governmental
Authority applicable to such Person or its property, including, without
limitation, all orders and decrees of all courts and arbitrators in
proceedings or actions to which such Person is a party. In respect of
contracts relating to interest or finance charges that are made or performed
in the State of Texas, "Applicable Law" shall mean the laws of the U.S.,
including without limitation 12 USC Sections 85 and 86(a), as amended from
time to time, and any other statute of the U.S. now or at any time hereafter
prescribing the maximum rates of interest on loans and extensions of credit,
and the laws of the State of Texas, including, without limitation, Art. 1H,
if applicable, and if Art. 1H is not applicable, Art. 1D, and any other
statute of the State of Texas now or at any time hereafter prescribing
maximum rates of interest on loans and extensions of credit; provided that
the parties hereto agree pursuant to Texas Finance Code Section 346.004 that
the provisions of Chapter 346 of the Texas Finance Code shall not apply to
Loans, this Agreement, the Notes or any other Loan Documents. As used herein,
"ART. 1D" means Article 5069-1D, Title 79, Revised Civil Statutes of Texas,
as amended, and "ART. 1H" means Article 5069-1H, Title 79, Revised Civil
Statutes of Texas, as amended.
"APPLICABLE LENDING OFFICE" means, for each Lender and for each Type
of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or
such other office of such Lender (or an Affiliate of such Lender) as such
Lender may from time to time specify to Agent and Borrower by written notice
in accordance with the terms hereof as the office by which its Loans of such
Type are to be made and maintained.
"APPLICABLE MARGIN" means, as of the Agreement Date, two percent
(2.00%) with respect to Eurodollar Loans and zero percent (0%) with respect
to Base Rate Loans, subject to adjustment in the case of Eurodollar Loans
from time to time thereafter to the percentage specified corresponding to the
Leverage Ratio as set forth below, respectively:
<TABLE>
<CAPTION>
======================================================================
Leverage Ratio Eurodollar Loans
======================================================================
<S> <C>
Greater than 4.0 to 1.0 2.50%
- ----------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE>
======================================================================
Leverage Ratio Eurodollar Loans
======================================================================
<S> <C>
Less than or equal to 4.0 to 1.0 but 2.25%
greater than 3.0 to 1.0
- ----------------------------------------------------------------------
Less than or equal to 3.0 to 1.0 but 2.00%
greater than 2.5 to 1.0
- ----------------------------------------------------------------------
Less than or equal to 2.5 to 1.0 but 1.75%
greater than 2.1 to 1.0
- ----------------------------------------------------------------------
Less than or equal 2.1 to 1.0 but 1.50%
greater than 1.7 to 1.0
- ----------------------------------------------------------------------
Less than or equal to 1.7 1.25%
======================================================================
</TABLE>
For the purpose of determining the Applicable Margin, the Leverage Ratio
shall be determined based upon Parent's Consolidated financial statements for
each respective Fiscal Quarter delivered to Agent as required by SECTION
12.1, and any resulting change, if any, in the Applicable Margin for
Eurodollar Loans shall become effective as of the date (on or after the first
day of the calendar month following the calendar month in which such
financial statements are delivered to Agent) when any such Eurodollar Loan is
made, Continued or Converted, as the case may be.
"APPLICABLE RATE" means, at any time, (i) the Base Rate PLUS the
Applicable Margin with respect to Base Rate Loans, and (ii) the Adjusted
Eurodollar Rate PLUS the Applicable Margin with respect to Eurodollar Loans,
as the case may be, in effect at any time pursuant to a Notice of Borrowing
or otherwise pursuant to the terms of this Agreement.
"APPRAISED GOB VALUE" means, with respect to Eligible Inventory, the
net liquidation value thereof determined on an orderly going-out-of-business-
sale basis, net of all commissions, associated costs, fees and expenses
associated with such liquidation, as determined by a credentialed appraiser
satisfactory to Agent.
"AR ADVANCE RATE" means a percentage, subject to SECTION 2.5, equal
to eighty five percent (85.0%).
"ASSET DISPOSITION" means, with respect to any Person, the
disposition of any asset of such Person other than (i) sales of Inventory in
the ordinary course of business, (ii) Permitted Investments listed in CLAUSES
(a) AND (b) of the definition of Permitted Investments in SECTION 1.1 and
(iii) disposition of assets by a Loan Party to another Loan Party.
"ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance
Agreement in the form attached hereto as EXHIBIT "D" assigning all or a
portion of a Lender's interests, rights and obligations under this Agreement
to an Eligible Assignee pursuant to SECTION 15.1.
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE>
"AUTHORIZED SIGNATORY" means, with respect to any Loan Party or
General Partner, its chief executive officer, senior vice president-finance,
vice president-finance, chief financial officer or senior vice president-
general counsel, and in any event with respect to any Loan Party or
General Partner, such other Person as may be duly authorized and designated
in writing by such Loan Party or General Partner to act on its behalf
pursuant to the Loan Documents.
"AVAILABILITY" means, as of the date of any determination thereof,
(a) the Borrowing Base at such time, MINUS (b) the aggregate outstanding
principal balance of all Revolving Credit Loans as of such date.
"BASE RATE" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one
percent (0.5%) or (b) the Prime Rate for such day. Any change in the Base
Rate due to a change in the Federal Funds Rate or the Prime Rate shall be
effective on the effective date of such change in the Federal Funds Rate or
the Prime Rate; PROVIDED that, changes, if any, in the Applicable Rate
resulting from any change in the Base Rate shall become effective as provided
in SECTION 5.2(d).
"BASE RATE LOAN" means any Loan that bears interest at a rate based
on the Base Rate.
"BENEFIT PLAN" means, with respect to any Person, an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) in respect of which such Person or any ERISA Affiliate
is, or within the immediately preceding six (6) years was, an "employer" as
defined in Section 3(5) of ERISA, including, without limitation, such plans
as may be established after the Agreement Date.
"BENEFITTED LENDER" has the meaning set forth in SECTION 17.4(b).
"BORROWER" means CompUSA Stores L.P., a Texas limited partnership
(federal tax identification number 75-2652809) with its chief executive
office and principal place of business located at 14951 North Dallas Parkway,
Dallas, Texas 75240, and its successors and permitted assigns.
"BORROWING BASE" means, at any time, an amount equal to the lesser of:
(a) Five Hundred Million Dollars ($500,000,000), MINUS
the Letter of Credit Reserve and an amount
determined by Agent in its reasonable discretion
in respect of all obligations owing by any Loan
Party to any Lender in respect of Interest Rate
Protection Agreements
or
(b) an amount equal to the sum of
LOAN AND SECURITY AGREEMENT - Page 5
<PAGE>
(i) an amount determined by multiplying the
AR Advance Rate by the face value of
Eligible Receivables due and owing at
such time LESS, at any time when the
aggregate outstanding balance of all
Revolving Credit Loans plus the Letter
of Credit Reserve exceeds the Threshold
Usage Amount, the Reserve, if any, in
respect of Eligible Receivables, PLUS
(ii) the lesser of
(x) the lesser of (A) an amount
determined by multiplying the
INV Advance Rate by the lower of
the cost or market value of
Eligible Inventory, as
determined by the accounting
methods of Parent and its
Consolidated Subsidiaries all in
accordance with GAAP or (B) 85%
of Appraised GOB Value of
Eligible Inventory; LESS, in
either such case, at any time
when the aggregate outstanding
balance of all Revolving Credit
Loans plus the Letter of Credit
Reserve exceeds the Threshold
Usage Amount, the Reserve, if
any, in respect of Eligible
Inventory, or
(y) $400,000,000, MINUS
(iii) the Letter of Credit Reserve and an
amount determined by Agent in its reasonable
discretion in respect of all obligations owing by
any Loan Party to any Lender in respect of
Interest Rate Protection Agreements
(PROVIDED, that no more than 10% of the Borrowing
Base may result from calculations with respect to
Eligible Receivables or Eligible Inventory owned
by CompUSA PC).
"BORROWING BASE CERTIFICATE" means a certificate, signed by an
authorized representative of Borrower, in substantially the form attached
hereto as EXHIBIT "C".
"BORROWING BASE PARTY" means Borrower, Parent and CompUSA PC
(provided that it is a Wholly-Owned Subsidiary of Parent).
"BROKER" means any "broker," as such term is defined in Chapter 8
(or Article 8) of the UCC, and in any event shall include, but not be limited
to, any Person defined as a broker or dealer under the federal securities
laws, but without excluding a bank acting in that capacity.
"BUSINESS DAY" means (a) any calendar day other than Saturday,
Sunday or other day on which banks in Dallas, Texas are authorized to close,
and (b) with respect to all Loans, payments, Conversions, Continuations,
Interest Periods and notices in connection with any Eurodollar Loan,
LOAN AND SECURITY AGREEMENT - Page 6
<PAGE>
any day which is a Business Day described in CLAUSE (a) above and which is
also a day on which dealings in Dollar deposits are carried out in the London
interbank Eurodollar market.
"CAPITAL EXPENDITURES" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets
(other than assets which constitute an Acquisition of all or substantially
all of the assets constituting the business, or an operating unit thereof, of
any Person) which are not, in accordance with GAAP, treated as expense items
for such Person in the year made or incurred or as a prepaid expense
applicable to a future year or years.
"CAPITAL STOCK" means corporate stock and any and all shares,
partnership interests, limited partnership interests, membership interests,
equity interests, rights, securities or other equivalent evidences of
ownership (however designated) issued by any entity (whether a corporation,
partnership, limited liability company, limited partnership, business trust
or other type of entity).
"CAPITALIZED LEASE" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATION" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"CASH COLLATERAL" means Collateral consisting of cash or Cash
Equivalents.
"CASH EQUIVALENTS" means marketable direct obligations issued or
unconditionally guaranteed by the U.S. or issued by any agency thereof and
backed by the full faith and credit of the U.S., commercial paper having a
rating of at least A-1 from Standard & Poor's Corporation or at least P-1
from Moody's Investors Service, Inc., certificates of deposit or bankers'
acceptances issued in Dollar denominations issued by any commercial bank
organized under the laws of the U.S. or any state thereof or the District of
Columbia, and any other such item the liquidity and transferability of which
is generally regarded and accepted in common practice as equivalent to cash.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(a) the adoption of a plan relating to the liquidation or dissolution of
Parent or Borrower, (b) the acquisition by any Person or group (as such term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) of a direct or indirect majority in interest (more than 50%) of the
voting power of the voting stock of Parent by way of merger or consolidation
or otherwise, (c) the first day on which a majority of the members of the
Board of Directors of Parent or Borrower are not Continuing Directors, (d)
Borrower shall cease to be a Wholly-Owned Subsidiary of Parent or (e) Parent
or a Wholly-Owned Subsidiary of Parent shall cease to be the sole general
partner of Borrower.
"CHATTEL PAPER" means, with respect to a Person, all writing or
writings now owned and hereafter acquired by such Person which evidence both
a monetary obligation and a security interest in or a lease of specific
goods, and any other property or interest in property classified as chattel
paper pursuant to the UCC.
LOAN AND SECURITY AGREEMENT - Page 7
<PAGE>
"CLEARING BANK" means any banking institution with which an Agency
Account has been established pursuant to an Agency Account Agreement.
"COLLATERAL" means and includes all of each respective Loan Party's
right, title and interest in and to each of the following, wherever located
and whether now or hereafter existing or now owned or hereafter acquired or
arising:
(a) all Receivables;
(b) all Inventory;
(c) all Instruments;
(d) all Documents;
(e) all Deposit Accounts;
(f) all General Intangibles;
(g) all Investment Property, EXCLUDING (i) Capital
Stock issued by CompUSA Net.com and (ii) Capital
Stock issued by InfoSource, Inc.; PROVIDED, that
with respect to any direct Foreign Subsidiary
owned by a Loan Party, the amount of Capital Stock
of such Foreign Subsidiary included in the
Collateral shall be limited to 65% of the issued
and outstanding Capital Stock of such Foreign
Subsidiary;
(h) all goods and other property, whether or not
delivered,
(i) the sale or lease of which gives or
purports to give rise to any Receivable, including, but not
limited to, all merchandise returned or rejected by or
repossessed from customers, or
(ii) securing any Receivable,
including, without limitation, all rights as an unpaid vendor or
lienor (including, without limitation, stoppage in transit, replevin
and reclamation) with respect to such goods and other property;
(k) all mortgages, deeds to secure debt and deeds of
trust on real or personal property, guaranties, leases, security
agreements and other agreements and property which secure any
Receivable or other obligation included in the Collateral, or are
acquired for the purpose of securing and enforcing same;
LOAN AND SECURITY AGREEMENT - Page 8
<PAGE>
(l) all files, correspondence, computer programs,
tapes, discs and related data processing software which contain
information identifying or pertaining to any Receivables or any
Account Debtor, or showing the amounts thereof or payments thereon
or otherwise necessary or helpful in the realization thereon or the
collection thereof;
(m) all Money and Cash Equivalents;
(n) all Receivables Guaranties;
(o) all Receivables L/C's; and
(p) any and all proceeds or products of any of the
foregoing (including, but not limited to, any claim to any item
referred to in this definition, and any claim against any Person for
loss of, damage to or destruction of any or all of, the Collateral
or for proceeds payable under, or unearned premiums with respect to,
policies of insurance) in whatever form;
PROVIDED, that notwithstanding the foregoing (but subject to the further
proviso following and without impairing SECTION 13.8), "Collateral" does not
include any General Intangible or Proprietary Right to the extent the grant
by any Loan Party of the Security Interest therein is prohibited by any
agreement or restriction pursuant to any grant from, or agreement with, any
Person evidencing such Loan Party's interest therein for so long as (but only
for so long as) the consent of such Person to such grant has not been
obtained, PROVIDED FURTHER, however, that the foregoing limitation shall not
in any event apply to, affect, limit, restrict or otherwise impair the grant
by any Loan Party of the Security Interest in any (i) Accounts; (ii)
Inventory; (iii) Proprietary Rights specifically scheduled in a Patent
Security Agreement, Trademark Security Agreement or Copyright Security
Agreement; (iv) Money due or to become due to a Loan Party (and proceeds
thereof) under any Merchant Account or Merchant Account Agreement; or (v) any
other Receivables, any General Intangibles or any other Proprietary Rights to
the extent any purported prohibition affecting property identified in this
CLAUSE (v) is unenforceable pursuant to Section 9.318(d) of the UCC or other
Applicable Law.
"COMMITMENT" means, as to each Lender, the amount set forth opposite
such Lender's name on the signature pages hereof representing such Lender's
obligation, upon and subject to the terms and conditions of this Agreement,
to make Revolving Credit Loans and to purchase participations in Letters of
Credit or, from and after the date hereof, in the Register representing such
Lender's obligation to make Revolving Credit Loans and to purchase
participations in Letters of Credit.
"COMMITMENT PERCENTAGE" means, as to any Lender, the percentage
obtained by dividing such Lender's Commitment by the Total Commitment.
"COMPLIANCE CERTIFICATE" means a certificate of an Authorized
Signatory of Parent, in substantially the form of EXHIBIT "F", containing the
information required by SECTION 12.3.
LOAN AND SECURITY AGREEMENT - Page 9
<PAGE>
"COMPUSA NET.COM" means CompUSA Net.com Inc., a Delaware corporation
and, as of the Agreement Date, a Wholly-Owned Subsidiary of Parent.
"COMPUSA PC" means CompUSA PC Operating Company, a Delaware business
trust, and as of the Agreement Date, an indirect Wholly-Owned Subsidiary of
Parent.
"CONSOLIDATED", when used in connection with any accounting term
with reference to a Person, means such accounting term determined with
reference to such Person and its Subsidiaries, as consolidated according to
GAAP (and, in the case of Net Income, after appropriate deductions for any
minority interests in any Subsidiaries).
"CONSOLIDATED SUBSIDIARIES" means, as to a Person, the Subsidiaries
of such Person whose accounts are at the time in question, in accordance with
GAAP, consolidated with those of such Person.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste as may
be controlled or regulated by Applicable Law.
"CONTINUE", "CONTINUATION" and "CONTINUED" mean the continuation
pursuant to SECTION 5.3(b) of a Eurodollar Loan as a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of Parent or Borrower who (a) was a member
of such Board of Directors on the Agreement Date or (b) was nominated for
election or elected to such Board of Directors with the affirmative vote of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"CONTRACT RIGHTS" means any rights under contracts not yet earned by
performance and not evidenced by an instrument or chattel paper, whether now
existing or hereafter arising, to the extent that such rights may be lawfully
assigned.
"CONTRIBUTED ASSETS" means the sum (without duplication) of the
aggregate net book value, as reflected on the books of a Loan Party or
Restricted Subsidiary, as the case may be, of assets (whether of Capital
Stock or other property, services or Money, including the proceeds of Loans
or other Indebtedness incurred by such Loan Party or Restricted Subsidiary)
contributed on and after the Agreement Date by a Loan Party or any Restricted
Subsidiary to or for the benefit of CompUSA Net.com.
"CONTRIBUTED INDEBTEDNESS " means, at any time, the aggregate amount
of Indebtedness owing by CompUSA Net.com to any and all of the Loan Parties
or any Restricted Subsidiary.
LOAN AND SECURITY AGREEMENT - Page 10
<PAGE>
"CONVERT", "CONVERSION" and "CONVERTED" mean a conversion pursuant
to SECTION 5.3(c), or ARTICLE 6 of one Type of Loan into another Type of Loan.
"COPYRIGHT SECURITY AGREEMENT" means a Copyright Security Agreement
executed by one or more of the Loan Parties in favor of Agent, for the
benefit of the Credit Parties, as such agreement may be amended, modified,
restated or supplemented from time to time.
"COPYRIGHTS" means and includes, with respect to any Person, all of
such Person's right, title and interest in and to the following, in each case
whether now existing or hereafter arising:
(a) all copyrights, rights and interests in
copyrights, works protectable by copyright, copyright registrations
and copyright applications;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including,
without limitation, damages or payments for past or future
infringements of any of the foregoing;
(d) the right to sue for past, present and future
infringements of any of the foregoing; and
(e) all rights corresponding to any of the foregoing
under Applicable Law.
"CREDIT PARTY" means each of Agent, L/C Issuer and the Lenders, and
"Credit Parties" means all of such Persons, collectively.
"DEFAULT" means any of the events specified in SECTION 14.1 which
with the passage of time or giving of notice or both would constitute an
Event of Default.
"DEFAULT MARGIN" means three percent (3%).
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of
deposit, and includes, without limitation any L/C Cash Collateral Account.
"DISBURSEMENT ACCOUNT" means one or more accounts maintained by and
in the name of Borrower with a Disbursing Bank for the purposes of depositing
Revolving Credit Loan proceeds pursuant to this Agreement.
"DISBURSING BANK" means any commercial bank with which a
Disbursement Account is maintained after the Agreement Date.
LOAN AND SECURITY AGREEMENT - Page 11
<PAGE>
"DIVIDENDS" means, as to any Person, any declaration or payment of
any dividend or the making of any distribution, loan, advance or investment
on or with respect to any shares of a Person's Capital Stock (other than
dividends or distributions payable solely in shares or other evidence of
ownership of such Person's Capital Stock).
"DOCUMENTS" means, with respect to a Person, all of such Person's
now owned and hereafter acquired documents of title issued by or addressed to
a bailee which purport to cover goods in the bailee's possession which are
either identified or are fungible portions of an identified mass, including
without limitation a bill of lading, dock warrant, dock receipt, warehouse
receipt or order for the delivery of goods, or other document, and which in
the regular course of business or financing is treated as adequately
evidencing that a Person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers, and any other property or
interest in property classified as a document pursuant to the UCC.
"DOLLAR" and "$" each means freely transferable U.S. dollars.
"DOMESTIC SUBSIDIARY" means each direct or indirect Subsidiary of
Parent formed under the laws of the U.S. or any state thereof.
"EBITDA" means Net Income, PLUS, for each Fiscal Period to the
extent deducted in the determination of Net Income, each of the following:
(i) Interest Expense; (ii) income taxes; (iii) depreciation and amortization
expense, (iv) other non-cash charges and (v) restructuring charges relating
to Management's Restructuring Plan.
"EFFECTIVE DATE" means the later of:
(a) the Agreement Date; or
(b) the first date on which all of the conditions set
forth in SECTION 7.1 and SECTION 7.2 shall have been fulfilled or
waived in accordance with the provisions of SECTION 17.10.
"EFFECTIVE INTEREST RATE" means the rate of interest per annum on
the Revolving Credit Loans in effect from time to time pursuant to the
provisions of SECTIONS 5.2(a), (b) and (c).
"ELIGIBLE ASSIGNEE" means (i) a Lender, (ii) any Affiliate of a
Lender, and (iii) any other Person approved by Agent and, unless an Event of
Default has occurred and is continuing at the time any assignment is effected
in accordance with SECTION 15.1, Borrower, such approval not to be
unreasonably withheld or delayed by Borrower and such approval to be deemed
given by Borrower if no objection from Borrower is received by the assigning
Lender and Agent within four (4) Business Days after notice of such proposed
assignment has been provided to Borrower by Agent or the assigning Lender;
PROVIDED, HOWEVER, that neither Borrower nor an Affiliate of Borrower shall
qualify as an Eligible Assignee.
LOAN AND SECURITY AGREEMENT - Page 12
<PAGE>
"ELIGIBLE INVENTORY" means Inventory of a Borrowing Base Party which
Agent, in its reasonable discretion determines to meet all of the following
requirements:
(a) such Inventory is owned by such Borrowing Base Party,
has been received and is stored at a location listed on SCHEDULE 8.1(v)
("Location of Inventory") or is in such Borrowing Base Party's control
and is in transit from any of such locations to another of such
locations, is subject to the Security Interest which is perfected as to
such Inventory and is subject to no other Lien other than a Permitted
Landlords Lien or Permitted Warehouseman's Lien;
(b) such Inventory consists of finished goods and not
work-in-process or supplies;
(c) such Inventory is in good condition and meets all
standards imposed by any Governmental Authority having regulatory
authority over such goods, their use or sale;
(d) such Inventory is currently either usable or salable,
at prices approximating at least the cost of such Inventory, in the
normal course of such Borrowing Base Party's business and is not slow
moving or stale;
(e) such Inventory is not obsolete or returned, repossessed
or used goods taken in trade;
(f) such Inventory is located within the U.S.;
(g) such Inventory is in the possession and control of
such Borrowing Base Party and not any third party, or if such Inventory
is held by a third party bailee and a negotiable instrument has not
been issued with respect thereto and the aggregate outstanding balance
of all Revolving Credit Loans plus the Letter of Credit Reserve exceeds
the Threshold Usage Amount, Agent shall have established a reasonable
amount in the Reserve (not exceeding an amount equal to the aggregate
amount payable to such bailee for a period of sixty (60) days) in
respect of the warehouse agreement or other agreement under which such
bailee is in possession of such Inventory, unless a waiver and access
agreement, in form and substance satisfactory to Agent, shall have been
executed and delivered to Agent by such bailee and such Borrowing Base
Party and such other steps shall have been taken as Agent may
reasonably require in order to establish and preserve the priority of
the Security Interest in such Inventory;
(h) unless such Borrowing Base Party shall have delivered
to Agent landlord's or mortgagee's waiver and consent agreements, in
form and substance satisfactory to Agent and duly executed on behalf of
the landlord or mortgagee, as the case may be, of Real Estate or other
real property on which any such Inventory is located in any state in
which Applicable Law provides for a statutory Lien for the benefit of
lessors of real property which,
LOAN AND SECURITY AGREEMENT - Page 13
<PAGE>
under such Applicable Law, has or may have priority over the
Security Interest, at any time when the aggregate outstanding
balance of all Revolving Credit Loans plus the Letter of Credit
Reserve exceeds the Threshold Usage Amount, Agent shall have
established a reasonable amount in the Reserve (not exceeding an
amount equal to the aggregate amount payable to such landlord or
mortgagee for a period of sixty (60) days) in respect of the lease
or other agreement under which such Borrowing Base Party occupies
such Real Estate; and
(i) such Inventory is not determined by Agent, on behalf
of the Lenders, in its reasonable discretion in the exercise of
reasonable credit judgment to be ineligible for any other reason.
"ELIGIBLE RECEIVABLE" means a Receivable of a Borrowing Base Party that
consists of the unpaid portion of the obligation stated on the invoice issued to
an Account Debtor with respect to Inventory sold and shipped to or services
performed for such Account Debtor in the ordinary course of such Borrowing Base
Party's business, net of any credits or rebates owed by such Borrowing Base
Party to such Account Debtor and net of any commissions payable by such
Borrowing Base Party to third parties and that Agent, in its reasonable
discretion determines to meet all of the following requirements:
(a) such Receivable is owned by such Borrowing Base Party
and represents a complete bona fide transaction which requires no
further act under any circumstances on the part of such Borrowing Base
Party to make such Receivable payable by the Account Debtor;
(b) such Receivable is not more than ninety (90) days past
due from the stated due date of the original invoice;
(c) not more than one hundred twenty (120) days have
elapsed from the date of the original invoice;
(d) the goods the sale of which gave rise to such Receivable
were shipped or delivered to the Account Debtor on an absolute sale
basis and not on a bill and hold sale basis, a consignment sale
basis, a guaranteed sale basis, a sale or return basis or on the
basis of any other similar understanding, and no material part of
such goods has been returned or rejected;
(e) such Receivable is not evidenced by chattel paper or
an instrument of any kind unless such chattel paper or instrument has
been collaterally assigned to Agent, for the benefit of the Credit
Parties, pursuant to an assignment in form and substance satisfactory
to Agent and is in the possession of Agent;
(f) the Account Debtor with respect to such Receivable is
not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action,
threatened or pending, which might, in Agent's reasonable judgment,
have a
LOAN AND SECURITY AGREEMENT - Page 14
<PAGE>
material adverse effect on such Account Debtor, and is not, in the
reasonable discretion of Agent, deemed ineligible for credit or
other reasons;
(g) such Receivable is not owing by an Account Debtor
having fifty percent (50.0%) or more in face value of its then existing
aggregate total accounts owing to all Loan Parties, in the aggregate,
which do not meet the requirements of CLAUSE (b) or CLAUSE (c) above;
(h) such Receivable is not owing by an Account Debtor
whose then existing accounts owing to all Loan Parties, in the
aggregate, exceed in face amount fifteen percent (15%) of all Loan
Parties' total Eligible Receivables;
(i) if such Receivable arises from the performance of
services, such services have been fully rendered and do not relate to
any warranty claim or obligation;
(j) such Receivable is not owing by an Account Debtor
that is located outside of the U.S.;
(k) such Receivable is a valid, legally enforceable
obligation of the Account Debtor with respect thereto and is not
subject to any present or contingent (and no facts exist which are the
basis for any future) offset, deduction or counterclaim, dispute or
other defense on the part of such Account Debtor, unless any such
offset, deduction or counterclaim, dispute or other defense is noted in
the Borrowing Base Certificate and a reasonable amount satisfactory to
Agent has been deducted from such Receivable in respect thereof;
(l) such Receivable is subject to the Security Interest,
which is perfected as to such Receivable in form and substance
satisfactory to Agent, and is subject to no other Lien whatsoever;
(m) such Receivable is evidenced by an invoice or other
documentation in form acceptable to Agent;
(n) if such Receivable is subject to the Assignment of
Claims Act of 1940, as amended from time to time, or any Applicable Law
now or hereafter existing similar in effect thereto, or to any other
prohibition (under Applicable Law, by contract or otherwise) against
its assignment or requiring notice of or consent to such assignment, if
requested by Agent all such required notices have been given, all such
required consents have been received and all other procedures have been
complied with such that such Receivable shall have been duly and
validly assigned to Agent, for the benefit of the Credit Parties, in
form satisfactory to Agent;
(o) the goods giving rise to such Receivable were not, at
the time of the sale thereof, subject to any Lien, except the Security
Interest and Permitted Liens which do not attach to such Receivable as
proceeds thereof;
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(p) Such Borrowing Base Party is not in breach of any
express or implied representation or warranty with respect to the goods
the sale of which gave rise to such Receivable nor in breach of any
representation or warranty, covenant or other agreement contained in
the Loan Documents with respect to such Receivable;
(q) such Receivable does not arise out of any transaction
with a Borrowing Base Party or any other Affiliate, creditor, tenant,
lessor or supplier of a Borrowing Base Party, PROVIDED, that with
respect to any such Receivable that arose out of a transaction with any
such creditor, tenant, lessor or supplier that is not a Loan Party or
an Affiliate of a Loan Party (i) the amount of such Receivable
excludable under this SUBPARAGRAPH (q) shall not exceed the aggregate
amount, if any, owing from time to time to such Person by such
Borrowing Base Party and (ii) such Receivable will not be excluded
under this SUBPARAGRAPH (q) if such Person has executed and
delivered to such Borrowing Base Party and Agent, for the benefit of
the Credit Parties, an agreement, in form and substance satisfactory
to Agent, pursuant to which such Person agrees that it will not
setoff against such Receivable, or assert as a defense to payment
thereof, any claim or other amount at any time owing to such Person
by such Borrowing Base Party;
(r) Such Borrowing Base Party is not the beneficiary of
any letter of credit, nor has any bond or other undertaking by a
guarantor or surety been obtained, supporting such Receivable and the
Account Debtor's obligations in respect thereof unless any such letter
of credit, bond or undertaking, together with such Receivable, is
specifically identified in each Borrowing Base Certificate which
includes any such Receivable and, if required by Agent (i) is issued by
a Person satisfactory to Agent, in form satisfactory to Agent and by
its terms does not prohibit transfer or assignment to Agent of the
rights to enforce payment thereunder, (ii) is irrevocable with respect
to such Receivable and otherwise is in form and substance satisfactory
to Agent, (iii) to Agent's satisfaction, is subject to a first
priority, perfected security interest, lien and collateral assignment
in favor of Agent, for the benefit of the Credit Parties (iv) if
requested by Agent, written notice of such security interest, lien and
collateral assignment, duly executed by Agent and such Borrowing Base
Party, shall have been given to and acknowledged in writing by the
Person obligated on such letter of credit, bond or undertaking, in form
and substance satisfactory to Agent, and (v) Agent shall have received
all documentation as Agent may reasonably request in connection with
the foregoing;
(s) such Receivable does not arise out of finance or
similar charges or other fees for the time value of Money;
(t) the Account Debtor with respect to such Receivable is
not located in any other state denying creditors access to its courts
in the absence of qualification to transact business in such state or
the filing of a notice of business activities report or other similar
filing, unless (i) such Borrowing Base Party has either qualified as a
foreign corporation authorized to transact business in such state or
has filed any such notice or similar filing with the applicable
Governmental Authority for the then current year, or (ii) such
Borrowing Base
LOAN AND SECURITY AGREEMENT - Page 16
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Party is not required to be so qualified as a condition to allowing
its creditors access to such courts; and
(u) neither the Account Debtor with respect to such
Receivable, nor such Receivable, is determined by Agent in its
reasonable discretion in the exercise of reasonable credit judgment to
be ineligible for any other reason.
"ENTITLEMENT HOLDER" means any Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary.
"ENVIRONMENTAL COMPLIANCE RESERVES" means reserves for the cost of
Remedial Action, as determined by Agent from time to time in its reasonable
discretion based upon the reports delivered pursuant to SECTION 11.9(b) and such
other advice, analysis and engineering studies as it reasonably deems
appropriate.
"ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, Releases or
threatened Releases of pollutants, Contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, Contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder, including, but not limited to, the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 ET SEQ., as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 6901
ET SEQ., as amended, the Toxic Substances Control Act, 15 U.S.C. Section 2601
ET SEQ., as amended, the Clean Air Act, 46 U.S.C. Section 7401 ET SEQ., as
amended, and state and federal lien and environmental cleanup programs.
"ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of Contaminant into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974 (as
amended), as in effect from time to time, any regulation promulgated thereunder
and any successor statute.
"ERISA AFFILIATE" means, with respect to any Person, any (i)
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Internal Revenue Code) as any such
Person or any of its Subsidiaries, (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with any such Person or any of its
Subsidiaries, or (iii) member of the same affiliated service group (within the
meaning of Section 414(m) of the Internal Revenue Code)
LOAN AND SECURITY AGREEMENT - Page 17
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as any such Person or any of its Subsidiaries, any corporation described in
CLAUSE (i) above or any partnership, trade or business described in CLAUSE
(ii) above.
"EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in
Dollars are carried out in the London interbank Eurodollar market.
"EURODOLLAR LOANS" means Loans that bear interest at rates based upon
the Adjusted Eurodollar Rate.
"EURODOLLAR RATE" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two (2) Eurodollar Business Days prior to the first day of
such Interest Period for a term comparable to such Interest Period. If for any
reason such rate is not available, the term "Eurodollar Rate" shall mean, for
any Eurodollar Loan for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
"EVENT OF DEFAULT" means any of the events specified in SECTION 14.1,
PROVIDED that any requirement for notice or lapse of time as required by this
Agreement or any of the other Loan Documents has been satisfied.
"EXISTING CREDIT AGREEMENT" means the certain Second Amended and
Restated Credit Agreement dated March 12, 1998 among Parent, NationsBank, N.A.,
as Administrative Lender, certain co-agents and the "Lenders" (as defined
therein) party thereto, as amended, modified or supplemented from time to time
through the Agreement Date.
"EXISTING LETTERS OF CREDIT" means those "Letters of Credit" (as
defined by the Existing Agreement) issued pursuant to the Existing Credit
Agreement and outstanding on the Agreement Date, as listed in SCHEDULE 1.1A
("Existing Letters of Credit").
"EXISTING LOAN DOCUMENTS" means the "Loan Documents" as defined by the
Existing Credit Agreement.
"EXISTING STORE LOCATIONS" means the store locations owned by Borrower
or, if specifically identified therein, by any other Loan Party, on the
Agreement Date and described on SCHEDULE 8.1(gg).
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds
LOAN AND SECURITY AGREEMENT - Page 18
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transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day; PROVIDED that (a) if such
day is not a Business Day, the Federal Funds Rate for such day shall be such
rate on such transactions on the next preceding Business Day as so published
on the next succeeding Business Day, and (b) if no such rate is so published
on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate charged to Agent (in its individual capacity) on
such day on such transactions as determined by Agent.
"FINANCIAL ASSET" means any financial asset, and in any event shall
include, but not be limited to, any (i) Security, (ii) obligation of a Person or
a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment, (iii) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Chapter 8 (or Article 8) of
the UCC and (iv) any other property or interest in property, or means by which a
Persons claim to any such property or interest in property is evidenced, which
is classified as a "financial asset" pursuant to Chapter 8 (or Article 8) of the
UCC.
"FINANCING STATEMENTS" means any and all UCC financing statements, as
requested by and in form and substance satisfactory to Agent, executed and
delivered by a Loan Party to Agent, naming Agent as secured party and such Loan
Party as debtor, in connection with this Agreement.
"FISCAL PERIOD" means one of the three fiscal periods in a Fiscal
Quarter, the first of such periods comprised of five weeks and the second and
third of such periods comprised of four weeks, with each of the weeks in a
Fiscal Quarter ending on the close of business on a Saturday. There are twelve
Fiscal Periods in a Fiscal Year.
"FISCAL QUARTER" means one of four thirteen week quarters in a Fiscal
Year, with the first of such quarters beginning on the first day of a Fiscal
Year and ending on the Saturday of the thirteenth week in such quarter.
"FISCAL YEAR" means the fiscal year beginning on the Sunday following
the last Saturday in June of each year and ending on the last Saturday in June
of the following year.
"FIXED CHARGE COVERAGE RATIO" means the ratio of (i) EBITDA MINUS
Unfunded Capital Expenditures MINUS Non-Stock Acquisition Consideration MINUS
Treasury Stock Purchases MINUS income taxes actually paid in cash to (ii) the
aggregate amount of Interest Expense PLUS principal amount paid in respect of
Money Borrowed (other than the Revolving Loans) PLUS Dividends paid, in each
case determined for Parent and its Consolidated Subsidiaries (excluding CompUSA
Net.com) as of the end of any Fiscal Period as required by this Agreement (x)
with respect to the end of each of the first eleven Fiscal Periods ending after
the Agreement Date, for the period from the Agreement Date through the end of
such Fiscal Period and (y) with respect to the end of all other Fiscal Periods,
for the preceding twelve (12) Fiscal Periods.
LOAN AND SECURITY AGREEMENT - Page 19
<PAGE>
"FIXED CHARGE RATIO COVENANT TEST DATE" means, in relation to any date
on which Availability is less than the Minimum Availability Requirement, the
last day of the preceding Fiscal Period for which financial statements are
required to have been delivered pursuant to SECTION 12.1.
"FOREIGN SUBSIDIARY" means each direct or indirect Subsidiary of Parent
that is not a Domestic Subsidiary.
"GAAP" means generally accepted accounting principles (existing as of
the Agreement Date as promulgated by opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements of the
Financial Accounting Standards Board, including without limitation, principles
of purchase accounting) consistently applied and maintained throughout the
period indicated and, when used with reference to Borrower or any other Loan
Party, consistent with the prior financial practice of Borrower or such Loan
Party, as reflected on the financial statements referred to in SECTION 8.1(o);
PROVIDED, that for purposes of (i) the definition of "Applicable Margin" in
SECTION 1.1, (ii) the definition of "Unused Commitment Fee Percentage" in
SECTION 1.1 and (iii) SECTION 13.1, in the event that, after the Agreement Date,
changes shall be mandated by the Financial Accounting Standards Board or any
similar accounting authority of comparable standing, or shall be recommended by
Borrower's or any Loan Party's independent public accountants, the Loan Parties
and Agent 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, PROVIDED FURTHER, that any such negotiated changes shall be
effective, for purposes of such provisions, only from and after such date as
the Loan Parties, the Required Lenders and Agent shall have amended this
Agreement in accordance with SECTION 17.10, to the extent necessary to
reflect any such negotiated changes.
"GENERAL INTANGIBLES" means, with respect to a Person, all general
intangibles, choses in action and causes of action, whether arising in contract,
tort or otherwise and whether or not the subject of litigation, and all
judgments in favor of such Person, including without limitation each of the
following, in any case both now owned and hereafter acquired: (a) all rights to
payment or other forms of consideration and all other personal property, other
than goods, of every kind and nature (and not otherwise included in Receivables,
Chattel Paper, Documents, Instruments or Investment Property), including,
without limitation, all rights under Merchant Accounts and Merchant Account
Agreements, Proprietary Rights, corporate or other business records, inventions,
designs, blueprints, plans, specifications, goodwill, computer software,
customer lists, registrations, licenses, franchises, tax refunds and tax refund
claims, reversions or any rights thereto and any other amounts payable to such
Person from any Plan or other employee benefit plan, rights and claims against
carriers and shippers, rights and claims under warranties, rights to
indemnification, rights under contracts of insurance or surety, including
without limitation business interruption, property, casualty, liability and
other insurance and proceeds thereof, any letter of credit and the right to
claim and receive payment thereunder, rights to payment under any and each
Receivables Guaranty, Receivables L/C and each other Guaranty, security and Lien
for payment of any Receivables, and drafts, acceptances and other debts,
obligations and liabilities owing to such Person; and (b) any other property or
interest in property classified as a "general intangible" pursuant to the UCC.
LOAN AND SECURITY AGREEMENT - Page 20
<PAGE>
"GENERAL PARTNER" means CompUSA GP, acting in its capacity as the sole
general partner of Borrower, and its successors and permitted assigns.
"GOVERNMENT ACTS" has the meaning set forth in SECTION 3.8(a)(ii).
"GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, any
Governmental Authority, whether federal, state, local or foreign national or
provincial.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, county, municipal, parish, provincial or other political subdivision
thereof and any department, commission, board, court, agency or other
instrumentality or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"GUARANTOR" means each Person that executes and delivers to Agent a
Guaranty Agreement pursuant to this Agreement or becomes a party to a Guaranty
Agreement by executing and delivering to Agent a Joinder Agreement pursuant to
SECTION 9.3.
"GUARANTY", "GUARANTEED" or to "GUARANTEE" as applied to any obligation
of another Person shall mean and include:
(a) any guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business),
directly or indirectly, in any manner, of any part or all of such
obligation of such other Person; and
(b) any agreement, direct or indirect, contingent or
otherwise, and whether or not constituting a guaranty, the practical
effect of which is to assure the payment or performance (or payment of
damages in the event of nonperformance) of any part or all of such
obligation of such other Person whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or
lessor) of property or the purchase or sale of services
primarily for the purpose of enabling the obligor with respect
to such obligation to make any payment or performance (or
payment of damages in the event of nonperformance) of or on
account of any part or all of such obligation, or to assure
the owner of such obligation against loss,
(iii) the supplying of funds to or in any other
manner investing in the obligor with respect to such
obligation,
(iv) repayment of amounts drawn down by beneficiaries
of letters of credit, or
LOAN AND SECURITY AGREEMENT - Page 21
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(v) the supplying of funds to or investing in a
Person on account of all or any part of such Person's
obligation under a Guaranty of any obligation or indemnifying
or holding harmless, in any way, such Person against any part
or all of such obligation.
"GUARANTY AGREEMENT" means the Parent Guaranty or the Subsidiary
Guaranty, as the case may be, in each case as may be renewed, extended, amended,
modified, restated or supplemented from time to time.
"IRS" means the Internal Revenue Service.
"INDEBTEDNESS" of any Person means, without duplication, all
Liabilities of such Person, and to the extent not otherwise included in
Liabilities, the following:
(a) all obligations for Money Borrowed or for the
deferred purchase price of property or services;
(b) all obligations (including, during the noncancellable
term of any lease in the nature of a title retention agreement, all
future payment obligations under such lease discounted to their present
value in accordance with GAAP) secured by any Lien to which any
property or asset owned or held by such Person is subject, whether or
not the obligation secured thereby shall have been incurred or assumed
by such Person;
(c) all obligations of other Persons which such Person
has Guaranteed, including, but not limited to, all obligations of such
Person consisting of recourse liability with respect to accounts
receivable sold or otherwise disposed of by such Person;
(d) all obligations of such Person in respect of Interest
Rate Protection Agreements; and
(e) in the case of Borrower (without duplication) all
obligations under the Revolving Credit Loans.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 17.13.
"INDENTURE" means the certain Indenture dated as of June 17, 1993
between Parent and U.S. Trust Company of Texas, N.A., as Trustee pursuant to
which the Senior Subordinated Notes are issued, as the same may be amended,
supplemented or otherwise modified.
"INSTRUMENTS" means, with respect to a Person, all of such Person's now
owned and hereafter acquired negotiable instruments (as defined by Section 3.104
(or Article 3-104) of the UCC) and any other writing which evidences a right to
the payment of Money and is not itself a security agreement or lease and is of a
type which is in the ordinary course of business transferred by delivery with
any
LOAN AND SECURITY AGREEMENT - Page 22
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necessary indorsement or assignment, excluding Investment Property, and any
other property or interest in property classified as an instrument pursuant
to the UCC.
"INTEREST EXPENSE" means, for any period, the interest expense of
Parent and its Consolidated Subsidiaries for such period (including, without
limitation, interest on Indebtedness and the interest portion of payments under
Capital Lease Obligations), determined on a consolidated basis in accordance
with GAAP.
"INTEREST PAYMENT DATE" means, after the Agreement Date with respect to
Base Rate Loans, the Business Day following the last day of each calendar month,
and with respect to Eurodollar Loans, the last day of each corresponding
Interest Period (and in the case of an Interest Period of greater than three (3)
months, at three-month intervals after the first day of such Interest Period),
continuing until the Secured Obligations have been irrevocably paid in full.
"INTEREST PERIOD" means the period beginning on the day any Eurodollar
Loan is established, Continued or Converted and ending one (1), two (2), three
(3) or six (6) months thereafter (as Borrower may designate pursuant to a Notice
of Borrowing); PROVIDED, HOWEVER:
(a) if any Interest Period would otherwise end on a day
which is not a Eurodollar Business Day, such Interest Period shall be
extended to the next succeeding Eurodollar Business Day, unless the
result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end
on the immediately preceding Eurodollar Business Day;
(b) any Interest Period with respect to a Eurodollar Loan
that begins on the last Eurodollar Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Eurodollar Business Day of such calendar month; and
(c) Borrower may not select any Interest Period which ends
after the date of a scheduled principal payment on the Loans unless,
after giving effect to such selection, the aggregate unpaid principal
amount of the Eurodollar Loans for which Interest Periods end after
such scheduled principal payment shall be equal to or less than the
principal amount to which the Loans are required to be reduced after
such scheduled principal payment is made.
"INTEREST RATE PROTECTION AGREEMENT" means an agreement between a
Person and any Lender, or any Affiliate of such Lender, now existing or
hereafter entered into and with respect to which notice thereof has been given
to Agent, which provides for an interest rate swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross-currency rate swap, currency
option or any combination of, or option with respect to, any such or similar
transactions, for the purpose of hedging such Person's exposure to fluctuations
in interest rates or currency valuations.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
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<PAGE>
"INV ADVANCE RATE" means a percentage, subject to SECTION 2.5, equal to
(i) sixty five percent (65.0%).
"INVENTORY" means, with respect to a Person, all of such Person's
inventory and shall include, without limitation:
(a) all goods held or intended for sale or lease, or for
display or demonstration, or furnished or to be furnished under
contracts of service;
(b) all work-in-process;
(c) all raw materials;
(d) all other materials and supplies of every nature and
description used or which might be used in connection with the
manufacture, packing, shipping, advertising, selling, leasing or
furnishing of such goods or otherwise used or consumed in such Person's
business;
(e) all documents evidencing and general intangibles relating
to any of the foregoing; and
(f) all other goods that are classified as "inventory"
pursuant to the UCC.
"INVESTMENT" means, with respect to any Person:
(a) the acquisition or ownership by such Person of any
share of Capital Stock, evidence of Indebtedness or other security
issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, excluding advances to
employees in the ordinary course of business for business expenses;
(c) any Guaranty of the obligations of any other Person; and
(d) any other investment (other than an Acquisition) in any
other Person.
"INVESTMENT PROPERTY" means any investment property, now owned or
hereafter acquired, and, in any event, shall include, without limitation, each
of the following: (a) any Security, whether certificated or uncertificated, (b)
any Security Entitlement, (c) any Securities Account, (d) any commodity contract
or commodity account and (e) any other property or interest in property that is
classified as "investment property" pursuant to the UCC.
"IRS" means the Internal Revenue Service.
LOAN AND SECURITY AGREEMENT - Page 24
<PAGE>
"ISSUER" means any "issuer," as such term is defined in Chapter 8 (or
Article 8) of the UCC, and in any event shall include, without limitation, any
Person that (i) places or authorizes the placing of its name on a Security
Certificate, other than as authenticating trustee, registrar, transfer agent or
the like, to evidence a share, participation or other interest in its property
or in an enterprise, or to evidence its duty to perform an obligation
represented by the certificate, (ii) creates a share, participation or other
interest in its property or in an enterprise, or undertakes an obligation, that
is an Uncertificated Security; (iii) directly or indirectly creates a fractional
interest in its rights or property, if the fractional interest is represented by
a Security Certificate, or (iv) becomes responsible for, or in the place of,
another Issuer.
"JOINDER AGREEMENT" means a Joinder Agreement in form as appears in
EXHIBIT "G", or otherwise in form satisfactory to Agent, by which a Person
becomes a Loan Party and a Guarantor pursuant to SECTION 9.3.
"L/C CASH COLLATERAL ACCOUNT" means a Deposit Account established
pursuant to SECTION 3.9(a) or (b).
"L/C ISSUER" means NationsBank and any Affiliate of NationsBank that
issues any Letter of Credit pursuant to this Agreement.
"LENDER" means, at any time, any financial institution party to this
Agreement at such time, including any Person a party hereto pursuant to the
provisions of ARTICLE 15, and in each case its successors and assigns, and
"LENDERS" means, at any time, all such Persons and their successors and assigns.
"LETTER OF CREDIT" means (i) any letter of credit issued by L/C Issuer
at the request of Borrower pursuant to ARTICLE 3, (ii) the Existing Letters of
Credit and (iii) any renewal, extension, modification, amendment, restatement or
replacement of any thereof.
"LETTER OF CREDIT AMOUNT" means, with respect to any Letter of Credit,
the aggregate maximum amount at any time available for drawing under such Letter
of Credit.
"LETTER OF CREDIT FACILITY" means the facility provided under ARTICLE 3
of this Agreement for maintenance or issuance of Letters of Credit in an
aggregate face amount not to exceed $100,000,000 at any time.
"LETTER OF CREDIT OBLIGATIONS" means, at any time, the sum of (a) the
Reimbursement Obligations at such time, PLUS (b) the aggregate of all Letter of
Credit Amounts outstanding at such time, PLUS (c) the aggregate of all Letter of
Credit Amounts of Letters of Credit the issuance of which has been authorized by
L/C Issuer pursuant to SECTION 3.4(b) but that have not yet been issued, in each
case as determined by Agent.
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"LETTER OF CREDIT RESERVE" means, at any time, an amount equal to the
Letter of Credit Obligations at such time, other than Letter of Credit
Obligations that are fully secured by Cash Collateral.
"LEVERAGE RATIO" means the ratio determined for Parent and its
Consolidated Subsidiaries (excluding CompUSA Net.com) as of the end of any
Fiscal Period of (i) Indebtedness for Money Borrowed to (ii) EBITDA for the
preceding twelve (12) Fiscal Periods.
"LIABILITIES" means, with respect to any Person, all items (excluding
Capital Stock, additional paid-in capital, retained earnings and general
contingency items and deferred tax reserves) which in accordance with GAAP would
be included in determining total liabilities as shown on a balance sheet of such
Person as at the date for which Liabilities are to be determined.
"LICENSES" means and includes, with respect to any Person, in each case
whether now existing or hereinafter arising, all of such Person's right, title
and interest in and to (a) any and all licensing agreements or similar
arrangements in and to any Patents, Copyrights or Trademarks; (b) all income,
royalties, damages, claims and payments now or hereafter due and/or payable
under and with respect thereto, including, without limitation, damages and
payments for past and future breaches thereof; and (c) all rights to sue for
past, present and future breaches thereof.
"LIEN" means, with respect to any property, any mortgage, lien, pledge,
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment, lease constituting
a Capitalized Lease Obligation or other encumbrance of any kind in respect of
such property, whether or not choate, vested or perfected.
"LOAN" means any Revolving Credit Loan, as well as all such loans
collectively, as the context requires, and in any case includes, without
limitation, any and all renewals, extensions, modifications or replacements
thereof.
"LOAN ACCOUNT" and "LOAN ACCOUNTS" shall have the meanings ascribed
thereto in SECTION 5.7.
"LOAN DOCUMENTS" means collectively this Agreement, each Joinder
Agreement, if any, each Reimbursement Agreement, the Notes, the Security
Documents, the Postclosing Agreement, if any, and each other instrument,
agreement, certificate or document executed by any Loan Party in connection with
this Agreement whether prior to, on or after the Agreement Date and each other
instrument, agreement, certificate or document referred to herein or
contemplated hereby, and any and all renewals, extensions, amendments,
modifications or restatements of any of the foregoing.
"LOAN PARTY" means each of the following, respectively: Borrower,
Parent, CompUSA GP Holdings Company, a Delaware business trust, CompUSA Holdings
Company, a Delaware business trust, CompUSA Holdings I Inc., a Delaware
corporation, CompUSA Holdings II Inc., a Delaware corporation, CompTeam, Inc., a
Delaware corporation, CompUSA PC Inc., a Delaware corporation, CompUSA PC
Operating Company, a Delaware business trust, CompUSA Management Co., a Delaware
business trust, and each Person that becomes a party to this Agreement pursuant
to SECTION
LOAN AND SECURITY AGREEMENT - Page 26
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9.3 after the Agreement Date by execution and delivery of a Joinder
Agreement, and their respective successors and assigns, and "LOAN PARTIES"
means all of such Persons, collectively.
"LOAN YEAR" means each annual period commencing on the last day of a
Fiscal Year (in the case of Loan Year 1, being June 26, 1999) and ending on the
day preceding the last day of the next Fiscal Year.
"LOCKBOX" means a U.S. post office box specified in, or pursuant to, an
Agency Account Agreement or a Lockbox Agreement.
"LOCKBOX AGREEMENT" means any agreement established between Agent, a
Loan Party and a Clearing Bank concerning the establishment of a Lockbox for the
receipt and collection of checks and other items constituting proceeds of
Receivables.
"MANAGEMENT'S RESTRUCTURING PLAN" means management's restructuring plan
for Parent and its Consolidated Subsidiaries developed as of the end of Parent's
Fiscal Year ending June 26, 1999, as detailed in the notes or management's
discussion and analysis to the financial statements referenced in SECTION 8.1(o)
or as otherwise disclosed to Agent in writing prior to the Agreement Date.
"MARGIN STOCK" means margin stock as defined in Section 221.1(h) of
Regulation U.
"MATERIALLY ADVERSE EFFECT" means a materially adverse effect upon the
business, assets, liabilities, financial condition or results of operations, of
Borrower, Parent or of the Loan Parties taken as a whole, or upon the ability of
Borrower, Parent or of the Loan Parties taken as a whole to perform its
respective obligations under any Loan Document to which it is a party, or upon
the enforceability of such obligations against Borrower or Parent or against the
Loan Parties taken as a whole.
"MAXIMUM RATE" means, at any time, the maximum rate of interest Lenders
may lawfully contract for, charge or receive in respect of the Secured
Obligations as allowed by Applicable Law. For purposes of determining the
Maximum Rate under the Applicable Law of the State of Texas, the applicable rate
ceiling shall be (a) the weekly rate ceiling described in and computed in
accordance with the provisions of Art. 1D.003, Title 79, Revised Civil Statutes
of Texas, as amended or (b) if the parties subsequently contract as allowed by
Applicable Law, the quarterly ceiling or the annualized ceiling computed
pursuant to Art. 1D.008, Title 79, Revised Civil Statutes of Texas, as amended;
provided, however, that at any time the weekly rate ceiling, the quarterly
ceiling or the annualized ceiling shall be less than 18% per annum or more than
24% per annum, the provisions of Art. 1D.009(a) or Art. 1D.009(b), Title 79,
Revised Civil Statutes of Texas, as amended, shall control for purposes of such
determination, as applicable.
"MERCHANT ACCOUNT" means, in respect of a Loan Party, any account,
agreement or arrangement between such Loan Party and another Person pursuant to
which such other Person
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gives or makes available credit to such Loan Party in respect of credit card
transactions generated by such Loan Party.
"MERCHANT ACCOUNT AGREEMENT" means an agreement evidencing a Merchant
Account, and any renewal, extension, modification, amendment or restatement
thereof.
"MINIMUM AVAILABILITY REQUIREMENT" means at any time $75,000,000.
"MONEY" means any medium of exchange authorized or adopted by a
domestic or foreign government and any other property or interest in property
classified as money pursuant to the UCC.
"MONEY BORROWED" means, as applied to Indebtedness:
(a) Indebtedness for Money borrowed;
(b) Subordinated Indebtedness
(c) Indebtedness, whether or not in any such case the
same was for Money borrowed,
(i) represented by notes payable, or drafts
accepted, that represent extensions of credit, including
without limitation Indebtedness which is convertible into
Capital Stock or Indebtedness for the deferred purchase price
of property,
(ii) constituting obligations evidenced by bonds,
debentures, notes or similar instruments, or
(iii) upon which interest charges are customarily
paid or that was issued, incurred or assumed as full or
partial payment for property (other than trade credit that is
incurred in the ordinary course of business);
(d) Indebtedness that constitutes a Capitalized Lease
Obligation, and
(e) Indebtedness described by CLAUSE (c) of the
definition of "Indebtedness" in this SECTION 1.1, but only to the
extent that the obligations Guaranteed are obligations that would
constitute Indebtedness for Money borrowed;
PROVIDED, that Money Borrowed does not include (a) accounts payable (or notes in
exchange thereof) or accrued liabilities incurred in the ordinary course of
business, including without limitation advances from customers and trade
payables financed through floor plan arrangements in the ordinary course of
business or (b) current or deferred income taxes.
LOAN AND SECURITY AGREEMENT - Page 28
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"MULTIEMPLOYER PLAN" means, with respect to any Person, a
"multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of ERISA
to which such Person or any ERISA Affiliate is required to contribute or has
contributed within the immediately preceding six (6) years.
"NATIONSBANK" means NationsBank, N.A., a national banking association
with an office located at 901 Main Street, Dallas, Dallas County, Texas 75202
and whose principal office is located in Charlotte, North Carolina, and each of
its successors and assigns.
"NEGATIVE PLEDGE" means any agreement, contract or other arrangement
whereby any Loan Party or any Restricted Subsidiary is prohibited from, or would
otherwise be in default as a result of, creating, assuming, incurring or
suffering to exist, directly or indirectly, any Lien on any of its assets in
favor of Agent for the benefit of the Credit Parties under this Agreement.
"NET INCOME" means, as applied to any Person, the net income (or net
loss) of such Person for the period in question after giving effect to deduction
of or provision for all operating expenses, all taxes and reserves (including
without limitation, reserves for deferred taxes) and all other proper
deductions, all determined in accordance with GAAP, PROVIDED that there shall be
excluded:
(a) the net income (or net loss) of any Person accrued
prior to the date it becomes a Subsidiary of, or is merged into or
Consolidated with, the Person whose Net Income is being determined or a
Consolidated Subsidiary of such Person;
(b) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments and
other capital assets, PROVIDED that there shall also be excluded any
related charges for taxes thereon;
(c) any net gain arising from the collection of the
proceeds of any insurance policy;
(d) any write-up or write-down of any asset; and
(e) any other extraordinary item as defined by GAAP.
"NET OUTSTANDINGS" of any Lender means, at any time, the sum of (a) all
principal amounts made available by such Lender to Agent in respect of Revolving
Credit Loans funded under this Agreement, MINUS (b) all amounts which are
received by Agent and which, pursuant to this Agreement, are paid over to such
Lender for application in reduction of the outstanding principal balance of such
Revolving Credit Loans.
"NET PROCEEDS" means proceeds received by any Loan Party or Restricted
Subsidiary from any Asset Disposition (including, without limitation, payments
under notes or other debt securities received in connection with any Asset
Disposition), net of: (a) the transaction costs of such Asset Disposition; (b)
any tax liability arising from such Asset Disposition; and (c) amounts applied
to
LOAN AND SECURITY AGREEMENT - Page 29
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repayment of Indebtedness (other than the Secured Obligations) secured by a
Lien on the asset or property disposed of.
"NET WORTH" means, for Parent and its Consolidated Subsidiaries,
determined in accordance with GAAP, the sum of: (a) Capital Stock taken at
stated or par value, plus (b) paid in capital plus (c) retained earnings, less
(d) treasury stock.
"NON-RATABLE LOAN" means a Revolving Credit Loan made by NationsBank in
accordance with the provisions of SECTION 5.10(B)(II).
"NON-STOCK ACQUISITION CONSIDERATION" means Acquisition Consideration
other than Capital Stock.
"NOTE" means any of the Revolving Credit Notes, and "NOTES" means more
than one such Note or all of such Notes, collectively, as the context may
indicate.
"NOTICE OF BORROWING" means a Notice of Borrowing, Prepayment,
Conversion or Continuation, signed by an Authorized Signatory of Borrower, in
substantially the form attached hereto as EXHIBIT "E".
"OPERATING LEASE" means any lease of real or personal property,
excluding any lease constituting a Capitalized Lease Obligation.
"OTHER TAXES" shall have the meaning set forth in SECTION 6.6(b).
"PARENT" means CompUSA Inc., a Delaware corporation (federal tax
identification number 75-2261497) with its chief executive office and principal
place of business located at 14951 North Dallas Parkway, Dallas, Texas 75240,
and its successors and assigns.
"PARENT GUARANTY" means a Guaranty Agreement dated as of the Agreement
Date executed by Parent, General Partner and CompUSA Holdings Company, pursuant
to this Agreement.
"PATENT SECURITY AGREEMENT" means a Patent Security Agreement executed
by one or more of the Loan Parties in favor of Agent, for the benefit of the
Credit Parties, as such agreement may be amended, modified, restated or
supplemented from time to time.
"PATENTS" means and includes, with respect to any Person, all of such
Person's right, title and interest in and to the following, in each case whether
now existing or hereafter arising:
(a) any and all patents and patent applications;
(b) all inventions and improvements described and claimed
therein;
LOAN AND SECURITY AGREEMENT - Page 30
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(c) all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof;
(d) all income, royalties, damages, claims and payments
now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past and future
infringements thereof;
(e) all rights to sue for past, present and future
infringements thereof; and
(f) all rights corresponding to any of the foregoing
under Applicable Law.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED CASH EQUIVALENTS" means, with respect to a Loan Party,
Investments permitted to be made pursuant to the Investment Policy of Parent
which is attached as SCHEDULE 1.1B ("Parent's Investment Policy").
"PERMITTED INVESTMENTS" means Investments of a Loan Party in:
(a) Permitted Cash Equivalents;
(b) Investments in CompUSA Net.com to the extent not
prohibited by SECTION 13.12, PROVIDED that no Default or Event of
Default is in existence at the time of making such Investment or would
result therefrom;
(c) Investments in a Person that is a Loan Party on the
Agreement Date or that is a Wholly-Owned Subsidiary of a Loan Party
formed by such Loan Party after the Agreement Date;
(d) Receivables arising in the ordinary course of
business and payable on standard terms;
(e) Investments described on SCHEDULE 1.1C ("Permitted
Investments") on the Agreement Date;
(f) loans to directors, officers and employees of any
Loan Party during any Fiscal Year (calculated net of repayments
thereon) which, together with Guaranties of Indebtedness of such
directors, officers and employees permitted under SECTION 13.3
during such Fiscal Year, do not exceed $1,000,000 in the aggregate,
PROVIDED that no Default or Event of Default is in existence at the
time of making any such Investment or would result therefrom;
LOAN AND SECURITY AGREEMENT - Page 31
<PAGE>
(g) shares of Capital Stock, evidence of Indebtedness or
other security acquired in consideration for or as evidence of past due
or restructured Receivables in an aggregate face amount of such
Receivables at any time not to exceed $5,000,000;
(h) Acquisitions permitted by SECTION 13.14; and
(i) Investments (calculated on a net basis by taking into
account any proceeds received by a Loan Party in liquidation or
replacement of any such Investment) not otherwise described in CLAUSES
(A) through (H) above and not otherwise prohibited by this Agreement,
the net aggregate amount of which does not at any time exceed 15% of
Net Worth in the aggregate for all such Investments under this CLAUSE
(i), PROVIDED, that no Default or Event of Default is in existence at
the time of making such Investment or would result therefrom and
Availability shall equal or exceed the Minimum Availability Requirement
at the time of making any such Investment and after giving effect
thereto.
"PERMITTED LANDLORDS LIEN" means (i) a Lien provided by statute under
Applicable Law of any state for the benefit of a lessor of Real Property
occupied by a Loan Party or (ii) a contractual Lien created pursuant to, and
securing amounts due under, the lease or other agreement under which such Loan
Party occupies such Real Estate, PROVIDED that (x) such Loan Party is not in
breach or default under the lease or other agreement under which such Loan Party
occupies such Real Estate and (y) any such contractual Lien described in CLAUSE
(ii) preceding remains unperfected and is subordinated to the Security Interest
in form and substance satisfactory to Agent.
"PERMITTED LIEN" means, as applied to any Person:
(a) The Security Interest;
(b) (i) Liens created by lease agreements or statute,
rule or regulation to secure the payments of rental amounts and other
sums not yet due or that are being diligently contested in good faith
by appropriate proceedings and for which adequate reserves shall have
been set aside on such Person's books, but only so long as no
foreclosure, restraint, sale or similar proceedings have been commenced
with respect thereto (PROVIDED that such Liens shall at all times be
confined to the assets located on any such leased premises), (ii) Liens
on leasehold interests created by the lessor (other than a Loan Party
or Restricted Subsidiary) in favor of any mortgagee of the leased
premises, and (iii) Liens for taxes, assessments, governmental charges,
levies or claims (excluding Environmental Liens or Liens imposed
pursuant to ERISA) but only if payment shall not at the time be
required to be made in accordance with SECTION 11.6 and no foreclosure,
restraint, sale or similar proceedings have been commenced with respect
thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers
and materialmen and other similar Liens incurred in the ordinary course
of business but only if payment shall not at the time be required to be
made in accordance with SECTION 11.6;
LOAN AND SECURITY AGREEMENT - Page 32
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(d) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or
similar legislation;
(e) Easements, right-of-way, restrictions, title
imperfections, leases to others and other encumbrances on the use of
real property which do not interfere with the ordinary conduct of the
business of such Person;
(f) (A) Purchase Money Liens securing Purchase Money
Indebtedness permitted by SECTION 13.2 and incurred for (i) the
purchase of Inventory, PROVIDED that such Lien expressly excludes all
proceeds of such Inventory other than insurance proceeds for theft or
casualty thereof and proceeds received upon disposition of such
property upon foreclosure pursuant to such Lien, and Agent received
prior written notice thereof, (ii) the purchase of equipment or leased
equipment used or acquired for use in the ordinary course of business
or (iii) the purchase and/or construction of new store locations
acquired and/or constructed for use in the ordinary course of business,
(B) Liens on Existing Store Locations which are identified in Schedule
8.1(gg) as owned by a Loan Party, securing Indebtedness which in each
case does not exceed the unpaid balance of the original cost of
acquiring and/or constructing such Existing Store Location and (C)
Liens constituting leases which are Capitalized Lease Obligations.
(g) Liens in respect of judgments or awards for which
appeals or proceedings for review are being prosecuted and in respect
of which a stay of execution upon any such appeal or proceeding for
review shall have been secured, PROVIDED that (i) such Person shall
have established adequate reserves for such judgments or awards, (ii)
such judgments or awards shall be fully insured and the insurer shall
not have denied coverage, or (iii) such judgments or awards shall have
been bonded to the satisfaction of the Required Lenders;
(h) Liens, if any, which are described on SCHEDULE 1.1D
("Permitted Liens") on the Agreement Date and Liens resulting from the
refinancing of the related Indebtedness, PROVIDED that such refinancing
is on the same or substantially similar terms, the Indebtedness secured
thereby shall not be increased and the Liens shall not cover additional
assets;
(i) Liens to secure performance or payment bonds,
performance of bids, construction, supply of materials or similar
contracts, statutory obligations, and other similar obligations, in
each case arising in the ordinary course of business and not made in
connection with Money Borrowed or the deferred purchase price of goods
or services;
(j) inchoate Liens in respect of pending proceedings or
claims not yet due and payable and for which reserves have been
established in accordance with GAAP; and
(k) bank setoff rights arising by operation of law,
LOAN AND SECURITY AGREEMENT - Page 33
<PAGE>
PROVIDED, that unless otherwise expressly provided elsewhere in this Agreement
the characterization of any Lien as a "Permitted Lien" shall not impair or waive
any provision of the Loan Documents in respect of priority of the Security
Interest.
"PERMITTED WAREHOUSEMAN'S LIEN" means (i) a Lien provided by statute
under Applicable Law of any state for the benefit of a Person who is in the
business of storing goods for hire or (ii) a contractual Lien created pursuant
to, and securing amounts due under, a warehouse agreement or other agreement
under which goods of a Loan Party are stored with a Person who is in the
business of storing goods for hire, PROVIDED that (x) such Loan Party is not in
breach or default under the warehouse agreement or other agreement under which
such goods are stored with such Person and (y) any such contractual Lien
described in CLAUSE (ii) preceding remains unperfected and is subordinated to
the Security Interest in form and substance satisfactory to Agent.
"PERSON" means any individual, corporation, limited liability company,
joint venture, general partnership, limited partnership, association, trust,
business trust, unincorporated organization or Governmental Authority, or other
similar entity.
"PLAN" means, with respect to any Person, any employee benefit plan as
defined in Section 3(3) of ERISA in respect of which such Person or any ERISA
Affiliate is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA, including without limitation, a
Multiemployer Plan and a Benefit Plan.
"POSTCLOSING AGREEMENT" means a Postclosing Agreement (if any), dated
as of the Agreement Date, among the Loan Parties, Agent and the Lenders on the
Agreement Date, as modified, amended, restated or supplemented from time to
time.
"PRIME RATE" means the per annum rate of interest established from time
to time by NationsBank as its "prime rate", which rate may not be the lowest
rate of interest charged by NationsBank to its customers.
"PRINCIPAL OFFICE" means the office of Agent specified in or determined
in accordance with the provisions of SECTION 17.1.
"PROPRIETARY RIGHTS" means, with respect to any Person, all of such
Person's now owned and hereafter arising or acquired: Patents, Copyrights,
Trademarks and Licenses and all other rights under any of the foregoing, all
extensions, renewals, reissues, divisions, continuations and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"PURCHASE MONEY INDEBTEDNESS" means:
(a) Indebtedness created solely in consideration of all
or any part of (i) the purchase price of Inventory, including without
limitation in respect of Indebtedness to manufacturers, vendors and
floor plan financiers of such Inventory, or equipment or (ii) the
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acquisition and/or construction of new store locations, in each case
purchased, acquired and/or constructed for use in the ordinary course
of business; and
(b) Indebtedness incurred solely for the purpose of
financing all or any part of the purchase price of Inventory or
equipment acquired for use in the ordinary course of business which is
incurred at the time of or within thirty (30) days prior to or after
such acquisition;
in each case the aggregate principal amount of which does not exceed an
amount equal to 100% of the lesser of (i) the purchase price or
acquisition and/or construction cost of the property acquired in
consideration of such Indebtedness or (ii) the fair value of such
property at the time of its acquisition, and
(c) any renewals, extensions or refinancings of any of the
foregoing (but not any increases) in the principal amounts thereof
outstanding at the time of any such renewal, extension or refinancing.
"PURCHASE MONEY LIEN" means a Lien securing Purchase Money
Indebtedness, but only if such Lien at all times is confined solely to the
property the purchase price or acquisition and/or construction of which was
financed through the incurrence of the Purchase Money Indebtedness secured by
such Lien and, in the case of Inventory, other Inventory supplied on credit by
the same manufacturer or vendor or by a floor plan financier in respect of
Inventory of an identified manufacturer or vendor, PROVIDED that any such other
Inventory bears the name, trademark or service mark of such manufacturer or
vendor or is otherwise clearly identified as having been supplied by such
manufacturer or vendor (plus, proceeds thereof, and in the case of real
property, any fixtures thereon, PROVIDED, however, that with respect to
Inventory, any Lien in such proceeds expressly excludes all proceeds of such
Inventory other than insurance proceeds for theft or casualty thereof and
proceeds received upon disposition of such property upon foreclosure pursuant to
such Lien).
"REAL ESTATE" means, with respect to a Person, all of such Person's now
or hereafter owned or leased estates in real property, including, without
limitation, all fees, leaseholds and future interests, together with all of such
Person's now or hereafter owned or leased interests in the improvements and
emblements thereon, the fixtures attached thereto and the easements appurtenant
thereto.
"RECEIVABLES" means, with respect to a Person, all of the following,
now owned and hereafter acquired:
(a) all Accounts, Chattel Paper and Contract Rights of
such Person;
(b) any and all other rights to the payment of Money or
other forms of consideration of any kind owing to such Person (to the
extent, if any, not otherwise included in Instruments, General
Intangibles or Investment Property);
LOAN AND SECURITY AGREEMENT - Page 35
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(c) all goods, whether now owned or hereafter acquired,
and whether sold, delivered, undelivered, in transit or returned, which
may be represented by, or the sale or lease of which may have given
rise to, any Receivables; and
(d) all proceeds of any of the foregoing.
"RECEIVABLES GUARANTY" means a Guaranty or indemnity agreement issued
by a Person guaranteeing the prompt payment and performance of a Receivable, or
indemnifying against loss by reason of nonpayment thereof, together with and
including all rights of such Loan Party to payment thereunder and all proceeds
thereof.
"RECEIVABLES L/C" means a letter of credit issued by a Person as
support for payment and performance of any Receivable(s), together with and
including all rights to payment thereunder and all proceeds thereof.
"REGISTER" has the meaning set forth in SECTION 15.1(b).
"REGULATION D" means Regulation D as promulgated by the Board of
Governors of the Federal Reserve System (or any successor Governmental
Authority), as the same may be amended or supplemented from time to time.
"REGULATION U" means Regulation U as promulgated by the Board of
Governors of the Federal Reserve System (or any successor Governmental
Authority), as the same may be amended or supplemented from time to time.
"REIMBURSEMENT AGREEMENT" means, with respect to a Letter of Credit,
such form of application and form of reimbursement agreement therefor (whether
in a single or separate documents) as L/C Issuer may employ in the ordinary
course of business for its own account, with such modifications thereto as may
be agreed upon by L/C Issuer and, in addition, each letter of credit
reimbursement agreement in respect of the Existing Letters of Credit.
"REIMBURSEMENT OBLIGATIONS" means the reimbursement or repayment
obligations of Borrower to the Credit Parties pursuant to SECTION 3.6 or
pursuant to a Reimbursement Agreement with respect to amounts that have been
drawn under Letters of Credit.
"RELATED COMPANY" means, with respect to the Borrower or any
Subsidiary, any (i) corporation which is a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Internal Revenue
Code) as the Borrower or any of its Subsidiaries, (ii) partnership or other
trade or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Internal Revenue Code) with the Borrower or any
of its Subsidiaries, or (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Internal Revenue Code) as the
Borrower or any of its Subsidiaries, any corporation described in CLAUSE (i)
above or any partnership, trade or business described in CLAUSE (ii) above.
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"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including,
without limitation, the movement of Contaminants through or in the air, soil,
surface water or groundwater.
"REMEDIAL ACTION" means actions required to (i) clean up, remove, treat
or in any other way address Contaminants in the indoor or outdoor environment,
(ii) prevent the Release or threat of Release or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment, or (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
"REPORTABLE EVENT" has the meaning set forth in Section 4043(b) of
ERISA, but shall not include a Reportable Event as to which the provision for
thirty (30) days' notice to the PBGC is waived under applicable regulations.
"REQUIRED LENDERS" means, at any time, any combination of Lenders whose
Commitment Percentages at such time equals or exceeds, in the aggregate, fifty
one percent (51%).
"RESERVE" at any time means the sum of (i) amounts established by Agent
pursuant to SECTION 2.5 as a reserve in respect of costs, expenses, liens,
risks, claims, contingencies or other potential factors which, in the event they
should occur, could adversely affect or otherwise reduce the anticipated net
amount which could be timely realized upon liquidation of Eligible Receivables
or Eligible Inventory for application to the Secured Obligations, (ii) any
reserve established as specifically provided by this Agreement, including
without limitation pursuant to PARAGRAPHS (g) or (h) of the definition of
Eligible Inventory in SECTION 1.1 and (ii) any Environmental Compliance Reserve.
"RESERVE REQUIREMENT" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against, in the case of
Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by reference
to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category
of extensions of credit or other assets which include Eurodollar Loans. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"RESTRICTED DIVIDEND PAYMENT" means any Dividend, excluding any
Dividend by a Loan Party to another Loan Party or by any Subsidiary of a Loan
Party to such Loan Party.
"RESTRICTED PAYMENT" means (a) any redemption, payment or prepayment or
other retirement, prior to the stated maturity thereof or prior to the due date
of any regularly scheduled payment,
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installment or amortization of, or any defeasance, redemption, purchase,
repurchase or other acquisition or retirement for value, in whole or in part,
of, any Indebtedness for Money Borrowed (other than Secured Obligations) or
of any Indebtedness that is junior and subordinate in right of payment to the
Secured Obligations, or any payment thereon which is prohibited by the terms
thereof or by any provision of this Agreement, (b) the payment by any Person
of the principal amount of or interest on any Indebtedness (other than
current amounts owing on trade debt incurred in the ordinary course of
business or other Indebtedness allowed by SECTION 13.2 and, to the extent
applicable, incurred in accordance with SECTION 13.7) owing to a shareholder,
partner or equity holder of such Person or to any Affiliate (other than a
Loan Party) of any such shareholder, partner or equity holder and (c) payment
of any management, consulting or similar fee by any Person to any Affiliate
(other than a Loan Party) of such Person.
"RESTRICTED PURCHASE" means any payment on account of the purchase,
redemption or other acquisition or retirement by a Person of any (a) shares of
such Person's Capital Stock (except shares acquired on the conversion or
exchange thereof into or for other shares of Capital Stock of such Person).
"RESTRICTED SUBSIDIARY" means any Subsidiary, other than a Loan Party
and CompUSA Net.com, of any Loan Party that (notwithstanding the requirements of
SECTION 9.3, but without impairing or waiving such requirements) has not yet
become a Loan Party, and "RESTRICTED SUBSIDIARIES" means all of such Persons.
"REVOLVING CREDIT FACILITY" means the facility provided by ARTICLE 2 of
this Agreement for Revolving Credit Loans up to the maximum principal sum of
Five Hundred Million Dollars ($500,000,000).
"REVOLVING CREDIT LOANS" means the Loans made to Borrower pursuant to
SECTION 2.1, and each of such Loans, respectively, as the context requires.
"REVOLVING CREDIT NOTE" means a Revolving Credit Note made by Borrower
payable to the order of a Lender evidencing the obligation of Borrower to pay
the aggregate unpaid principal amount of the Revolving Credit Loans made to it
by such Lender (and any promissory note or notes that may be issued from time to
time in substitution, renewal, extension, replacement or exchange therefor
whether payable to such Lender or to a different Lender in connection with a
Person becoming a Lender after the Agreement Date or otherwise) substantially in
the form of EXHIBIT "A" hereto, with all blanks properly completed, either as
originally executed or as may be renewed, extended, modified, amended,
supplemented or restated from time to time.
"SCHEDULE OF INVENTORY" means a schedule delivered by Borrower to Agent
pursuant to SECTION 10.12(b).
"SCHEDULE OF RECEIVABLES" means a schedule delivered by Borrower to
Agent pursuant to SECTION 10.12(a).
LOAN AND SECURITY AGREEMENT - Page 38
<PAGE>
"SECURED OBLIGATIONS" means, in each case whether now in existence or
hereafter arising:
(a) the principal of, and interest and premium, if any,
on, the Loans;
(b) the Reimbursement Obligations and all other
obligations owing to L/C Issuer or any other Credit Party arising in
connection with any Letter of Credit;
(c) all obligations of any Loan Party under any Interest
Rate Protection Agreement;
(d) all obligations of any Loan Party for losses,
damages, expenses or any other liabilities of any kind that any Credit
Party may suffer by reason of a breach by such Loan Party of any
obligation, covenant or undertaking with respect to any Loan Document;
and
(e) all indebtedness, liabilities, obligations, covenants
and duties of any Loan Party to the Credit Parties, or any of them, of
every kind, nature and description arising under or in respect of this
Agreement, the Notes or any of the other Loan Documents, whether direct
or indirect, absolute or contingent, due or not due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by
any note, and whether or not for the payment of Money, including,
without limitation, fees required to be paid under ARTICLE 5 and
expenses required to be paid or reimbursed pursuant to SECTION 17.2.
"SECURITIES ACCOUNT" means any account to which a Financial Asset is or
may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise the rights that comprise the Financial Asset.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SECURITIES INTERMEDIARY" means any (i) clearing corporation, as such
term is defined in Chapter 8 (or Article 8) of the UCC, or (ii) Person,
including a bank or Broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.
"SECURITY" means any "security," as such term is defined in Chapter 8
(or Article 8) of the UCC and, in any event, shall include, but not be limited
to, any obligation of an Issuer or a share, participation or other interest in
an Issuer or in property or an enterprise of an Issuer: (i) which is represented
by a Security Certificate in bearer or registered form, or the transfer of which
may be registered upon books maintained for that purpose by or on behalf of the
Issuer; (ii) which is one of a class or series or by its terms is divisible into
a class or series of shares, participations, interests or obligations; and (iii)
which (a) is, or is of a type, dealt in or traded on securities exchanges or
securities markets or (b) is a medium for investment and by its terms expressly
provides that it is a security governed by Chapter 8 (or Article 8) of the UCC.
"SECURITY CERTIFICATE" means any certificate representing a Security.
LOAN AND SECURITY AGREEMENT - Page 39
<PAGE>
"SECURITY DOCUMENTS" means each of the following:
(a) each Financing Statement;
(b) any Patent Security Agreement;
(c) any Trademark Security Agreement;
(d) any Copyright Security Agreement;
(e) each Guaranty Agreement;
(f) each other writing executed and delivered by any Loan
Party or any other Person securing or Guaranteeing
the Secured Obligations, or any part thereof; and
(g) any and all renewals, extensions, modifications,
amendments, supplements or restatements of any of the
foregoing.
"SECURITY ENTITLEMENT" means any of the rights and property interests
of an Entitlement Holder with respect to a Financial Asset.
"SECURITY INTEREST" means the Liens of Agent, for the benefit of the
Credit Parties, on and in the Collateral pursuant to this Agreement and the
Security Documents or any other Loan Document.
"SENIOR SUBORDINATED NOTES" means Parent's $110,000,000 9-1/2% Senior
Subordinated Notes due 2000.
"SETTLEMENT DATE" means each Business Day after the Effective Date
selected by Agent pursuant to SECTION 5.10(b)(i) as of which a Settlement Report
is delivered by Agent and on which settlement is to be made among the Lenders in
accordance with the provisions of SECTION 5.10.
"SETTLEMENT REPORT" means each report, in form satisfactory to and
prepared by Agent and delivered to each Lender, setting forth, among other
things, as of the Settlement Date indicated thereon and as of the next preceding
Settlement Date, the aggregate principal balance of all Revolving Credit Loans
outstanding, each Lender's Commitment Percentage thereof, each Lender's Net
Outstandings and all Non-Ratable Loans made, and all payments of principal,
interest and fees received by Agent from Borrower during the period beginning on
such next preceding Settlement Date and ending on such Settlement Date.
"SOLVENT" means, as to a Person, as of any date, that on and as of such
date (both before and after effecting the transactions contemplated by this
Agreement and making any Loans or taking any actions permitted by this Agreement
proposed to be taken as of such date) (a) the sum of such
LOAN AND SECURITY AGREEMENT - Page 40
<PAGE>
Person's debts is not greater than all of such Person's property, at a fair
valuation, (b) the sum of such Person's debts is not greater than all of such
Person's assets, at a fair valuation, (c) such Person is generally paying its
debts as they become due, (d) such person is not engaged or about to engage
in any business or any transaction for which (i) its property is an
unreasonably small capital or (ii) the remaining assets of such Person are
unreasonably small in relation to any such business or transaction, (e) such
Person does not intend to incur, and does not believe that it will incur,
debts that are or would be beyond its ability to pay as such debts mature or
become due, and (f) such Person does not intend to hinder, delay or defraud
any creditor of such Person. For this purpose (i) "debts" includes anything
included within the definition of "debt" as used in Section 548 of the United
States Bankruptcy Code or as defined or used by Section 24.002 or Section
24.003 of the Texas Uniform Fraudulent Transfer Act, and "assets" has the
meaning defined or used by Section 24.002 of the Texas Uniform Fraudulent
Transfer Act. Contingent, unliquidated or disputed obligations or liabilities
(if any) are valued at the amount which, in light of all relevant facts and
circumstances, is reasonably expected to become absolute, liquidated or
mature.
"SPOT RATE" means, as of any date of determination with respect to the
conversion of an amount denominated in one currency (the "ORIGINAL CURRENCY") to
another currency (the "OTHER CURRENCY"), the rate of exchange at which, in
accordance with customary banking procedures and at such time and in such
foreign exchange market as Agent shall determine consistent with such
procedures, Agent on such date could purchase such amount of the Original
Currency with such Other Currency.
"SUBORDINATED INDEBTEDNESS" means (i) the Senior Subordinated Notes,
(ii) the certain subordinated promissory note dated August 31, 1998 executed by
Parent payable to Tandy Corporation and (iii) other Indebtedness of any Loan
Party or any Restricted Subsidiary of a Loan Party which has maturities and
terms, and which is subordinated to payment of the Secured Obligations in a
manner, approved in writing by the Required Lenders, and in each such case any
renewals, modifications or amendments thereof which are approved in writing by
Agent and the Required Lenders.
"SUBSIDIARY" shall
(a) when used to determine the relationship of a Person
to another Person, mean a Person of which an aggregate of more than
fifty percent (50%) of the Capital Stock is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of
such other Person, or by such other Person and one or more Subsidiaries
of such Person,
(i) if the holders of such Capital Stock (A) are
ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or other
individuals performing similar functions) of such Person, even
though the right so to vote has been suspended by the
happening of such a contingency, or (B) are entitled, as such
holders, to vote for the election of a majority of the
directors (or individuals performing similar functions) of
such Person, whether or not the right so to vote exists by
reason of the happening of a contingency, or
LOAN AND SECURITY AGREEMENT - Page 41
<PAGE>
(ii) in the case of Capital Stock which is not
issued by a corporation, if such ownership interests
constitute a majority voting interest, and
(b) when used with respect to a Plan, ERISA or a
provision of the Internal Revenue Code pertaining to employee benefit
plans, also mean any corporation, trade or business (whether or not
incorporated) which is under common control with Borrower and is
treated as a single employer with Borrower under Section 414(b) or (c)
of the Internal Revenue Code and the regulations thereunder.
"SUBSIDIARY GUARANTY" means a Guaranty Agreement dated as of the
Agreement Date executed by each Loan Party other than Borrower, Parent, General
Partner and CompUSA Holdings Company.
"SUPPORTING LETTER OF CREDIT" shall have the meaning set forth in
SECTION 3.10.
"TAXES" shall have the meaning set forth in SECTION 6.6(a).
"TERMINATION DATE" means (i) the day that is the third anniversary of
the Agreement Date or such later date as to which such date may be extended
pursuant to the provisions of SECTION 2.6, or (ii) or such earlier date as of
when all Secured Obligations shall have been irrevocably paid in full and the
Commitments and the Revolving Credit Facility shall have been terminated.
"TERMINATION EVENT" means
(a) a Reportable Event, or
(b) the filing of a notice of intent to terminate a Plan,
or the treatment of a Plan amendment as a termination, under Section
4041 of ERISA, or
(c) the institution of proceedings to terminate a Plan by
the PBGC under Section 4042 of ERISA, or the appointment of a trustee
to administer any Plan under Section 4042 of ERISA.
"THRESHOLD USAGE AMOUNT" means an amount equal to fifty percent (50%)
of the Borrowing Base as calculated under the definition of "Borrowing Base" in
SECTION 1.1 but without making any deductions therefrom in respect of the
Reserve or the Letter of Credit Reserve.
"TOTAL COMMITMENT" means the sum of the Commitments.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement
executed by one or more of the Loan Parties in favor of Agent, for the benefit
of the Credit Parties, as may be amended, modified, restated or supplemented
from time to time.
LOAN AND SECURITY AGREEMENT - Page 42
<PAGE>
"TRADEMARKS" means and includes, with respect to any Person, all of
such Person's right, title and interest in and to the following, in each case
whether now existing or hereafter arising:
(a) all trademarks (including service marks), trade names and
trade styles and the registrations and applications (excluding "intent
to use" applications") for registration thereof and the goodwill of the
business symbolized by such trademarks;
(b) all licenses of the foregoing, whether as licensee or
licensor;
(c) all renewals of the foregoing;
(d) all income, royalties, damages and payments now or
hereafter due and/or payable with respect thereto, including, without
limitation, damages, claims and payments for past and future
infringements thereof;
(e) all rights to sue for past, present and future
infringements of the foregoing, including the right to settle suits
involving claims and demands for royalties owing; and
(f) all rights corresponding to any of the foregoing
under Applicable Law.
"TREASURY STOCK PURCHASE" means, with respect to any Person, any
purchase, redemption, or other acquisition for value by such Person of any
shares of the Capital Stock of such Person as treasury stock.
"TYPE" means any type of Loan (i.e., Base Rate Loan or a Eurodollar
Loan).
"UCC" means (i) the Uniform Commercial Code as in effect from time to
time in the State of Texas, as amended from time to time, and (ii) the Uniform
Commercial Code as in effect from time to time in such other states as any
Collateral may be located, as and to the extent applicable.
"U.S." means the United States of America.
"UNCERTIFICATED SECURITY" means any "uncertificated security," as such
term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall
include, but not be limited to, any Security that is not represented by a
certificate.
"UNFUNDED CAPITAL EXPENDITURES" means Capital Expenditures which are
paid for by a Person (i) with proceeds of Revolving Credit Loans, or (ii)
otherwise, from sources other than Indebtedness for Money Borrowed.
"UNFUNDED VESTED ACCRUED BENEFITS" means with respect to any Plan at
any time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Plan exceeds, (b) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan.
LOAN AND SECURITY AGREEMENT - Page 43
<PAGE>
"UNUSED COMMITMENT FEE PERCENTAGE" means, as of the Agreement Date,
three-eighths percent (0.375%), subject to adjustment thereafter from time to
time to the percentage specified corresponding to the Leverage Ratio as set
forth below, respectively:
<TABLE>
<CAPTION>
==================================================================
Leverage Ratio Percentage
==================================================================
<S> <C>
Greater than 4.0 to 1.0 0.500%
- ------------------------------------------------------------------
Less than or equal to 4.0 to 1.0 but 0.500%
greater than 3.0 to 1.0
- ------------------------------------------------------------------
Less than or equal to 3.0 to 1.0 but 0.375%
greater than 2.5 to 1.0
- ------------------------------------------------------------------
Less than or equal to 2.5 to 1.0 but 0.375%
greater than 2.1 to 1.0
- ------------------------------------------------------------------
Less than or equal 2.1 to 1.0 but 0.250%
greater than 1.7 to 1.0
- ------------------------------------------------------------------
Less than or equal to 1.7 0.250%
==================================================================
</TABLE>
For the purpose of determining the Unused Commitment Percentage the Leverage
Ratio shall be determined based upon Parent's Consolidated financial statements
for its respective Fiscal Quarters delivered to Agent as required by SECTION
12.1, and any resulting change, if any, in the Unused Commitment Percentage
shall become effective as of the first day of the calendar month following the
month in which such financial statements are delivered to Agent.
"VOTING STOCK" means Capital Stock of a Person having ordinary voting
power for the election of a majority of the members of its board of directors or
other governing body (not including shares having such power only in the event
of a contingency).
"WHOLLY-OWNED SUBSIDIARY" when used to determine the relationship of a
Subsidiary to a Person, means a Subsidiary all of the issued and outstanding
Capital Stock (other than directors' qualifying shares) of which shall at the
time be owned by such Person or one or more of such Person's Wholly-Owned
Subsidiaries or by such Person and one or more of such Person's Wholly-Owned
Subsidiaries.
"YEAR 2000 COMPLIANT" has the meaning set forth in SECTION 8.1(ff).
"YEAR 2000 PROBLEM" has the meaning set forth in SECTION 8.1(ff).
LOAN AND SECURITY AGREEMENT - Page 44
<PAGE>
Section 1.2 GENERAL. All terms of an accounting nature not
specifically defined herein shall have the meaning ascribed thereto by GAAP.
The generic terms accounts, chattel paper, documents, equipment, instruments,
general intangibles, inventory and investment property, as and when used in
this Agreement or the Security Documents, shall have the meanings given those
terms in the UCC. Unless otherwise specified, a reference in this Agreement
to a particular section, subsection, Schedule or Exhibit is a reference to
that section, subsection, Schedule or Exhibit of this Agreement, and the
words "hereof," "herein," "hereunder" and words of similar import, when used
in this Agreement, refer to this Agreement as a whole and not to any
particular provision, section or subsection of this Agreement. Wherever from
the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Words denoting individuals include corporations,
limited liability companies, partnerships, joint ventures and other business
entities and vice versa. References to any legislation or statute or code, or
to any provisions of any legislation or statute or code, shall include any
modification or reenactment of, or any legislative, statutory or code
provision substituted for, such legislation, statute or code or provision
thereof. References to any document or agreement (including this Agreement)
shall include references to such document or agreement as amended, restated,
novated, supplemented, modified or replaced from time to time, so long as and
to the extent that such amendment, restatement, novation, supplement,
modification or replacement is either not prohibited by the terms of this
Agreement or is consented to by the Required Lenders and Agent. References to
any Person include its successor or permitted substitutes and assigns.
Standards of "reasonableness," or requirements of similar import, and the
conduct of any Credit Party or any Loan Party in connection with the Loan
Documents shall be measured according to applicable standards prescribed by
the UCC. Where used in this Agreement, the phrase "in its reasonable
discretion in the exercise of reasonable credit judgment", in reference to
Agent, shall be measured according to that discretion that would be exercised
by a reasonably prudent Person that is a lender in the asset based lending
industry and is acting in its capacity as administrative agent in the same or
substantially similar circumstances.
Section 1.3 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached
hereto are incorporated fully herein by reference thereto.
ARTICLE 2
REVOLVING CREDIT FACILITY
Section 2.1 REVOLVING CREDIT LOANS. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, each Lender agrees, severally, but not jointly, to make
Revolving Credit Loans to Borrower from time to time from the Effective Date to
but not including the Termination Date, as requested or deemed requested by
Borrower in accordance with the terms of SECTION 2.2, in amounts equal to such
Lender's Commitment Percentage of each such Loan requested or deemed requested
hereunder up to an aggregate amount at any one time outstanding equal to such
Lender's Commitment Percentage of the Borrowing Base; PROVIDED, HOWEVER, that
(i) the aggregate principal amount of all outstanding
LOAN AND SECURITY AGREEMENT - Page 45
<PAGE>
Revolving Credit Loans (after giving effect to the Loans requested) shall not
exceed the Borrowing Base and (ii) the aggregate amount of Revolving Credit
Loans plus the aggregate amount of Reimbursement Obligations plus an amount
determined by Agent in its reasonable discretion in respect of all
obligations owing by any Loan Party to any Lender in respect of Interest Rate
Protection Agreements shall not exceed $500,000,000. It is expressly
understood and agreed that the Lenders may and at present intend to use the
Borrowing Base as a maximum ceiling on Revolving Credit Loans to Borrower;
PROVIDED, HOWEVER, that it is agreed that should the Revolving Credit Loans
exceed the ceiling so determined or any other limitation set forth in this
Agreement such Revolving Credit Loans shall nevertheless constitute Secured
Obligations and, as such, shall be entitled to all benefits thereof and
security therefor. The principal amount of any Revolving Credit Loan which is
repaid pursuant to SECTION 2.3(c) may be reborrowed by Borrower, subject to
the terms and conditions of this Agreement, in accordance with the terms of
this SECTION 2.1. Agent's and each Lender's books and records reflecting the
date and the amount of each Revolving Credit Loan and each repayment of
principal thereof shall constitute prima facie evidence of the accuracy of
the information contained therein, subject to the provisions of SECTION 5.10.
Section 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings
under the Revolving Credit Facility shall be made as follows:
(a) REQUESTS FOR BORROWING. A request for a borrowing
shall be made, or shall be deemed to be made, in the following manner:
(i) requests for a Revolving Credit Loan shall
be made in the manner prescribed by ARTICLE 5;
(ii) whenever a check or other item is presented
to a Disbursing Bank for payment against a Disbursement
Account in an amount greater than the then available balance
in such account then, unless payment is otherwise timely made
within three (3) Business Days, such Disbursing Bank shall,
and is hereby irrevocably authorized by Borrower to, give
Agent notice thereof, which notice shall be deemed to be a
request for a Revolving Credit Loan on the date of such notice
in an amount equal to the excess of such check or other item
over such available balance;
(iii) unless payment is otherwise timely made
within three (3) Business Days, the becoming due of any amount
required to be paid under this Agreement or any of the Notes
as interest shall be deemed to be a request for a Revolving
Credit Loan on the due date in the amount required to pay such
interest;
(iv) unless payment is otherwise timely made
within three (3) Business Days, the becoming due of any other
Secured Obligation shall be deemed to be a request for a
Revolving Credit Loan on the due date in the amount then so
due, and such request shall be irrevocable; and
LOAN AND SECURITY AGREEMENT - Page 46
<PAGE>
(v) the receipt by Agent of notification from
L/C Issuer to the effect that a drawing has been made under a
Letter of Credit and that Borrower has failed to reimburse L/C
Issuer therefor in accordance with the terms of the applicable
Reimbursement Agreement and ARTICLE 3 shall be deemed to be a
request for a Revolving Credit Loan on the date such
notification is received in the amount of such drawing which
is so unreimbursed.
(b) DISBURSEMENT OF LOANS. Borrower hereby irrevocably
authorizes Agent to disburse the proceeds of each borrowing requested,
or deemed to be requested, pursuant to this SECTION 2.2 as follows:
(i) the proceeds of each borrowing requested
under SECTION 2.2(a)(i) shall be disbursed by Agent in Dollars
in immediately available funds, (a) in the case of the initial
borrowing under the Revolving Credit Facility, in accordance
with the terms of the certificate from Borrower to Agent
referred to in SECTION 7.1(a)(xi), and (b) in the case of each
subsequent borrowing, by wire transfer to a Disbursement
Account or, in the absence of a Disbursement Account, by wire
transfer to such other account as may be agreed upon by
Borrower and Agent from time to time;
(ii) the proceeds of each borrowing deemed
requested under SECTION 2.2(a)(ii), (iii) or (iv) shall be
disbursed by Agent by way of direct payment of the relevant
amount, interest or Secured Obligation referenced therein, as
the case may be, PROVIDED that Agent and the Lenders shall
have no obligation to make any such Loan; and
(iii) the proceeds of each borrowing deemed
requested under SECTION 2.2(a)(v) shall be disbursed by Agent
directly to L/C Issuer in payment of the Reimbursement
Obligations referenced therein.
Section 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. Borrower hereby agrees
to pay the Revolving Credit Loans as follows:
(a) Whether or not any Default or Event of Default has
occurred, the outstanding principal amount of all the Revolving Credit
Loans is due and payable, and shall be repaid by Borrower in full, on
the Termination Date;
(b) If at any time the aggregate outstanding unpaid
principal amount of the Revolving Credit Loans exceeds the Borrowing
Base in effect at such time, Borrower shall repay the Revolving Credit
Loans in an amount sufficient to reduce the aggregate unpaid principal
amount of such Revolving Credit Loans by an amount equal to such
excess, together with accrued and unpaid interest on the amount so
repaid to the date of repayment; and
LOAN AND SECURITY AGREEMENT - Page 47
<PAGE>
(c) Borrower hereby instructs Agent to repay the
Revolving Credit Loans outstanding on any day in an amount equal to the
amount received by Agent on such day pursuant to SECTION 10.1(b).
Section 2.4 REVOLVING CREDIT NOTE. Each Lender's Revolving Credit Loans
and the obligation of Borrower to repay such Revolving Credit Loans shall be
evidenced by a Revolving Credit Note payable to the order of such Lender. Each
Revolving Credit Note shall be dated the Agreement Date, or with respect to any
Lender which is a party to an Assignment and Acceptance the date of such
Assignment and Acceptance, and be duly and validly executed and delivered by
Borrower.
Section 2.5 BORROWING BASE. At any time after the occurrence, and
during the continuance, of an Event of Default, the percentages specified in
this Agreement for determination of the Borrowing Base may be adjusted from time
to time based upon such considerations as Agent may deem appropriate in its
reasonable discretion (PROVIDED, that any such reduction shall be eliminated,
and such percentages shall be restored, at such time, if any, as any such Event
of Default is cured or waived in accordance with SECTION 17.10). Percentages
used from time to time in calculating the Borrowing Base are for the sole
purpose of determining the maximum amount of Revolving Credit Loans that may be
outstanding from time to time under this Agreement and shall not be evidentiary
of or binding upon the Credit Parties with respect to the market value or
liquidation value of any Collateral. Agent shall have the right in its
reasonable discretion in the exercise of reasonable credit judgment to establish
a Reserve at any time when the aggregate outstanding balance of all Revolving
Credit Loans plus the Letter of Credit Reserve exceeds the Threshold Usage
Amount. Funding of Revolving Credit Loans hereunder shall at all times remain
subject to confirmation of Eligible Receivables, Eligible Inventory and the
Borrowing Base, in Agent's discretion. Any request for a Revolving Credit Loan
which, if funded, would result in the unpaid balance of the Revolving Credit
Loans being in excess of the amount allowed by this Agreement may be declined by
Agent in its sole discretion without prior notice.
Section 2.6 EXTENSION OF REVOLVING CREDIT FACILITY. Borrower may notify
Agent in writing by May 1 of each year while this Agreements in effect,
commencing May 1, 2000, of its desire to extend the Termination Date for an
additional 12 months beyond the then present Termination Date. If such notice is
given by Borrower, Agent by the immediately following June 15 of such year will
notify Borrower in writing if the Credit Parties agree to such extension.
Extension of the Termination Date shall be at the sole option and discretion of
the Credit Parties, and the decision to extend the Termination Date shall
require the consent of all Credit Parties. If either Borrower or the Agent fails
to give such notice within the time prescribed above, then the Termination Date
shall not be extended and shall remain as the then present Termination Date. An
extension of the Termination Date pursuant to this SECTION 2.6 shall not require
any renewal Note or amendment of or supplement to this Agreement or any other
Loan Document unless otherwise required by Agent.
LOAN AND SECURITY AGREEMENT - Page 48
<PAGE>
ARTICLE 3
LETTER OF CREDIT FACILITY
Section 3.1 AGREEMENT TO ISSUE. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, L/C Issuer agrees to issue for the account of Borrower
or, at the request of Borrower, any other Loan Party, one or more Letters of
Credit in accordance with this ARTICLE 3, from time to time during the period
commencing on the Effective Date and ending on the Termination Date.
Section 3.2 AMOUNTS. L/C Issuer shall not have any obligation to issue
any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the
requested Letter of Credit, (i) the aggregate Letter of Credit
Obligations would exceed the maximum amount of the Letter of Credit
Facility then in effect or (ii) the aggregate principal amount of the
Revolving Credit Loans outstanding would exceed the Borrowing Base
(after reduction for the Letter of Credit Reserve in respect of such
Letter of Credit) or (iii) the aggregate amount of the Revolving
Credit Loans outstanding plus the aggregate amount of Reimbursement
Obligations plus an amount determined by Agent in its reasonable
discretion in respect of all obligations owing by any Loan Party to any
Lender in respect of Interest Rate Protection Agreements would exceed
$500,000,000; or
(b) which has a term longer than two (2) calendar years
or an expiration date after the last Business Day that is more than
thirty (30) days prior to the Termination Date.
Section 3.3 CONDITIONS. The obligation of L/C Issuer to issue any
Letter of Credit is subject to the satisfaction of (i) the conditions precedent
contained in ARTICLE 7 and (ii) the following additional conditions precedent in
a manner satisfactory to Agent and L/C Issuer:
(a) Borrower shall have delivered to L/C Issuer and
Agent, at such times and in such manner as L/C Issuer or Agent may
prescribe, an application in form and substance satisfactory to L/C
Issuer and Agent for the issuance of the proposed Letter of Credit, a
Reimbursement Agreement and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed
Letter of Credit shall be satisfactory to L/C Issuer and Agent
(PROVIDED, that in the event any terms of such Reimbursement Agreement
or other documents are inconsistent with the terms of this Agreement,
then the terms of this Agreement shall control); and
(b) as of the date of issuance, no order of any court,
arbitrator or other Governmental Authority having jurisdiction or
authority over L/C Issuer shall purport by its terms to enjoin or
restrain banks generally from issuing letters of credit of the type and
in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to banks generally and no request or directive
(whether or not having the force of law) from any
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Governmental Authority with jurisdiction over banks generally shall
prohibit or request that L/C Issuer refrain from the issuance of
letters of credit generally or the issuance of such Letter of Credit.
(c) L/C Issuer shall have received from Agent
authorization to issue the requested Letter of Credit.
Section 3.4 ISSUANCE OF LETTERS OF CREDIT.
(a) REQUEST FOR ISSUANCE. Borrower shall give L/C Issuer
and Agent written notice of each request for the issuance of a Letter
of Credit no later than three (3) Business Days prior to the proposed
date of issuance of the Letter of Credit. Such notice shall be
irrevocable and shall specify the original face amount of the Letter of
Credit requested, the effective date (which date shall be a Business
Day) of issuance of such requested Letter of Credit, whether such
Letter of Credit may be drawn in a single or in multiple draws, the
date on which such requested Letter of Credit is to expire (which date
shall be a Business Day that is more than thirty (30) days prior to the
Termination Date), the purpose for which such Letter of Credit is to be
issued and the beneficiary of the requested Letter of Credit. Borrower
shall attach to such notice the form of the Letter of Credit that
Borrower requests to be issued.
(b) RESPONSIBILITIES OF AGENT; ISSUANCE. Agent shall
determine, as of the Business Day immediately preceding the requested
effective date of issuance of the Letter of Credit set forth in the
notice from Borrower pursuant to SECTION 3.4(a), the amount of the
unused portion of the Letter of Credit Facility and the Borrowing Base.
If (i) the form of the Letter of Credit delivered by Borrower to Agent
is acceptable to L/C Issuer and Agent, (ii) the undrawn face amount of
the requested Letter of Credit is less than or equal to the lesser of
(A) the amount of the unused portion of the Letter of Credit Facility
and (B) the unused Borrowing Base, and (iii) Agent has received a
certificate from Borrower stating that the applicable conditions set
forth in ARTICLE 7 have been satisfied, then, subject to the terms of
this Agreement, L/C Issuer will cause the Letter of Credit to be
issued. NationsBank in its discretion may cause any Affiliate of
NationsBank to issue any requested Letter of Credit, whereupon such
Affiliate shall be L/C Issuer with respect to such Letter of Credit and
shall have all of the rights, benefits and interests of L/C Issuer as
are specified by the Loan Documents in connection therewith. Each such
Affiliate, if any, shall be a third party beneficiary of the Loan
Documents and shall be entitled to rely upon all representations,
warranties and covenants contained herein and therein. The Loan Parties
hereby authorize NationsBank and Agent to deliver or otherwise disclose
to L/C Issuer copies of any of the Loan Documents and any other
information from time to time in NationsBank's or Agent's possession
concerning any of the Loan Parties or the transactions contemplated by
the Loan Documents.
(c) NOTICE OF ISSUANCE. Promptly after the issuance of
any Letter of Credit, L/C Issuer shall give Agent written or facsimile
notice, or telephonic notice confirmed promptly
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thereafter in writing, of the issuance of such Letter of Credit, and
Agent shall give each Lender written or facsimile notice, or telephonic
notice confirmed promptly thereafter in writing, of the issuance of
such Letter of Credit; PROVIDED that any failure or delay in giving or
confirming any such notice shall not impair the obligations of L/C
Issuer, any Lender or Borrower with respect to any such Letter of
Credit.
(d) NO EXTENSION OR AMENDMENT. No Letter of Credit shall
be extended or amended unless the requirements of this SECTION 3.4 are
met as though a new Letter of Credit were being requested and issued.
Section 3.5 DUTIES OF L/C ISSUER. Any action taken or omitted to be
taken by L/C Issuer under or in connection with any Letter of Credit, if
taken or omitted in the absence of gross negligence or willful misconduct,
shall not result in any liability of L/C Issuer to any Lender or relieve any
Lender of its obligations hereunder to L/C Issuer. In determining whether to
pay under any Letter of Credit, L/C Issuer shall have no obligation to any
Lender other than to confirm that any documents required to be delivered
under such Letter of Credit in connection with such drawing have been
presented and appear on their face to comply with the requirements of such
Letter of Credit.
Section 3.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS.
(a) PAYMENT TO ISSUER. Borrower agrees to reimburse L/C
Issuer for any drawings (whether partial or full) under each Letter of
Credit and agrees to pay to L/C Issuer the amount of all other
Reimbursement Obligations and other amounts payable to L/C Issuer under
or in connection with such Letter of Credit immediately when due,
irrespective of any claim, set-off, defense or other right which
Borrower may have at any time against L/C Issuer or any other Person.
(b) RECOVERY OR AVOIDANCE OF PAYMENTS. In the event any
payment by or on behalf of any Loan Party with respect to any Letter of
Credit or any Reimbursement Obligation relating thereto received by L/C
Issuer, or by Agent, and distributed by Agent to the Lenders on account
of their respective participations therein, is thereafter set aside,
avoided or recovered from L/C Issuer or Agent in connection with any
receivership, liquidation or bankruptcy proceeding, the Lenders shall,
upon demand by Agent pay to Agent, for the account of Agent or L/C
Issuer, their respective Commitment Percentages of such amount set
aside, avoided or recovered together with interest at the rate required
to be paid by L/C Issuer, or by Agent, upon the amount required to be
repaid by it.
(c) EXISTING LETTERS OF CREDIT. All Reimbursement
Obligations or other obligations of any Loan Party under any
Reimbursement Agreement in respect of the Existing Letters of Credit
are hereby reaffirmed and continued in full force and effect. All
obligations of any Loan Party for payment in respect of Reimbursement
Obligations or other obligations in respect of the Existing Letters of
Credit, as provided by the Existing Credit
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Agreement or the "Loan Documents" as defined therein, are hereby
renewed, continued, and reaffirmed under the terms of this
Agreement and the other Loan Documents.
Section 3.7 PARTICIPATIONS.
(a) PURCHASE OF PARTICIPATIONS. On the Agreement Date
with respect to the Existing Letters of Credit and Immediately upon
issuance by L/C Issuer of any other Letter of Credit, each Lender shall
be deemed to have irrevocably and unconditionally purchased and
received without recourse or warranty, an undivided interest and
participation in such Letter of Credit, equal to such Lender's
Commitment Percentage of the face amount thereof (including, without
limitation, all obligations of Borrower with respect thereto).
(b) SHARING OF LETTER OF CREDIT PAYMENTS. In the event
that L/C Issuer makes a payment under any Letter of Credit and L/C
Issuer shall not have been repaid such amount pursuant to SECTION 3.6,
then NationsBank may, in its discretion without obligation to do so,
make such repayment to L/C Issuer and thereupon be deemed to have made
a Non-Ratable Loan in the amount of such repayment, and notwithstanding
the occurrence or continuance of a Default or Event of Default at the
time of such repayment, such Non-Ratable Loan shall be subject to the
provisions of SECTION 5.10(c) and the absolute obligations of the
Lenders to pay for their respective participation interests therein.
(c) SHARING OF REIMBURSEMENT OBLIGATION PAYMENTS.
Whenever L/C Issuer receives a payment from or on behalf of Borrower on
account of a Reimbursement Obligation as to which Agent has previously
received for the account of L/C Issuer payment from a Lender pursuant
to this SECTION 3.7, L/C Issuer shall promptly pay to Agent, for the
benefit of such Lender, such Lender's Commitment Percentage of the
amount of such payment from Borrower in Dollars. Each such payment
shall be made by L/C Issuer on the Business Day on which L/C Issuer
receives immediately available funds pursuant to the immediately
preceding sentence, if received prior to 11:00 a.m. (Dallas, Texas
time) on such Business Day and otherwise on the next succeeding
Business Day.
(d) DOCUMENTATION. Upon the request of any Lender, Agent
shall furnish to such Lender copies of any Letter of Credit,
Reimbursement Agreement or application for any Letter of Credit and
such other documentation as may reasonably be requested by such Lender.
(e) OBLIGATIONS IRREVOCABLE. The obligations of each
Lender to make payments to Agent with respect to any Letter of Credit
and their participations therein pursuant to this Agreement and the
obligations of Borrower to make payments to L/C Issuer or to Agent, for
the account of the Lenders, pursuant to SECTION 3.6 or otherwise, in
each case shall be irrevocable and not subject to any qualification or
exception whatsoever, and shall be made in accordance with the terms
and conditions of this Agreement (assuming, in the case of the
obligations of the Lenders to make such payments, that the Letter of
Credit has been issued
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in accordance with SECTION 3.4), including, without limitation, any of
the following circumstances:
(i) Any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) The existence of any claim, set-off, defense
or other right which Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of
any Letter of Credit (or any Person for whom any such
transferee may be acting), any Lender, Agent, L/C Issuer or
any other Person, whether in connection with this Agreement,
any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying
transactions between Borrower or any other Person and the
beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document
presented under the Letter of Credit upon which payment has
been made according to its terms proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(iv) The surrender or impairment of any
Collateral or any other security for the Secured Obligations
or the performance or observance of any of the terms of any of
the Loan Documents;
(v) The occurrence of any Default or Event of
Default; or
(vi) Agent's failure to deliver to the Lenders
the notice provided for in SECTION 3.4(c).
Section 3.8 INDEMNIFICATION, EXONERATION.
(a) INDEMNIFICATION BY BORROWER. WITHOUT LIMITING SECTION
17.13 AND IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE PROVIDED IN THIS
ARTICLE 3, BORROWER JOINTLY AND SEVERALLY AGREES TO PROTECT, INDEMNIFY,
PAY AND SAVE EACH OF THE CREDIT PARTIES HARMLESS FROM AND AGAINST ANY
AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES
AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY CREDIT
PARTY MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE, DIRECTLY OR
INDIRECTLY, OF ANY OF THE FOLLOWING: (i) THE ISSUANCE OF ANY LETTER OF
CREDIT, OTHER THAN AS A RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION, OR (ii)
THE FAILURE OF L/C ISSUER TO HONOR A DRAWING UNDER ANY LETTER OF CREDIT
AS A RESULT OF ANY ACT OR OMISSION, WHETHER RIGHTFUL OR WRONGFUL, OF
ANY
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PRESENT OR FUTURE DE JURE OR DE FACTO GOVERNMENTAL AUTHORITY (ALL SUCH
ACTS OR OMISSIONS BEING HEREINAFTER REFERRED TO COLLECTIVELY AS
"GOVERNMENT ACTS").
(b) ASSUMPTION OF RISK BY LOAN PARTIES. As among the Loan
Parties and the Credit Parties, the Loan Parties assume all risks of
the acts and omissions of, or misuse of any of the Letters of Credit
by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the
provisions of the applications for the issuance of Letters of Credit,
the Credit Parties shall not be responsible for:
(i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters
of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or
forged;
(ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer
or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason;
(iii) errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in
cipher;
(iv) errors in interpretation of technical terms;
(v) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof;
(vi) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or
(vii) any consequences arising from causes beyond
the control of any Credit Party, including, without
limitation, any Government Acts.
None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of any of any Credit Party under this SECTION 3.8.
(c) EXONERATION. In furtherance and extension, and not in
limitation, of the specific provisions set forth above, any action
taken or omitted by the Credit Parties under or in connection with any
of the Letters of Credit or any related certificates, if taken or
LOAN AND SECURITY AGREEMENT - Page 54
<PAGE>
omitted in good faith, shall not result in any liability of any Credit
Party to any Loan Party or relieve any Loan Party of any of its
obligations hereunder to any such Person.
(d) INDEMNIFICATION BY LENDERS. WITHOUT LIMITING SECTION
16.5, THE LENDERS AGREE TO INDEMNIFY L/C ISSUER (TO THE EXTENT NOT
REIMBURSED UNDER SECTION 17.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF
BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR
RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY KIND AND NATURE
WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST L/C
ISSUER (INCLUDING BY ANY LENDER) IN ANY WAY RELATING TO OR ARISING OUT
OF ANY LETTER OF CREDIT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY
ACTION TAKEN OR OMITTED BY L/C ISSUER UNDER ANY LETTER OF CREDIT OR ANY
LOAN DOCUMENT IN CONNECTION THEREWITH (INCLUDING ANY OF THE FOREGOING
ARISING FROM THE NEGLIGENCE OF L/C ISSUER); PROVIDED THAT NO LENDER
SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT IT ARISES FROM
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE
INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO
REIMBURSE L/C ISSUER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY
COSTS OR EXPENSES PAYABLE BY BORROWER TO L/C ISSUER UNDER SECTION 17.2,
TO THE EXTENT THAT L/C ISSUER IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS
AND EXPENSES BY BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION
SHALL SURVIVE PAYMENT IN FULL OF ALL SECURED OBLIGATIONS.
Section 3.9 L/C CASH COLLATERAL ACCOUNT.
(a) Upon the occurrence and during the continuance of an
Event of Default and demand by the Agent pursuant to SECTION 14.2(c)
(but in the case of an Event of Default pursuant to SECTION 14.1(g) or
SECTION 14.1(h), without any demand or the taking of any other action
by Agent or any Lender), Borrower will promptly pay to Agent in
immediately available funds an amount equal to the maximum amount then
available to be drawn under all Letters of Credit then outstanding.
(b) If, notwithstanding the provisions of SECTION 3.2(b),
any Letter of Credit is outstanding on the Termination Date then,
unless an L/C Cash Collateral Account has already been established for
such Letter of Credit under SECTION 3.9(a), on or prior to such
Termination Date Borrower shall, promptly on demand by Agent, pay to
Agent in immediately available funds an amount equal to the maximum
amount then available to be drawn under such Letters of Credit.
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(c) Amounts paid to Agent pursuant to SECTION 3.9(a) or
SECTION 3.9(b) shall be deposited by Agent to a cash collateral account
("the L/C CASH COLLATERAL ACCOUNT") which shall be included in the
Collateral. The L/C Cash Collateral Account shall be under the sole
dominion and control of Agent, and the Loan Parties shall have no right
to withdraw or to cause Agent to withdraw any funds deposited in the
L/C Cash Collateral Account.
(d) Agent shall (A) apply any funds in the L/C Cash
Collateral Account on account of Reimbursement Obligations as and when
they become due and payable if and to the extent that Borrower shall
fail to timely pay such Reimbursement Obligations as required by this
Agreement and (B) on or after the Termination Date, apply any proceeds
remaining in the L/C Cash Collateral Account first to pay any unpaid
Secured Obligations then outstanding hereunder and then to refund any
remaining amount to Borrower.
(e) At Borrower's request and direction (no more than
once per calendar month), but subject to Agent's reasonable approval,
Agent shall cause the Cash Collateral in the L/C Cash Collateral
Account to be invested in Permitted Cash Equivalents. Any commissions,
expenses and penalties incurred by Agent in connection with any
investment and redemption of such Cash Collateral shall be Secured
Obligations hereunder secured by the Collateral, shall bear interest
pursuant to SECTION 5.2(c) and shall be charged to Borrower's Loan
Accounts or, at Agent's option, shall be paid out of the proceeds of
any earnings received by Agent from the investment of such Cash
Collateral as provided herein or out of such cash itself. Agent makes
no representation or warranty as to, and shall not be responsible for,
the rate of return, if any, earned on any Cash Collateral. Any earnings
on Cash Collateral shall be held as additional Cash Collateral subject
to this Agreement. Borrower recognizes that any losses or taxes with
respect to such investments shall be borne solely by Borrower, and
Borrower agrees to hold the Credit Parties harmless from any and all
such losses and taxes. Agent may liquidate any investment held in the
L/C Cash Collateral Account in order to apply the proceeds of such
investment on account of the Reimbursement Obligations (or on account
of any other Secured Obligation then due and payable, as the case may
be) without regard to whether such investment has matured and without
liability for any penalty or other fee incurred (with respect to which
Borrower hereby agrees to reimburse Agent) as a result of such
application.
(f) After establishment of the L/C Cash Collateral
Account pursuant to SECTIONS 3.9(a) or 3.9(b) Borrower shall pay to
Agent the reasonable and customary fees with respect to the maintenance
of accounts similar to the L/C Cash Collateral Account.
(g) At such time, if any, that the amount of the L/C Cash
Collateral Account exceeds the aggregate amount of the outstanding
Reimbursement Obligations and any other Secured Obligations due and
payable, Agent shall promptly distribute to Borrower funds from the L/C
Cash Collateral Account in an amount equal to such excess.
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Section 3.10 SUPPORTING LETTER OF CREDIT. With respect to any Letter of
Credit referenced in SECTION 3.9(b), Borrower may propose to Agent that Borrower
shall deposit with Agent, for the ratable benefit of the Credit Parties, with
respect to each such Letter of Credit, a standby letter of credit (a "SUPPORTING
LETTER OF CREDIT") in form and substance satisfactory to Agent, issued by an
issuer reasonably satisfactory to Agent in an amount equal to the greatest
amount for which such Letter of Credit may be drawn, under which Supporting
Letter of Credit Agent is entitled to draw amounts necessary to reimburse the
Credit Parties for payments made by the Credit Parties resulting from any
drawing under such Letter of Credit or under any reimbursement or guaranty
agreement with respect thereto. Agent in its discretion may accept such
Supporting Letter of Credit in lieu of the L/C Cash Collateral Account required
by SECTION 3.9(b), PROVIDED that Agent shall not be obligated to do so. Any such
Supporting Letter of Credit shall be held by Agent for the benefit of the Credit
Parties, as security for, and to provide for the payment of, the Reimbursement
Obligations in respect of the Letter of Credit which is the subject of such
Supporting Letter of Credit.
Section 3.11 EXISTING LETTERS OF CREDIT. On and after the Agreement
Date the Existing Letters of Credit and related Reimbursement Agreements (i)
shall be deemed to have been issued under, and the Reimbursement Obligations in
respect thereof shall be governed by and have the benefits of, this Agreement
and other Loan Documents, PROVIDED, that in the event any provision of such
Reimbursement Agreements in respect of Existing Letters of Credit are
inconsistent with this Agreement, the provisions of this Agreement shall control
and (ii) shall be deemed included as a part of the Letter of Credit Facility
(including without limitation each Lender's Commitment in respect thereof).
ARTICLE 4
RESERVED
ARTICLE 5
GENERAL LOAN PROVISIONS
Section 5.1 PROCEDURE FOR BORROWING AND DISBURSEMENT OF LOANS.
(a) In order to receive any Loan, Borrower shall notify
Agent of a request for a Loan by means of a Notice of Borrowing or
other notice on behalf of Borrower acceptable to Agent, therein
designating the amount of the Loan requested and the date on which
funding is requested. Each request for a Loan shall be delivered to
Agent not later than 11:00 a.m. (Dallas, Texas time) (i) in the case of
a Base Rate Loan on the Business Day on which funding of such Loan is
requested and (ii) in the case of a Eurodollar Loan, at least two (2)
Eurodollar Business Days prior to the Business Day on which funding of
such Loan is requested. Such notice may be made in any manner
prescribed by SECTION 17.1, PROVIDED that for this purpose each Loan
Party irrevocably authorizes Agent to rely upon any Person whom Agent
believes to be an authorized officer of Borrower and for purposes of
this
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Agreement any such officer shall be deemed to be authorized to request
any such Loan on behalf of Borrower. Any such notice shall be
irrevocable upon receipt by Agent. Without limiting the other terms and
conditions of this Agreement, at the time of each borrowing hereunder,
Borrower must be current in the delivery of all Compliance Certificates
and Borrowing Base Certificates required to be delivered to Agent and
the Lenders pursuant to this Agreement.
(b) Unless Agent has elected periodic settlements
pursuant to SECTION 5.10, Agent shall promptly notify the Lenders of
any Notice of Borrowing given or deemed given pursuant to this
Agreement. Not later than 2:00 p.m. (Dallas, Texas time) on the
proposed borrowing date, each Lender will make available to Agent, for
the account of Borrower, at Agent's Principal Office in funds
immediately available to Agent, an amount equal to such Lender's
Commitment Percentage of the Revolving Credit Loans to be made on such
date.
Section 5.2 INTEREST.
(a) Subject to the provisions of SECTION 5.2(b), Borrower
agrees to pay interest on the unpaid principal amount of the Loans, for
each day from the day each such Loan was made until such Loan is due
(whether upon demand, at maturity, by reason of acceleration or
otherwise) at a rate per annum equal to the lesser of the Applicable
Rate or the Maximum Rate. Interest shall be payable monthly in arrears
as it accrues on each Interest Payment Date.
(b) If Borrower shall fail to pay when due (whether upon
demand, at maturity, by reason of acceleration or otherwise) all or any
portion of the principal amount of any Loan or if there shall occur any
other Event of Default, at Agent's election the balance of the Loans
shall no longer bear interest in accordance with the terms of SECTION
5.2(a), but rather shall bear interest for each day from the date of
such failure to pay or other Event of Default, as the case may be,
until such failure to pay or other Event of Default shall have been
cured or waived in compliance with the terms of this Agreement, at a
rate per annum equal to the lesser of (i) the sum of (1) the Default
Margin and (2) the Applicable Rate, or (ii) the Maximum Rate, payable
on demand. The interest rate provided for in the preceding sentence
shall, to the extent permitted by Applicable Law, apply to and accrue
on the amount of any judgment entered with respect to any Secured
Obligation and shall continue to accrue at such rate during any
proceeding described in SECTION 14.1(g) or SECTION 14.1(h).
(c) Borrower agrees, to the extent permitted by
Applicable Law, to pay interest on the unpaid principal amount of any
Secured Obligation that is due and payable other than the Loans in
accordance with SECTION 5.2(a) or SECTION 5.2(b), as applicable, as if
such Secured Obligation were a Loan.
(d) Subject to SECTION 5.2(e) and SECTION 17.23, the
interest rates provided for in SECTIONS 5.2(a), 5.2(b) and 5.2(c) shall
be computed on the basis of a year of 360 days and the actual number of
days elapsed. With respect to any Base Rate Loan, any change in the
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Applicable Rate resulting from a change in the Base Rate shall be
adjusted automatically as of the effective date of such change in the
Base Rate. Any change in the Applicable Rate resulting from any change
in the Maximum Rate shall be effective as of the effective date of any
such change in the Maximum Rate.
(e) It is not intended by the Lenders, and nothing
contained in this Agreement or the Notes shall be deemed, to establish
or require the payment of a rate of interest in excess of the Maximum
Rate . If, in any month, the Effective Interest Rate, absent such
limitation, would have exceeded the Maximum Rate, then the Effective
Interest Rate for that month shall be the Maximum Rate, and if in
future months the Effective Interest Rate would otherwise be less than
the Maximum Rate, then the Effective Interest Rate shall remain at the
Maximum Rate until such time as the amount of interest paid hereunder
equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event, upon payment in
full of the Secured Obligations, the total amount of interest paid or
accrued under the terms of this Agreement is less than the total amount
of interest which would have been paid or accrued if the Effective
Interest Rate had at all times been in effect, then Borrower shall, to
the extent permitted by Applicable Law, pay to the Lenders an amount
equal to the excess, if any, of (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all
times, been in effect and (B) the amount of interest which would have
accrued had the Effective Interest Rate, at all times, been in effect,
and (ii) the amount of interest actually paid or accrued under this
Agreement. In the event the Lenders receive, collect or apply as
interest any sum in excess of the Maximum Rate, such excess amount
shall be applied to the reduction of the principal balance of the
Secured Obligations, and if no such principal is then outstanding, such
excess or part thereof remaining, shall be paid to Borrower.
Section 5.3 INTEREST RATE OPTION. Subject to the provisions hereof,
Borrower shall have the option to have designated portions of the Loans bear
interest at an Applicable Rate determined according to the Base Rate or the
Adjusted Eurodollar Rate; PROVIDED, HOWEVER, that any portion of the Loans
designated to bear interest at an Applicable Rate determined according to the
Adjusted Eurodollar Rate for any particular Interest Period shall not be for
less than $1,000,000 of unpaid principal or an integral multiple of $100,000 in
excess thereof, and no more than ten (10) Interest Periods shall be allowed to
exist at any one time. Any such option shall be exercised in the manner provided
below:
(a) AT TIME OF BORROWING. Contemporaneously with each
request for a Loan, Borrower shall give Agent a Notice of Borrowing
indicating the interest rate option selected with respect to the
principal balance of such Loan. If the required Notice of Borrowing
shall not have been timely received by Agent, Borrower shall be deemed
to have designated the Base Rate and to have given Agent notice of such
designation. Notwithstanding the foregoing, any request for a Revolving
Credit Loan made pursuant to CLAUSES (ii), (iii), (iv) or (v) of
SECTION 2.2(a) shall be deemed to be a request for a Base Rate Loan.
LOAN AND SECURITY AGREEMENT - Page 59
<PAGE>
(b) AT EXPIRATION OF INTEREST PERIODS. Not less than two
(2) Eurodollar Business Days prior to the termination of any Interest
Period for any Eurodollar Loan, Borrower shall give Agent a Notice of
Borrowing indicating the interest rate option to be applicable to such
Eurodollar Loan upon the expiration of such Interest Period if Borrower
elects to have such Loan Continued as a Eurodollar Loan. If the
required Notice of Borrowing shall not have been timely received by
Agent prior to the expiration of such Interest Period, Borrower shall
be deemed to have selected a rate based upon the Base Rate to be
applicable to such Eurodollar Loan upon the expiration of such Interest
Period and to have given Agent notice of such selection.
(c) CONVERSION FROM BASE RATE. Subject to the other
provisions of this Agreement, during any period in which any Base Rate
Loan is in existence, Borrower shall have the right, on any Eurodollar
Business Day, to Convert all or a portion thereof to a Eurodollar Loan
by giving Agent a Notice of Borrowing of such Conversion not less than
two (2) Eurodollar Business Days prior to the date of such Conversion.
Agent, at its option, may accept telephonic instructions as a Notice of
Borrowing (PROVIDED that without limiting the validity of any such notice by
telephonic instruction, Borrower agrees that any such telephonic request shall
promptly be confirmed to Agent by Borrower delivering a written Notice of
Borrowing to Agent) and Agent hereby is authorized and directed, at Agent's
option, to honor any or all such telephonic or other oral notices from any
Person whom Agent believes to be an authorized officer of Borrower, and for
purposes of this Agreement, any such officer shall be deemed to be authorized to
make any such notice on behalf of Borrower. Borrower agrees to indemnify and
hold Agent and the Lenders harmless from any loss or liability incurred by any
of them in connection with honoring any telephonic or other oral notices. All
written Notices of Borrowing are effective only upon receipt by Agent. Each
Notice of Borrowing, whether written or oral, shall be irrevocable and binding
upon Borrower.
LOAN AND SECURITY AGREEMENT - Page 60
<PAGE>
Section 5.4 CERTAIN FEES.
(a) UNUSED COMMITMENT FEE. Subject to SECTION 17.23, in
connection with and as consideration for the holding available for the
use of Borrower hereunder the full amount of the Revolving Credit
Facility, Borrower will pay a fee to Agent, for the ratable benefit of
the Lenders, for each day on and after the Agreement Date, in an amount
equal to the product of the Unused Commitment Fee Percentage multiplied
by the unused portion of the Revolving Credit Facility for such day.
Such fee shall be payable monthly in arrears on each Interest Payment
Date for Base Rate Loans and on the date of any permanent reduction in
the Revolving Credit Facility and, subject to SECTION 17.23, shall be
fully earned when due and payable and shall not be subject to refund or
rebate. Such fee is not, and shall not be deemed to be, interest or a
charge for the use, forbearance or detention of Money.
(b) LETTER OF CREDIT FEES.
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<PAGE>
(i) Borrower agrees to pay to Agent for the
ratable benefit of the Lenders Letter of Credit fees equal to
the Applicable Margin with respect to Eurodollar Loans as in
effect at the time of issuance, renewal or extension of any
Letter of Credit, based on the average daily aggregate Letter
of Credit Amount of all Letters of Credit from time to time
outstanding during the term of this Agreement. Such fees shall
be payable to Agent, for the ratable benefit of the Lenders in
accordance with their respective Commitment Percentages,
monthly in arrears on the first Business Day of each calendar
month, and shall be calculated according to the average daily
Letter of Credit Amount outstanding based on a year of 360
days and for the actual number of days elapsed, subject to
SECTION 17.23.
(ii) Borrower agrees to pay to Agent, for the
account of L/C Issuer, on the same days and calculated on the
same basis as the fees provided by CLAUSE (i) above, a
fronting fee equal to one-eighth percent (0.125%) per annum
PLUS the standard fees and charges of L/C Issuer for issuing,
administering, amending, renewing, paying and canceling
Letters of Credit, as and when assessed.
(c) OTHER FEES. Subject to SECTION 17.23, Borrower agrees
to pay all other fees and expenses set forth in the certain letter
agreement, dated as of the Agreement Date among Agent, Borrower and the
other Loan Parties.
Section 5.5 MANNER OF PAYMENT.
(a) Except as provided in SECTION 10.1(b), each payment
(including prepayments) by Borrower on account of the principal of or
interest on the Loans or of any other amounts payable under this
Agreement, any Note or any other Loan Document shall be made not later
than 12:00 noon (Dallas, Texas time) on the date specified for payment
under this Agreement to Agent, for the account of the Lenders, at
Agent's Principal Office, in Dollars, in immediately available funds
and shall be made without any set-off, counterclaim or deduction
whatsoever. Any payment received after such time but before 1:00 p.m.
(Dallas, Texas time) on such day shall be deemed a payment on such date
for the purposes of SECTION 14.1, but for all other purposes shall be
deemed to have been made on the next succeeding Business Day.
(b) Borrower hereby irrevocably authorizes each Lender
and each Affiliate of such Lender and each participant herein to charge
any account of Borrower maintained with such Lender or such Affiliate
or participant with such amounts as may be necessary from time to time
to pay any Secured Obligations (whether or not owed to such Lender,
Affiliate or participant) which are not paid (i) when due in the case
of Secured Obligations described in SUBPARAGRAPHS (a), (b) and (c) of
the definition thereof in SECTION 1.1 and (ii) when due if an Event of
Default has occurred or otherwise within five (5) Business Days after
they become due, in the case of any other Secured Obligations.
LOAN AND SECURITY AGREEMENT - Page 62
<PAGE>
Section 5.6 GENERAL. If any payment under this Agreement or any Note
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day and such extension of
time shall in such case be included in computing interest and fees, if any, as
applicable, in accordance with such payment.
Section 5.7 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT.
(a) Each Lender shall open and maintain on its books a
loan account in Borrower's name (each, a "LOAN ACCOUNT" and
collectively, the "LOAN ACCOUNTS"). Each such Loan Account shall show
as debits thereto each Loan made under this Agreement by such Lender to
Borrower and as credits thereto all payments received by such Lender
and applied to principal of such Loan, so that the balance of the Loan
Account at all times reflects the principal amount due such Lender from
Borrower.
(b) Agent shall maintain on its books a control account
for Borrower in which shall be recorded (i) the amount of each
disbursement made hereunder, (ii) the amount of any principal or
interest due or to become due from Borrower hereunder, and (iii) the
amount of any sum received by Agent hereunder from Borrower and each
Lender's ratable share therein.
(c) The entries made in the accounts pursuant to
SUBSECTIONS (a) and (b) preceding shall be prima facie evidence, in the
absence of manifest error, of the existence and amounts of the
obligations of Borrower therein recorded and in case of discrepancy
between such accounts, in the absence of manifest error, the accounts
maintained pursuant to SUBSECTION (b) shall be controlling.
(d) Agent will account separately to Borrower monthly
with a statement of Loans, charges and payments made to and by Borrower
pursuant to this Agreement, and such accounts rendered by Agent shall
be deemed final, binding and conclusive, save for manifest error,
unless Agent is notified by Borrower in writing to the contrary within
thirty (30) days of the date the account to Borrower was so rendered.
Such notice by Borrower shall be deemed an objection to only those
items specifically objected to therein. Failure of Agent to render such
account shall in no way affect the rights of Agent or of the Lenders
hereunder.
Section 5.8 TERMINATION OF AGREEMENT. Borrower shall have the right, at
any time, to terminate this Agreement upon not less than thirty (30) Business
Days' prior written notice of its intention to terminate this Agreement, which
notice shall specify the effective date of such termination. Upon receipt of
such notice, Agent shall promptly notify each Lender thereof. On the date
specified in such notice, such termination shall be effected, PROVIDED, that
Borrower shall, on or prior to such date, pay to Agent, for the account of the
Lenders, in same day funds, an amount equal to all Secured Obligations then
outstanding, including, without limitation, all (i) accrued interest thereon,
(ii) all accrued fees provided for hereunder, and (iii) any amounts payable to
the Lenders pursuant to SECTIONS 17.2, 17.3 and 17.14, and, in addition thereto,
shall deliver to Agent, in respect of each outstanding Letter of Credit, either
a Supporting Letter of Credit or the Cash
LOAN AND SECURITY AGREEMENT - Page 63
<PAGE>
Collateral as provided in SECTION 3.9. Following the date specified in a
notice of termination as provided for in this SECTION 5.8 and upon payment in
full of the amounts specified in this SECTION 5.8, this Agreement shall be
terminated and the Credit Parties and Borrower shall have no further
obligations to any other party hereto except for the obligations to Agent and
the Lenders pursuant to SECTION 3.8 and SECTION 17.13.
Section 5.9 MAKING OF LOANS.
(a) NATURE OF OBLIGATIONS OF LENDERS TO MAKE LOANS. The
obligations of the Lenders under this Agreement to make the Loans are
several and are not joint or joint and several.
(b) ASSUMPTION BY AGENT. Subject to the provisions of
SECTION 5.10 and notwithstanding the occurrence or continuance of a
Default or Event of Default or other failure of any condition to the
making of Revolving Credit Loans hereunder subsequent to the Revolving
Credit Loans to be made on the Effective Date, unless Agent shall have
received notice from a Lender in accordance with the provisions of
SECTION 5.9(c) prior to a proposed borrowing date that such Lender will
not make available to Agent such Lender's ratable portion of the amount
to be borrowed on such date, Agent may assume that such Lender will
make such portion available to Agent in accordance with SECTION 2.2(a),
and Agent may, in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If and to the extent such
Lender shall not make such ratable portion available to Agent, such
Lender and Borrower severally agree to repay to Agent forthwith on
demand such corresponding amount, together with interest thereon for
each day from the date such amount is made available to Borrower until
the date such amount is repaid to Agent at a rate equal to the lesser
of the Effective Interest Rate or the Maximum Rate. If such Lender
shall repay to Agent such corresponding amount, the amount so repaid
shall constitute such Lender's Commitment Percentage of the Loan made
on such borrowing date for purposes of this Agreement. The failure of
any Lender to make its Commitment Percentage of any Loan available
shall not (without regard to whether Borrower shall have returned the
amount thereof to Agent in accordance with this SECTION 5.9) relieve it
or any other Lender of its obligation, if any, hereunder to make its
Commitment Percentage of such Loan available on such borrowing date,
but no Lender shall be responsible for the failure of any other Lender
to make its Commitment Percentage of such Loan available on the
borrowing date.
(c) DELEGATION OF AUTHORITY TO AGENT. Without limiting
the generality of SECTION 16.1, each Lender expressly authorizes Agent
to determine on behalf of such Lender (i) any reduction or increase of
advance rates applicable to the Borrowing Base, so long as such advance
rates do not at any time exceed the rates set forth in the Borrowing
Base definition, (ii) the creation or elimination of any amount of the
Reserve, (iii) whether or not Inventory or Receivables shall be deemed
to constitute Eligible Inventory or Eligible Receivables and (iv)
whether to grant or withhold consent, or to take or refrain from taking
any action, in the exercise of its discretion as allowed by the Loan
Documents. Unless and
LOAN AND SECURITY AGREEMENT - Page 64
<PAGE>
until Agent shall have received three (3) Business Days prior written
notice from the Required Lenders as to the existence of a Default, an
Event of Default or any other circumstance which would relieve the
Lenders of their respective obligations to make Loans hereunder, which
notice shall be in writing and shall be signed by the Required Lenders
and shall expressly state that the Required Lenders do not intend to
make available to Agent such Lenders' ratable share of Loans made after
the effective date of such notice, Agent shall be entitled to continue
to make the assumptions described in SECTION 5.9(b) and may in reliance
upon such assumption, but without obligation to do so, make Loans
available to Borrower. Without limiting the foregoing, Agent shall not
be required to make any Loan as to which it shall have received notice
by a Lender of such Lender's intention not to make its ratable portion
of such Loan available to Agent. No such notice shall affect the
validity of any Loans made prior to the expiration of three (3)
Business Days after Agent's receipt thereof.
Section 5.10 SETTLEMENT AMONG LENDERS.
(a) REVOLVING CREDIT LOANS. It is agreed that each
Lender's Net Outstandings are intended by the Lenders to be equal at
all times to such Lender's Commitment Percentage of the aggregate
principal amount of all Revolving Credit Loans outstanding.
Notwithstanding such agreement, the several and not joint obligation of
each Lender to fund Revolving Credit Loans ratably in accordance with
such Lender's Commitment Percentage and each Lender's right to receive
its ratable share of principal payments on Revolving Credit Loans in
accordance with its Commitment Percentage, the Lenders agree that in
order to facilitate the administration of this Agreement and the Loan
Documents, settlement among them may take place on a periodic basis in
accordance with the provisions of this SECTION 5.10.
(b) SETTLEMENT PROCEDURES AS TO REVOLVING CREDIT LOANS.
To the extent and in the manner hereinafter provided in this SECTION
5.10, settlement among the Lenders as to Revolving Credit Loans may
occur periodically on Settlement Dates determined from time to time by
Agent, which may occur before or after the occurrence or during the
continuance of a Default or Event of Default and whether or not all of
the conditions set forth in SECTIONS 7.1 and 7.2 have been met. On each
Settlement Date payments shall be made by or to the Lenders in the
manner provided in this SECTION 5.10 in accordance with the Settlement
Report delivered by Agent pursuant to the provisions of this SECTION
5.10 in respect of such Settlement Date so that as of each Settlement
Date, and after giving effect to the transactions to take place on such
Settlement Date, each Lender's Net Outstandings shall equal such
Lender's Commitment Percentage of the Revolving Credit Loans
outstanding.
(i) SELECTION OF SETTLEMENT DATES. If Agent
elects, in its discretion, but subject to the consent of
NationsBank, to settle accounts among the Lenders with respect
to principal amounts of Revolving Credit Loans less frequently
than each Business Day, then Agent shall designate periodic
Settlement Dates which may occur on any Business Day after the
Effective Date; PROVIDED, HOWEVER, that Agent shall designate
as a Settlement Date any Business Day which is an Interest
Payment Date;
LOAN AND SECURITY AGREEMENT - Page 65
<PAGE>
and PROVIDED FURTHER, that a Settlement Date shall occur at
least once during each seven day period. Agent shall designate
a Settlement Date by delivering to each Lender a Settlement
Report not later than 12:00 noon (Dallas, Texas time) on the
proposed Settlement Date, which Settlement Report will be with
respect to the period beginning on the preceding Settlement
Date and ending on such designated Settlement Date.
(ii) NON-RATABLE LOANS AND PAYMENTS. Between
Settlement Dates, Agent shall request and NationsBank may (but
shall not be obligated to) advance to Borrower out of
NationsBank's own funds, the entire principal amount of any
Revolving Credit Loan requested or deemed requested pursuant
to SECTION 2.2(a) (any such Revolving Credit Loan being
referred to as a "NON-RATABLE LOAN"). The making of each
Non-Ratable Loan by NationsBank shall be deemed to be a
purchase by NationsBank of a 100% participation in each other
Lender's Commitment Percentage of the amount of such
Non-Ratable Loan. All payments of principal, interest and any
other amount with respect to such Non-Ratable Loan shall be
payable to and received by Agent for the account of
NationsBank. Upon demand by NationsBank, with notice thereof
to Agent, each other Lender shall pay to NationsBank, as the
repurchase of such participation, an amount equal to one
hundred percent (100%) of such Lender's Commitment Percentage
of the principal amount of such Non-Ratable Loan. Any payments
received by Agent between Settlement Dates which in accordance
with the terms of this Agreement are to be applied to the
reduction of the outstanding principal balance of Revolving
Credit Loans, shall be paid over to and retained by
NationsBank for such application, and such payment to and
retention by NationsBank shall be deemed, to the extent of
each other Lender's Commitment Percentage of such payment, to
be a purchase by each such other Lender of a participation in
the Non-Ratable Loans held by NationsBank. Upon demand by
another Lender, with notice thereof to Agent, NationsBank
shall pay to Agent, for the account of such other Lender, as a
repurchase of such participation, an amount equal to such
other Lender's Commitment Percentage of any such amounts
(after application thereof to the repurchase of any
participations of NationsBank in such other Lender's
Commitment Percentage of any Non-Ratable Loans) paid only to
NationsBank by Agent.
(iii) NET DECREASE IN OUTSTANDINGS. If on any
Settlement Date the increase, if any, in the amount of any
Lender's Net Outstandings which is required to comply with the
first sentence of SECTION 5.10(b) is less than such Lender's
Commitment Percentage of amounts received by Agent but paid
only to NationsBank since the next preceding Settlement Date,
such Lender and Agent, in their respective records, shall
apply such Lender's Commitment Percentage of such amounts to
the increase in such Lender's Net Outstandings, and
NationsBank shall pay to Agent, for the account of such
Lender, the excess allocable to such Lender.
LOAN AND SECURITY AGREEMENT - Page 66
<PAGE>
(iv) NET INCREASE IN OUTSTANDINGS. If on any
Settlement Date the increase, if any, in the amount of any
Lender's Net Outstandings which is required to comply with the
first sentence of SECTION 5.10(b) exceeds such Lender's
Commitment Percentage of amounts received by Agent but paid
only to NationsBank since the next preceding Settlement Date,
such Lender and Agent, in their respective records, shall
apply such Lender's Commitment Percentage of such amounts to
the increase in such Lender's Net Outstandings, and such
Lender shall pay to Agent, for the account of NationsBank, any
excess.
(v) NO CHANGE IN OUTSTANDINGS. If a Settlement
Report indicates that no Revolving Credit Loans have been made
during the period since the next preceding Settlement Date,
then such Lender's Commitment Percentage of any amounts
received by Agent but paid only to NationsBank shall be paid
by NationsBank to Agent, for the account of such Lender. If a
Settlement Report indicates that the increase in the amount of
a Lender's Net Outstandings which is required to comply with
the first sentence of SECTION 5.10(b) is exactly equal to such
Lender's Commitment Percentage of amounts received by Agent
but paid only to NationsBank since the next preceding
Settlement Date, such Lender and Agent, in their respective
records, shall apply such Lender's Commitment Percentage of
such amounts to the increase in such Lender's Net
Outstandings.
(vi) RETURN OF PAYMENTS. If any amounts received
by NationsBank in respect of the Secured Obligations are later
required to be returned or repaid by NationsBank to Borrower
or any other obligor or their respective representatives or
successors in interest, whether by court order, settlement or
otherwise, in excess of NationsBank's Commitment Percentage of
all such amounts required to be returned by all Lenders, each
other Lender shall, upon demand by NationsBank with notice to
Agent, pay to Agent for the account of NationsBank, an amount
equal to the excess of such Lender's Commitment Percentage of
all such amounts required to be returned by all Lenders over
the amount, if any, returned directly by such Lender.
(vii) PAYMENTS TO AGENT, LENDERS.
(A) Payment by any Lender to Agent
shall be made not later than 2:00 p.m. (Dallas, Texas
time) on the Business Day such payment is due,
PROVIDED that if such payment is due on demand by
another Lender, such demand is made on the paying
Lender not later than 10:00 a.m. (Dallas, Texas time)
on such Business Day. Payment by Agent to any Lender
shall be made by wire transfer, promptly following
Agent's receipt of funds for the account of such
Lender and in the type of funds received by Agent,
PROVIDED that if Agent receives such funds at or
prior to 1:00 p.m. (Dallas, Texas time), Agent shall
pay such funds to such Lender by 2:00 p.m. (Dallas,
Texas time) on such Business Day. If a demand for
payment is made after the applicable
LOAN AND SECURITY AGREEMENT - Page 67
<PAGE>
time set forth above, the payment due shall be made
by 2:00 p.m. (Dallas, Texas time) on the first
Business Day following the date of such demand.
(B) If a Lender shall, at any time,
fail to make any payment to Agent required hereunder,
Agent may, but shall not be required to, retain
payments that would otherwise be made to such Lender
hereunder and apply such payments to such Lender's
defaulted obligations hereunder, at such time, and in
such order, as Agent may elect in its sole
discretion.
(C) With respect to the payment of any
funds under this SECTION 5.10(b), whether from Agent
to a Lender or from a Lender to Agent, the party
failing to make full payment when due pursuant to the
terms hereof shall, upon demand by the other party,
pay such amount together with interest on such amount
at the Federal Funds Rate.
(c) SETTLEMENT OF OTHER SECURED OBLIGATIONS. All other
amounts received by Agent on account of, or applied by Agent to the
payment of, any Secured Obligation that are received by Agent on or
prior to 1:00 p.m. (Dallas, Texas time) on a Business Day will be paid
by Agent to each Lender on the same Business Day, and any such amounts
that are received by Agent after 1:00 p.m. (Dallas, Texas time) will be
paid by Agent to each Lender on the following Business Day. Unless
otherwise stated herein, Agent shall distribute fees payable to the
Lenders pursuant to SECTIONS 5.4(a) and (b) ratably to the Lenders
based on each Lender's Commitment Percentage and shall distribute
proceeds from the sale of, or other realization upon, all or any part
of the Collateral following an Event of Default ratably to the Lenders
based on the amount of the Secured Obligations owing to each Lender as
of the time of such distribution.
Section 5.11 MANDATORY PREPAYMENTS. At any time when (i) any Loans are
outstanding and (ii) Availability is less than the Minimum Availability
Requirement, then to the extent required to cause Availability to equal or
exceed the Minimum Availability Requirement:
(a) PREPAYMENTS FROM ASSET DISPOSITIONS. Immediately upon
receipt by Borrower or any of its Restricted Subsidiaries of the Net
Proceeds of any Asset Disposition, Borrower shall apply, or caused to
be applied, such Net Proceeds in prepayment of the Loans as provided in
SECTION 5.11(c); PROVIDED, that Borrower shall not be required to make
such prepayment to the extent that the Net Proceeds from Asset
Dispositions during any Fiscal Year of Borrower do not exceed, in the
aggregate, $10,000,000. Concurrently with the making of any such
payment, Borrower shall deliver to Agent a certificate of an Authorized
Signatory of the applicable Loan Party demonstrating the calculations
of the amount required to be paid.
(b) PREPAYMENTS FROM EQUITY OFFERINGS. In the event that
at any time after the Agreement Date, Borrower issues Capital Stock or
other securities or receives an additional capital contribution in
respect of existing Capital Stock or other securities, no later than
the
LOAN AND SECURITY AGREEMENT - Page 68
<PAGE>
third Business Day following the date of receipt of the proceeds from
such issuance, Borrower shall apply such proceeds, net of
underwriting discounts and commissions and other reasonable costs
associated therewith, in prepayment of the Loans as provided in SECTION
5.11(c).
(c) APPLICATION OF PROCEEDS OF PREPAYMENTS. All
prepayments pursuant to this SECTION 5.11 shall be accompanied by an
appropriate Notice of Borrowing and, except as provided otherwise by
SECTION 5.11(a), shall be applied first to the outstanding Revolving
Credit Loans to the extent thereof, with any excess to be deposited
with Agent to be held as Cash Collateral for the Secured Obligations
and applied by Agent from time to time to outstanding Revolving Credit
Loans promptly upon the making of such Revolving Credit Loans or other
Secured Obligations in such manner as Agent shall determine in its
discretion.
Section 5.12 PREPAYMENT AND TERMINATION. Subject to the provisions of
SECTION 17.23, if Borrower prepays the Loans in whole and terminates this
Agreement prior to the Termination Date, for any reason other than refinancing
of the Loans with NationsBank or any of its Affiliates, Borrower shall pay to
Agent, for the ratable benefit of the Lenders, on the date of such prepayment,
as liquidated damages and compensation for the costs of making funds available
to Borrower under this Agreement, and not as a penalty, an amount equal to the
percentage amount specified below for the Loan Year in which such prepayment is
made multiplied by $500,000,000:
<TABLE>
<CAPTION>
Loan Year Percent
--------- -------
<S> <C>
1 0.50%
2 0.25%
any Loan Year thereafter 0.00%
</TABLE>
ARTICLE 6
CHANGE OF CIRCUMSTANCES
Section 6.1 INCREASED COST AND REDUCED RETURN.
(a) If, after the date hereof, the adoption of any
Applicable Law or any change in any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority
(including, without limitation, any central bank or comparable agency)
charged with the interpretation or administration thereof, or
compliance by any Lender (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any
such Governmental Authority:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty or other charge with respect
to any Eurodollar Loans, its Notes, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any
amounts payable to such Lender (or its Applicable Lending
Office) under this Agreement or its Note in respect of any
Eurodollar Loans (other than taxes imposed on the overall
LOAN AND SECURITY AGREEMENT - Page 69
<PAGE>
net income of such Lender by the jurisdiction in which such
Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify or deem applicable any
reserve, special deposit, assessment, compulsory loan or
similar requirement (other than the Reserve Requirement
utilized in the determination of the Adjusted Eurodollar Rate)
relating to any extensions of credit or other assets of, or
any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the
Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its
Applicable Lending Office) or on the London interbank market
any other condition affecting this Agreement or its Notes or
any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, Converting into,
Continuing or maintaining any Eurodollar Loans or to reduce any sum
received or receivable by such Lender (or its Applicable Lending
Office) under this Agreement or its Notes with respect to any
Eurodollar Loans, then Borrower shall pay to such Lender on demand such
amount or amounts as will compensate such Lender for such increased
cost or reduction. If any Lender requests compensation by Borrower
under this SECTION 6.1(a), Borrower may, by notice to such Lender (with
a copy to Agent), suspend the obligation of such Lender to make or
Continue Loans of the Type with respect to which such compensation is
requested, or to Convert Loans of any other Type into Loans of such
Type, until the event or condition giving rise to such request ceases
to be in effect, in which case the provisions of SECTION 6.4 shall be
applicable; PROVIDED that such suspension shall not affect the right of
such Lender to receive the compensation so requested.
(b) If, after the date hereof, any Lender shall have
determined that the adoption of any Applicable Law, rule or regulation
regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any Governmental Authority
(including, without limitation, any central bank or comparable agency)
charged with the interpretation or administration thereof, or any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority has or would have
the effect of reducing the rate of return on the capital of such Lender
or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with
respect to capital adequacy), then, from time to time upon demand,
Borrower shall pay to such Lender such additional amount or amounts as
will compensate such Lender for such reduction, to the extent that such
Lender reasonably determines in good faith that such increase in
capital is allocable to the existence of such Lender's Commitment, but
only to the extent that such Lender has not been compensated therefor
by any increase in the Adjusted Eurodollar Rate.
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(c) Each Lender shall promptly notify Borrower and Agent
of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this
Section and will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Lender, be otherwise
disadvantageous to it. Any Lender claiming compensation under this
Section shall furnish to Borrower and Agent a statement setting forth
the additional amount or amounts to be paid to it hereunder which shall
be conclusive in the absence of manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution
methods.
Section 6.2 LIMITATION ON TYPES OF LOANS. If on or prior to the first
day of any Interest Period for any Eurodollar Loan:
(a) Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the London
interbank Eurodollar market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination
shall be conclusive) and notify Agent that the Adjusted Eurodollar Rate
will not adequately and fairly reflect the cost to the Lenders of
funding Eurodollar Loans for such Interest Period;
then Agent shall give Borrower prompt notice thereof specifying the relevant
Type of Loans and the relevant amounts or periods, and so long as such condition
remains in effect, the Lenders shall be under no obligation to make additional
Loans of such Type, Continue Loans of such Type, or to Convert Loans of any
other Type into Loans of such Type and Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Loans of the affected Type,
either prepay such Loans or Convert such Loans into another Type of Loan in
accordance with the terms of this Agreement.
Section 6.3 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain or fund Eurodollar Loans hereunder,
then such Lender shall promptly notify Borrower thereof and such Lender's
obligation to make or Continue Eurodollar Loans, and to Convert other Types of
Loans into Eurodollar Loans, shall be suspended until such time as such Lender
may again make, maintain and fund Eurodollar Loans (in which case the provisions
of SECTION 6.4 shall be applicable).
Section 6.4 TREATMENT OF AFFECTED LOANS. If the obligation of any
Lender to make Loans of a particular Type, or to Continue or Convert Loans of
any other Type into Loans of a particular Type, shall be suspended pursuant
to SECTION 6.1 or SECTION 6.3 (Loans of such Type being herein called
"AFFECTED LOANS" and such Type being herein called the "AFFECTED TYPE"), such
Lender's Affected Loans shall be automatically Converted into Base Rate Loans
on the last day(s) of the then current Interest Period(s) for the Affected
Loans (or, in the case of a Conversion required by SECTION 6.3, on such
earlier date as such Lender may specify to Borrower with a copy to Agent)
and,
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unless and until such Lender gives notice as provided below that the
circumstances specified in SECTION 6.1 or SECTION 6.3 that gave rise to such
Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have
been so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued
by such Lender as Loans of the Affected Type shall be made or Continued
instead as Base Rate Loans, and all Loans of such Lender that would
otherwise be Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to Borrower (with a copy to Agent) that the
circumstances specified in SECTION 6.1 or SECTION 6.3 that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this SECTION 6.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 6.5 COMPENSATION. Upon the request of any Lender (with a copy
to Agent), Borrower shall pay to such Lender such amount or amounts as shall be
sufficient (in the reasonable opinion of such Lender) to compensate it for any
loss, cost or expense (including loss of anticipated profits) incurred by it as
a result of:
(a) any payment, prepayment or Conversion of a Eurodollar
Loan for any reason (including, without limitation, the acceleration of
the Loans pursuant to SECTION 14.2) on a date other than the last day
of the Interest Period for such Loan; or
(b) any failure by Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
ARTICLE 7 to be satisfied) to borrow, Convert, Continue or prepay a
Eurodollar Loan on the date for such borrowing, Conversion,
Continuation or prepayment specified in the relevant Notice of
Borrowing under this Agreement.
Such Lender's good faith determination of the amount of such losses or
out-of-pocket expenses, calculated in its usual fashion, absent manifest
error, shall be controlling. Such losses shall include, without limiting the
generality of the foregoing, reasonable expenses incurred by such Lender in
connection with the re-employment of funds prepaid, repaid prior to the end
of the applicable Interest Period, Converted and not borrowed, or Converted
and paid prior to the end of the applicable Interest Period, as the case may
be, but shall not include lost profits. Upon request of Borrower,
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such Lender shall provide a certificate setting forth the amount to be paid
to it by Borrower hereunder and calculations therefor.
Section 6.6 TAXES.
(a) Any and all payments by Borrower to or for the
account of any Credit Party hereunder or under any other Loan Document
shall be made free and clear of, and without deduction for, any and all
present or future taxes, duties, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto, EXCLUDING,
in the case of each Credit Party, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws of
which any such Lender (or its Applicable Lending Office), L/C Issuer or
Agent, as the case may be, is organized or any political subdivision
thereof (all such non- excluded taxes, duties, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "TAXES"). If Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable under this Agreement or
any other Loan Document to any Credit Party, (i) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 6.6) such Credit Party receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrower
shall make such deductions, (iii) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in
accordance with Applicable Law, and (iv) Borrower shall furnish to
Agent, at its address referred to in SECTION 17.1, the original or a
certified copy of a receipt evidencing payment thereof.
(b) In addition, Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Agreement or any other Loan Document or from
the execution or delivery of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "OTHER
TAXES").
(c) BORROWER AGREES TO INDEMNIFY EACH CREDIT PARTY FOR
THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, WITHOUT
LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY ANY
JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 6.6) PAID BY SUCH
CREDIT PARTY (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT
THERETO.
(d) Each Lender organized under the laws of a
jurisdiction outside the U.S., on or prior to the date of its execution
and delivery of this Agreement in the case of each Lender listed on the
signature pages hereof and on or prior to the date on which it becomes
a Lender in the case of each other Lender, and from time to time
thereafter if requested in writing by Borrower or Agent (but only so
long as such Lender remains lawfully able to do so), shall provide
Borrower and Agent with (i) IRS Form 1001 or 4224, as appropriate, or
any
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successor form prescribed by the IRS, certifying that such Lender is
entitled to benefits under an income tax treaty to which the U.S. is a
party which reduces the rate of withholding tax on payments of interest
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the
U.S., (ii) IRS Form W-8 or W-9, as appropriate, or any successor form
prescribed by the IRS, and (iii) any other form or certificate required
by any taxing authority (including any certificate required by Sections
871(h) and 881(c) of the Internal Revenue Code), certifying that such
Lender is entitled to an exemption from or a reduced rate of tax on
payments pursuant to this Agreement or any of the other Loan Documents.
(e) For any period with respect to which a Lender has
failed to provide Borrower and Agent with the appropriate form pursuant
to SECTION 6.6(d) (unless such failure is due to a change in treaty,
law or regulation occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be
entitled to indemnification under SECTION 6.6(a) or 6.6(b) with respect
to Taxes or Other Taxes imposed by the U.S.; PROVIDED, HOWEVER, that
should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes or Other Taxes because
of its failure to deliver a form required hereunder, Borrower shall
take such steps as such Lender shall reasonably request to assist such
Lender to recover such Taxes or Other Taxes.
(f) If Borrower is required to pay additional amounts to
or for the account of any Lender pursuant to this SECTION 6.6, then
such Lender will agree to use reasonable efforts to change the
jurisdiction of its Applicable Lending Office or take other reasonable
steps, if available, so as to eliminate or reduce any such additional
payment which may thereafter accrue if such change, in the judgment of
such Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment
of Taxes or Other Taxes, Borrower shall furnish to Agent the original
or a certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this SECTION 6.6 shall survive the termination of
the Commitments and the payment in full of the Notes.
Section 6.7 REPLACEMENT OF AFFECTED LENDER. Within thirty (30) days
after receipt by Borrower of written notice and demand from any Lender for any
payment under the terms of SECTION 6.1 or SECTION 6.6, or within thirty (30)
days of Borrower becoming aware that a Lender has become insolvent, or its
assets subject to a receiver, liquidator, trustee, custodian or other similar
Person or it or its assets are otherwise subject to insolvency proceedings, or
if a Lender fails to make Loans required to be made hereunder, then, subject to
this SECTION 6.7, Borrower may, at its option notify Agent and such Lender (the
"AFFECTED LENDER") of its intention to obtain, at Borrower's expense, a
replacement Lender ("REPLACEMENT LENDER") to purchase the Affected Lender's
Loans and its obligations under the Loan Documents. Subject to this SECTION 6.7,
Borrower shall,
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within thirty (30) days following the delivery of such notice from Borrower
cause the Replacement Lender to purchase (and the Affected Lender hereby
agrees to sell and convey to such Replacement Lender) the Loans of the
Affected Lender and assume the Affected Lender's Commitment and obligations
hereunder in accordance with the terms of an Assignment and Acceptance for
cash in an aggregate amount equal to the aggregate unpaid principal of the
Loans held by such Affected Lender, all unpaid interest and fees accrued
thereon or with respect thereto, and all other Secured Obligations owed to
such Affected Lender including amounts owed under SECTION 6.1 or SECTION 6.6
(but excluding any amount pursuant to SECTION 5.12). Notwithstanding the
foregoing, (i) Borrower shall continue to be obligated to pay to the Affected
Lender in full all amounts then demanded and due under SECTION 6.1 or SECTION
6.6 in accordance with the terms thereof, (ii) neither Agent nor any Lender
shall have any obligation to find a Replacement Lender, (iii) the Replacement
Lender must be acceptable to Agent in its reasonable discretion and (iv)
NationsBank, N.A. may not be replaced under this SECTION 6.7 without its
consent.
ARTICLE 7
CONDITIONS PRECEDENT
Section 7.1 CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT.
Notwithstanding any other provision of this Agreement, no Credit Party shall
have any obligation to make the initial Loan or to issue the initial Letter of
Credit, as the case may be, until the fulfillment of each of the following
conditions, and with respect to any reports, appraisals, reviews or similar
items, Agent's and each Lender's satisfaction with the contents thereof, prior
to or contemporaneously with the making of such Loan or issuance of such Letter
of Credit, PROVIDED, that the conditions listed in CLAUSES (i) through (vii) and
CLAUSES (xii) through (xvii) of SECTION 7.1(a) and in SECTIONS 7.1(d), (e), (f)
and (g) (in the case of SECTIONS 7.1(e) and (g), to the extent applicable on the
Agreement Date) shall be fulfilled on the Agreement Date.
(a) CLOSING DOCUMENTS. Agent shall have received each of
the following documents, all of which shall be satisfactory in form and
substance to Agent and the Lenders:
(i) each of the following:
(A) a copy of the certificate of
limited partnership of Borrower with all amendments,
if any, certified by the appropriate Governmental
Authority and a true and complete copy of the limited
partnership agreement of Borrower with all
amendments, if any, in each case certified by the
General Partner as true and correct and in effect on
the Agreement Date;
(B) copies of the certificate of
incorporation or comparable organizational document
of each of General Partner, Parent and each of the
other Loan Parties (other than Borrower) with all
amendments, if any, certified by the appropriate
Governmental Authority and the bylaws of each
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of such Person, in each case certified by the
corporate secretary or comparable authorized
representative of each such Person, respectively,
as true and correct and in effect on the
Agreement Date;
(ii) certificates of incumbency and specimen
signatures with respect to each of the officers of (i) General
Partner, authorized to execute and deliver this Agreement and
the other Loan Documents and to request Loans on behalf of
Borrower, (ii) Parent and each other Loan Party (other than
Borrower) authorized to execute and deliver this Agreement and
the other Loan Documents on behalf of each such Loan Party,
respectively, and (iii) each other Person executing any
document, certificate or instrument to be delivered in
connection with this Agreement and the other Loan Documents;
(iii) a certificate evidencing the existence of
General Partner and each Loan Party, and certificates
evidencing good standing of General Partner and each Loan
Party in the jurisdiction of its incorporation or organization
and in each other jurisdiction in which it is required to be
qualified as a foreign business entity to transact its
business as presently conducted (PROVIDED, that without
impairing SECTION 8.1(a) a certificate of existence for
CompUSA PC Inc., a newly formed Wholly-Owned Subsidiary of
Parent, and certificates of good standing for any Loan Party
in any state (other than its state of organization), to the
extent not provided on the Agreement Date may be provided
after the Agreement Date);
(iv) certified copies of all action taken by
General Partner and each Loan Party to authorize the
execution, delivery and performance of this Agreement, the
other Loan Documents and the borrowings under this Agreement;
(v) each of the items referred to in SECTION
8.1(o) and meeting the requirements thereof;
(vi) certificates or binders of insurance
relating to policies of insurance with loss payable clauses as
required by SECTION 10.8;
(vii) a certificate of each Loan Party signed by
an Authorized Signatory on its behalf stating that:
(A) all of the representations and
warranties made or deemed to be made under this
Agreement are true and correct as of the Agreement
Date, after giving effect to the Loans to be made at
such time and the application of the proceeds
thereof,
(B) no Default or Event of Default
exists, and
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(C) as to such other factual matters as
may be reasonably requested by Agent;
(viii) a Borrowing Base Certificate (predicated
upon an appraisal of Inventory reflecting the Appraised GOB
Value thereof, prepared by a credentialed appraiser acceptable
to Agent within six (6) months preceding the date of making
such Loan or issuing such Letter of Credit) and a Schedule of
Receivables and a Schedule of Inventory, in each case prepared
as of the Business Day preceding the day on which any such
requested Loan is to be funded or any such requested Letter of
Credit is to be issued;
(ix) RESERVED
(x) each Agency Account Agreement duly executed
by a Loan Party and the Clearing Bank party thereto;
(xi) (A) a certificate from Borrower to Agent
requesting the initial Loans or the issuance of a Letter of
Credit and, in the case of the initial Loans, specifying the
method of disbursement pursuant to SECTION 11.8 (and if the
proceeds of such Loan are to be used to discharge the Senior
Subordinated Notes, directing Agent to disburse such proceeds
directly to the trustee under the Indenture), (B) a
certificate signed by an Authorized Signatory of Borrower and
Parent stating that the incurrence of "Indebtedness" as
defined by the Indenture resulting from such initial Loans or
such Letter of Credit is permitted by the Indenture, or
alternatively, stating either that all obligations under the
Indenture have been (or, upon application of the proceeds of
such initial Loan as directed in CLAUSE (A) preceding, will
be) discharged pursuant to the terms thereof or that all
covenants under the Indenture have been defeased pursuant to
the terms thereof and (C) a certificate of each Loan Party
signed by an Authorized Signatory on its behalf stating that,
as of the date thereof, all of the representations and
warranties made or deemed to be made under this Agreement are
true and correct after giving effect to any such Loans to be
made, or any such Letter of Credit to be issued, and the
application of the proceeds of any such Loans, and that no
Default or Event of Default is in existence as of such date;
(xii) a Revolving Credit Note payable to the order
of each Lender, duly executed and delivered by Borrower,
complying with the requirements of SECTION 2.4;
(xiii) each of the Security Documents to be
executed by any of the Loan Parties, as follows:
(A) Financing Statements with respect
to all Collateral as may be requested by Agent, duly
executed by each Person a party thereto as required
by this Agreement and the Security Documents, and
acknowledgment copies
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evidencing the filing of such Financing Statements
in each jurisdiction where such filing may be
necessary or appropriate to perfect the Security
Interest;
(B) a Patent Security Agreement, a
Trademark Security Agreement and a Copyright Security
Agreement, each duly executed by each Loan Party, as
applicable, with respect to all Proprietary Rights,
if any, owned by each such Loan Party which must
be registered to protect its use by such Loan Party;
(C) a Guaranty Agreement, duly executed
and delivered by each Person required pursuant to
SECTION 9.3;
(xiv) With respect to all Investment Property
subject to the Security Interest (i) stock certificates and
stock powers (duly executed in blank) for all Capital Stock
(to the extent certificated) in each Loan Party other than
Parent, together with acknowledgments executed by the
respective issuers thereof, in form and substance satisfactory
to Agent and (ii) "control" agreements (pursuant to the UCC),
each duly executed, as Agent may request with respect to any
Investment Property listed in Schedule 8.1(ee);
(xv) A copy of all Merchant Account Agreements;
(xvi) counterparts of each of the other Security
Documents and other Loan Documents required by Agent, duly
executed by the parties thereto, together with evidence
satisfactory to Agent of the due authorization and binding
effect of each such Loan Document on such party;
(xvii) signed opinions of counsel for the Loan
Parties, opining as to such matters in connection with the
transactions contemplated by this Agreement as Agent may
reasonably request, in each case in form and substance
satisfactory to Agent; and
(xviii) such other documents and instruments as
Agent or any Lender may reasonably request.
(b) SECURITY INTERESTS. Agent shall have received
satisfactory evidence that Agent (for the benefit of the Credit
Parties) has a valid, exclusive and perfected first priority (subject
to SECTION 9.2(a)(i)) security interest, lien, collateral assignment
and pledge as of such date in all Collateral and other property, if
any, covered by the Security Interest.
(c) RELEASE OF SECURITY INTERESTS. Agent shall have
received evidence satisfactory to it of the release and termination of
all Liens other than Permitted Liens.
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(d) AVAILABILITY. Agent shall be provided with evidence
satisfactory to it confirmed by a certificate of an
Authorized Signatory of Borrower that as of the Agreement Date the
Availability, after giving effect to the reasonably expected amount of
the Letter of Credit Reserve in effect 60 days after the Agreement
Date, is equal to or greater than $75,000,000.
(e) FEES. All of the fees and expenses payable under the
Loan Documents on the Agreement Date and as of the date of funding such
Loan or issuing such Letter of Credit shall have been paid.
(f) NO INJUNCTIONS, ETC. No action, proceeding,
investigation, regulation or legislation shall have been instituted,
threatened or proposed by or before any Governmental Authority to
enjoin, restrain or prohibit, or to obtain damages in respect of, or
which is related to or arises out of this Agreement or the consummation
of the transactions contemplated by this Agreement or which, in Agent's
or the Lenders' reasonable discretion, would make it inadvisable to
consummate the transactions contemplated by this Agreement.
(g) MATERIAL ADVERSE CHANGE. Except as disclosed in
writing to Agent and the Lenders on or before the Agreement Date, as of
the Agreement Date and as of the date of funding such Loan or issuing
such Letter of Credit, there shall not have occurred any change which
is materially adverse to the assets, liabilities, businesses,
operations or financial condition of Borrower and the other Loan
Parties in comparison to such conditions as presented by the financial
statements referenced in SECTION 8.1(o), previously delivered to Agent
and the Lenders, and no Materially Adverse Effect shall have occurred.
Section 7.2 ALL LOANS; ISSUANCE OF LETTERS OF CREDIT. At the time of
making of each Loan, including the initial Loans and all subsequent Loans, and
the issuance of each Letter of Credit (in addition to all other requirements of
SECTION 7.1):
(a) no Default or Event of Default shall be in existence
and all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct at such time, in the
case of the initial Loan if the proceeds thereof are to be used to
discharge the Senior Subordinated Notes, upon application of the
proceeds of such Loan and, in the case of each other Loan, both with
and without giving effect to the Loan to be made at such time and the
application of the proceeds thereof;
(b) the actions referred to in SECTION 7.1(a)(iv) shall
remain in full force and effect and the incumbency of officers shall be
as stated in the certificates of incumbency delivered pursuant to
SECTION 7.1(a)(ii) or as subsequently modified and reflected in a
certificate of incumbency delivered to Agent; and
(c) each request or deemed request for any borrowing or
the issuance of any Letter of Credit hereunder shall be deemed to be a
certification by the Loan Parties to the Credit Parties as to the
matters set forth in SECTION 7.2(a) and (b) and Agent may, without
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waiving either condition, consider the conditions specified in SECTIONS
7.2(a) and (b) fulfilled and a representation by the Loan Parties to
such effect made, if no written notice to the contrary is received by
Agent prior to the making of the Loan, or the issuance of the Letter of
Credit then requested.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1 REPRESENTATIONS AND WARRANTIES. Each Loan Party, as
applicable represents and warrants to each of the Credit Parties as follows:
(a) ORGANIZATION; POWER; QUALIFICATION. Borrower is a
Texas limited partnership, Parent is a Delaware corporation and each
other Loan Party is an entity of the type and is organized under
Applicable Laws of the jurisdiction as specified in SCHEDULE 8.1(a), in
each case duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, having the power and
authority to own its properties and to carry on its business as now
being and hereafter proposed to be conducted, and is duly qualified and
authorized to do business in each jurisdiction in which the character
of its properties or the nature of its business requires such
qualification or authorization except where the failure to be so
qualified or authorized would not have a Materially Adverse Effect. The
jurisdictions in which each Loan Party is organized and qualified to do
business as a foreign business enterprise are listed on SCHEDULE
8.1(a). As of the Agreement Date, (i) each of General Partner, CompUSA
Holdings Company, CompUSA PC and CompUSA Management Company is a
Delaware business trust and has full power and authority to contract in
the State of Texas, (ii) General Partner is the sole general partner of
Borrower and CompUSA Holdings Company is the sole limited partner of
Borrower, and no Person other than General Partner and CompUSA Holdings
Company has any equity interest or management power in Borrower, (iii)
neither Borrower, General Partner, CompUSA Holdings Company or any
former general partner or limited partner of Borrower has taken any
action, voluntarily or involuntarily, to cause (or that has caused) the
dissolution of Borrower and (iv) neither the shareholders nor the
regular managers of General Partner or of CompUSA Holdings Company has
taken any action to cause (or that has caused) the dissolution of
General Partner or of CompUSA Holdings Company, respectively.
(b) RESERVED
(c) RESERVED
(d) SUBSIDIARIES. SCHEDULE 8.1(d) correctly sets forth
the name of each Subsidiary of each Loan Party, its jurisdiction of
incorporation, the name of its immediate parent or parents, and the
percentage of its issued and outstanding Capital Stock owned by such
Loan Party or any other Subsidiary of such Loan Party and indicating
whether such Subsidiary is a Consolidated Subsidiary. Except as set
forth on SCHEDULE 8.1(d),
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(i) no such Subsidiary has issued any securities
convertible into shares or other evidence of ownership of such
Subsidiary's Capital Stock or any options, warrants or other
rights to acquire any shares or other evidence of ownership or
securities convertible into such Capital Stock,
(ii) the outstanding Capital Stock and other
securities of each such Subsidiary are owned by a Loan Party
or a Wholly-Owned Subsidiary of a Loan Party or by a Loan
Party and one or more of its Wholly-Owned Subsidiaries, free
and clear of all Liens, warrants, options and rights of others
of any kind whatsoever, and
(iii) The Loan Parties have no other Subsidiaries.
The outstanding Capital Stock of each Subsidiary of a Loan Party has
been duly and validly issued and is fully paid and nonassessable by the
issuer, and the number and owners of the shares or other evidence of
ownership of such Capital Stock are set forth on SCHEDULE 8.1(d).
(e) AUTHORIZATION OF AGREEMENT, NOTES, LOAN DOCUMENTS AND
BORROWING. Each Loan Party has the right and power, and has taken all
necessary action to authorize it, to execute, deliver and perform this
Agreement and each of the other Loan Documents in accordance with their
respective terms. This Agreement and each of the other Loan Documents
have been duly executed and delivered by the duly authorized officers
of the Loan Party that is party thereto and each is, or each when
executed and delivered in accordance with this Agreement will be, a
legal, valid and binding obligation of each such Loan Party,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency and similar laws of general application.
(f) NO CONFLICTS. Except as set forth on SCHEDULE 8.1(f),
the execution, delivery and performance of this Agreement and each of
the other Loan Documents in accordance with their respective terms and
the borrowings hereunder do not and will not, by the passage of time,
the giving of notice or otherwise,
(i) require any Governmental Approval or violate
any Applicable Law relating to any Loan Party or of any of its
Subsidiaries,
(ii) conflict with, result in a breach of or
constitute a default under the articles or certificate of
incorporation or bylaws, or other constituent documents, of
any Loan Party or of any of its Subsidiaries,
(iii) conflict with, result in a breach of or
constitute a default under any material provisions of any
indenture (including without limitation, the Indenture),
agreement or other instrument to which any Loan Party or of
any of its Subsidiaries is a party or by which any Loan Party
or of any of its Subsidiaries or its respective
LOAN AND SECURITY AGREEMENT - Page 81
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property may be bound or any Governmental Approval relating
to any Loan Party or any of its Subsidiaries, or
(iv) result in or require the creation or
imposition of any Lien upon or with respect to any property
now owned or hereafter acquired by any Loan Party or of any of
its Restricted Subsidiaries other than the Security Interest.
(g) BUSINESS. The Loan Parties, respectively, are engaged
principally in the sale, manufacture, assembly, repair and distribution
of computer hardware, computer accessories and software products,
consumer electronic products, general office business equipment and
related telecommunications and multi-media electronics products and
equipment, and other products, training and services that are related
to or complementary to all or any of the foregoing.
(h) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS.
(i) Except as set forth in SCHEDULE 8.1(h), each
Loan Party and each of its Subsidiaries:
(A) has all Governmental Approvals,
including permits relating to federal, state and
local Environmental Laws, ordinances and regulations,
required by any Applicable Law for it to conduct its
business, each of which is in full force and effect,
is final and not subject to review on appeal and, to
the knowledge of any Loan Party, is not the subject
of any pending or threatened claim by any
Governmental Authority relating to its business or
properties, and
(B) is in compliance with each
Governmental Approval applicable to it and in
compliance with all other Applicable Laws relating to
it, including, without being limited to, all
Environmental Laws and all occupational health and
safety laws applicable to any Loan Party or of any of
its Subsidiaries or their respective properties,
except for instances of noncompliance which would not, singly
or in the aggregate, cause a Default or Event of Default or
have a Materially Adverse Effect and in respect of which
reserves in respect of reasonably anticipated liability
therefor have been established in accordance with GAAP.
(ii) Each Loan Party has notified Agent of the
receipt by it or by any of its Subsidiaries of any notice of a
material violation of any Environmental Laws and occupational
health and safety laws applicable to such Loan Party, any of
its Subsidiaries or any of their respective properties, to the
extent, in any such case, that any such notice relates to a
violation that could cause a Material Adverse Effect.
LOAN AND SECURITY AGREEMENT - Page 82
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(i) TITLE TO PROPERTIES. Except as set forth in SCHEDULE
8.1(i), each Loan Party and each of its Subsidiaries has valid and
legal title to or leasehold interest in all personal property
(including, without limitation, with respect to each Borrowing Base
Party, all Eligible Receivables and Eligible Inventory included in each
Borrowing Base Certificate), Real Estate owned and other assets used in
and which are material to the operation of its business.
(j) LIENS. None of the properties and assets of any Loan
Party or any of its Restricted Subsidiaries is subject to any Lien,
except Permitted Liens. Other than the Financing Statements or with
respect to Permitted Liens or precautionary financing statements
covering equipment leased to a Loan Party (and not owned by a Loan
Party) under an Operating Lease, no financing statement under the UCC
or other instrument evidencing a Lien which names any Loan Party or any
of its Restricted Subsidiaries as debtor has been filed (and has not
been terminated) with any Governmental Authority and no Loan Party or
any of its Restricted Subsidiaries has signed any such financing
statement or other instrument or any security agreement authorizing any
secured party thereunder to file any such financing statement or
instrument.
(k) INDEBTEDNESS AND GUARANTIES. SCHEDULE 8.1(k) is a
complete and correct listing, for each Loan Party and Restricted
Subsidiary, of all Indebtedness for Money Borrowed and Guaranties. As
of the Agreement Date, each Loan Party has performed and is in
compliance with all of the terms of such Indebtedness and Guaranties
and all instruments and agreements relating thereto, and no default or
event of default, or event or condition which with notice or lapse of
time or both would constitute such a default or event of default,
exists with respect to any such Indebtedness or Guaranty.
(l) LITIGATION. Except as set forth on SCHEDULE 8.1(l)
(it being agreed that such disclosure shall not constitute a disclosure
or limitation for purposes of the condition set forth in SECTION
7.1(g)), there are no actions, suits or proceedings pending (nor, to
the current actual knowledge of any Loan Party, are there any actions,
suits or proceedings threatened, nor are there any material unasserted
possible claims which would require disclosure in a financial statement
according to GAAP) against or in any other way directly and adversely
relating to or affecting any Loan Party or any of its Subsidiaries or
any of their respective properties in any court or before any
arbitrator of any kind or before or by any Governmental Authority,
except actions, suits or proceedings which would not singly or in the
aggregate have a Materially Adverse Effect, and there are no strikes or
walkouts in progress, pending or contemplated relating to any labor
contracts to which any Loan Party or any of its Subsidiaries is a
party, relating to any labor contracts being negotiated, or otherwise.
(m) TAX RETURNS AND PAYMENTS. Except as set forth on
SCHEDULE 8.1(m), all U.S. federal, state and local as well as foreign
national, provincial and local and other tax returns of each Loan Party
and each of its Subsidiaries required by Applicable Law to be filed
have been duly filed, or extensions have been timely filed, and all
U.S. federal, state and local and foreign national, provincial and
local and other taxes, assessments and other governmental
LOAN AND SECURITY AGREEMENT - Page 83
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charges or levies upon each Loan Party and each of its Subsidiaries
and each Loan Party's and any of its Subsidiaries' property, income,
profits and assets which are due and payable have been paid, except
any such nonpayment which is at the time permitted under SECTION 11.6.
The charges, accruals and reserves on the books of each Loan Party and
each of its Subsidiaries in respect of U.S. federal, state and local
and foreign national, provincial and local taxes for all Fiscal Years
and portions thereof since the organization of such Loan Party or any
such Subsidiary are in the judgment of Parent adequate, and no Loan
Party knows of any reason to anticipate any additional assessments for
any of such years which, singly or in the aggregate, is reasonably
expected to have a Materially Adverse Effect.
(n) BURDENSOME PROVISIONS. No Loan Party nor any of its
Subsidiaries is a party to any indenture, agreement, lease or other
instrument, or subject to any charter or corporate restriction,
Governmental Approval or Applicable Law compliance with the terms of
which would reasonably be expected to have a Materially Adverse Effect.
(o) FINANCIAL STATEMENTS.
(i) Parent has delivered to Agent the audited
financial statements for Parent and its Consolidated
Subsidiaries as of, and for its Fiscal Year ending June 26,
1998, and the interim financial statements for Parent and its
Consolidated Subsidiaries for the interim Fiscal Period ending
March 27, 1999. All such financial statements have been
prepared in accordance with GAAP, and present fairly, the
consolidated financial condition of Parent and its
Consolidated Subsidiaries, as of the respective dates
indicated therein and the results of operations for the
respective periods indicated therein, subject to normal
period-end adjustments in the case of such interim financial
statements. Neither Parent nor any of the Consolidated
Subsidiaries has any material contingent liabilities,
liabilities for taxes, unusual forward or long-term
commitments, or unrealized or anticipated losses from any
unfavorable commitments except as referred to or reflected in
such financial statements. As of the Agreement Date, Parent
and its Subsidiaries taken as a whole have no material
liabilities, contingent or otherwise, liabilities for taxes,
unusual forward or long-term commitments, or unrealized or
anticipated losses nor material losses, except as (i) set
forth in the June 28, 1998 audited Fiscal Year financial
statements and March 27, 1999 unaudited Fiscal Period
financial statements, and Borrower's Form 10-K and 10-Q for
such respective periods, and (ii) shown on SCHEDULE 8.1(o).
(ii) Parent has furnished to Agent and the
Lenders copies of Management's Restructuring Plan.
Management's Restructuring Plan has been be prepared in light
of the past and anticipated operations of the business of
Parent and its Subsidiaries and represents as of the date
thereof the good faith opinion of Parent and its senior
management concerning the restructuring plan described
therein.
LOAN AND SECURITY AGREEMENT - Page 84
<PAGE>
(p) ADVERSE CHANGE. Except with respect to restructuring
charges relating to Management's Restructuring Plan or as disclosed
pursuant to SECTION 12.5, since the date of the last financial
statements delivered to Agent pursuant to SECTION 8.1(o)(i),
(i) no material adverse change has occurred in
the business, assets, liabilities, financial condition or
results of operations of any Loan Party, and
(ii) no event has occurred or failed to occur
which has had (or, as of the Agreement Date, may have), singly
or in the aggregate, a Materially Adverse Effect.
(q) ERISA. Except as described in SCHEDULE 8.1(q):
(i) Neither Borrower nor any Related Company
maintains or contributes to any Benefit Plan covered under or
in any manner subject to either (i) Title IV of ERISA or (ii)
Section 302 of ERISA or Section 412 of the Internal Revenue
Code, other than those listed in SCHEDULE 8.1(q).
(ii) Except in compliance with Applicable Law,
(i) no Benefit Plan of Borrower or any Related Company has
been terminated or partially terminated, (ii) no Multiemployer
Plan listed in SCHEDULE 8.1(q) is insolvent or in
reorganization, and (iii) no proceedings have been instituted
to terminate any Benefit Plan or to reorganize any
Multiemployer Plan.
(iii) Neither Borrower nor any Related Company has
withdrawn from any Benefit Plan or Multiemployer Plan pursuant
to Title IV of ERISA, nor has a condition occurred which if
continued would result in any such withdrawal.
(iv) Neither Borrower nor any Related Company has
incurred any withdrawal liability, including contingent
withdrawal liability, to any Multiemployer Plan pursuant to
Title IV of ERISA.
(v) Neither Borrower nor any Related Company has
incurred any liability to the PBGC other than for required
insurance premiums which have been paid when due.
(vi) No Reportable Event has occurred with
respect to a Plan of Borrower or any Related Company.
(vii) No Benefit Plan listed in SCHEDULE 8.1(q)
subject to the provisions of Section 302 of ERISA or Section
412 of the Internal Revenue Code has an "accumulated funding
deficiency" (whether or not waived) as defined in Section 302
of ERISA or in Section 412 of the Internal Revenue Code.
LOAN AND SECURITY AGREEMENT - Page 85
<PAGE>
(viii) Each Plan of Borrower or any Related Company
is in substantial compliance with ERISA, the Internal Revenue
Code and all Applicable Law, and neither Borrower nor any
Related Company has received any communication from a
Governmental Authority asserting that a Plan is not in
compliance with ERISA, the Internal Revenue Code and all
Applicable Law.
(ix) Each Plan of Borrower or any Related Company
which is intended to be a qualified Plan has been determined
by the IRS to be qualified under Section 401(a) of the
Internal Revenue Code as currently in effect or will be
submitted to the IRS for such determination prior to the end
of the remedial amendment period under Section 401(b) of the
Internal Revenue Code and the regulations promulgated
thereunder and neither Borrower nor any Related Company knows
or has reason to know why each such Plan should not continue
to be so qualified, and each trust related to such Plan that
has been submitted to the IRS for determination of exempt
status has been determined to be exempt from federal income
tax under Section 501(a) of the Internal Revenue Code or will
be submitted to the IRS for a determination of exempt status.
(x) Neither Borrower nor any Related Company
maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(l) of ERISA which provides
benefits to employees after termination of employment other
than as required by Section 601 of ERISA.
(xi) The Schedule B to the most recent annual
report filed with the IRS with respect to each Benefit Plan
listed in SCHEDULE 8.1(q), to the extent that such Schedule B
is required to be filed by the IRS, is complete and accurate.
Since the date of each such Schedule B, there has been no
adverse change in funding status or financial condition of the
Benefit Plan relating to such Schedule B.
(xii) Neither Borrower nor any Related Company has
failed to make a required installment under Subsection (m) of
Section 412 of the Internal Revenue Code or any other payment
required under Section 412 of the Internal Revenue Code on or
before the due date for such installment or other payment.
(xiii) Neither Borrower nor any Related Company is
required to provide security to a Benefit Plan under Section
401(a)(29) of the Internal Revenue Code due to a Benefit Plan
amendment that results in an increase in current liability for
the plan year.
(xiv) Neither Borrower, nor any Related Company,
nor any other "party-in-interest" or "disqualified person" has
engaged in a nonexempt "prohibited transaction," as such terms
are defined in Section 4975 of the Internal Revenue Code and
Section 406 of ERISA, in connection with any Plan which would
subject
LOAN AND SECURITY AGREEMENT - Page 86
<PAGE>
Borrower or any Related Company to any material liability, or
has taken or failed to take any action which would constitute
or result in a Termination Event.
(xv) Neither Borrower nor any Related Company has
failed to comply with the health care continuation coverage
requirements of Section 4980B of the Internal Revenue Code in
respect of employees and former employees of such Borrower or
such Related Company and their dependents and beneficiaries
which alone or in the aggregate would subject Borrower, any
Loan Party or any of their respective Subsidiaries to any
material liability.
(xvi) Neither Borrower nor any Related Company has
(i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial
withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan. Except as provided on SCHEDULE 8.1(q),
to the best knowledge of Borrower after due inquiry, neither
Borrower nor any Related Company shall have any obligation to
(A) make contributions to any Multiemployer Plan on or after
the Effective Date, or (B) pay withdrawal liability to any
Multiemployer Plan in an amount in excess of a "de minimis
amount" as such term is defined in Section 4209 of ERISA.
(r) ABSENCE OF DEFAULTS. No Loan Party nor any of its
Subsidiaries is in default under its articles or certificate of
incorporation or bylaws or other governing instruments and no event has
occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of
Default, or
(ii) as of the Agreement Date, which constitutes,
or which with the passage of time or giving of notice or both
would constitute, a default or event of default by any Loan
Party or any of its Subsidiaries under any material agreement
(other than this Agreement) or judgment, decree or order to
any Loan Party or any of its Subsidiaries is a party or by
which any Loan Party or any of its Subsidiaries or any of its
respective Subsidiaries' properties may be bound or which
would require any Loan Party or any of its Subsidiaries to
make any payment under any such agreement prior to the
scheduled maturity date therefor, except, in the case only of
any such agreement, for alleged defaults which are being
contested in good faith by appropriate proceedings and with
respect to which reserves in respect of such Loan Party's or
such Subsidiary's reasonably anticipated liability have been
established on its books.
(s) ACCURACY AND COMPLETENESS OF INFORMATION.
(i) All written information, reports and other
papers and data produced by or on behalf of any Loan Party and
furnished to any Credit Party were, at the time the same were
so furnished, complete and correct in all material respects,
to the
LOAN AND SECURITY AGREEMENT - Page 87
<PAGE>
extent necessary to give the recipient a true and accurate
knowledge of the subject matter. As of the Agreement Date no
fact is known to any Loan Party which has had, or may in the
future have (so far as any such Person can foresee), a
Materially Adverse Effect which has not been set forth in the
financial statements or disclosure delivered prior to the
Effective Date, in each case referred to in SECTION 8.1(o), or
in such written information, reports or other papers or data
or otherwise disclosed in writing to Agent and the Lenders
prior to the Agreement Date.
(ii) No document furnished or written statement
made to any Credit Party by any Loan Party in connection with
the negotiation, preparation or execution of this Agreement or
any of the Loan Documents contains or will contain any untrue
statement of a fact material to the creditworthiness of any
Loan Party or omits or will omit to state a material fact
necessary in order to make the statements contained therein
not misleading.
(t) SOLVENCY. In each case after giving effect to the
Indebtedness represented by the Loans outstanding and to be incurred
and the transactions contemplated by this Agreement (i) each of the
Borrowing Base Parties, respectively, is Solvent and (ii) the Loan
Parties on a Consolidated Basis are Solvent.
(u) RECEIVABLES.
(i) STATUS.
(A) Each Receivable reflected in the
computations included in any Borrowing Base
Certificate meets the criteria enumerated in CLAUSES
(a) through (t) of the definition of Eligible
Receivables, EXCEPT as disclosed in such Borrowing
Base Certificate or as disclosed in a timely manner
in a subsequent Borrowing Base Certificate or
otherwise in writing to Agent.
(B) The Borrowing Base Parties have no
knowledge of any fact or circumstance not disclosed
to Agent in a Borrowing Base Certificate or otherwise
in writing which would impair the validity or
collectibility of any Account of $5,000,000 or more
or of Accounts which (regardless of the individual
amount thereof) aggregate $10,000,000 or more.
(ii) CHIEF EXECUTIVE OFFICE; TAX IDENTIFICATION
NUMBER. The Federal tax identification number of each Loan
Party is as specified for such Loan Party in SCHEDULE 8.1(u).
The chief executive office of each Loan Party and the books
and records relating to its Receivables are located at the
address or addresses set forth on SCHEDULE 8.1(u) or as
disclosed pursuant to SECTION 12.8. No Loan Party has
maintained its chief executive office or books and records
relating to any of its Receivables at any other address at any
time during the five years immediately preceding the Agreement
Date except as disclosed on SCHEDULE 8.1(u).
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(v) INVENTORY.
(i) SCHEDULE OF INVENTORY. All Inventory
included in any Schedule of Inventory or Borrowing Base
Certificate delivered to Agent pursuant to SECTION 10.12 meets
the criteria enumerated in CLAUSES (a) through (h) of the
definition of Eligible Inventory, EXCEPT as disclosed in such
Schedule of Inventory or Borrowing Base Certificate or in a
subsequent Schedule of Inventory or Borrowing Base
Certificate, or as otherwise specifically disclosed in writing
to Agent.
(ii) CONDITION. All Inventory included in any
Schedule of Inventory or Borrowing Base Certificate delivered
to Agent pursuant to SECTION 10.12 is in good condition, meets
all standards imposed by any Governmental Authority having
regulatory authority over such goods, their use or sale, and
is currently either usable or salable in the normal course of
business, EXCEPT to the extent reserved against in
the financial statements referred to in SECTION 8.1(o) or
delivered pursuant to ARTICLE 12 or as disclosed on a Schedule
of Inventory delivered to Agent pursuant to SECTION 10.12(b).
(iii) LOCATION. All Inventory of any Loan Party
included within the Collateral is located on the premises set
forth for such Loan Party on SCHEDULE 8.1(v) or is Inventory
in transit to one of such locations, except as otherwise
disclosed in writing to Agent. During the previous twelve (12)
months, no such Inventory has been located at premises other
than those set forth on SCHEDULE 8.1(v).
(w) RESERVED
(x) REAL PROPERTY. Each Loan Party owns no Real Estate
and leases no Real Estate other than that described on SCHEDULE 8.1(x)
and other than Real Estate acquired or leased after the Agreement Date
for which Borrower has complied with the requirements of SECTION 10.14.
(y) CORPORATE NAME. Except as otherwise disclosed on
SCHEDULE 8.1(y), during the five (5) year period preceding the
Agreement Date, no Loan Party nor any predecessor thereof has been
known as or used any name other than its corporate name on the
Agreement Date as provided for such Loan Party in ARTICLE 1 or a trade
name listed in SCHEDULE 8.1(dd).
(z) FEDERAL RESERVE REGULATIONS. No Loan Party nor any of
its Subsidiaries is engaged and none will engage, principally or as one
of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" (as each
of the quoted terms is defined or used in Regulation U of the Board of
Governors of the Federal Reserve System). No part of the proceeds of
any of the Loans will be used for so purchasing or carrying margin
stock or, in any event, for any purpose which
LOAN AND SECURITY AGREEMENT - Page 89
<PAGE>
violates, or which would be inconsistent with, the provisions of
Regulation T, U or X of such Board of Governors. If requested by
Agent or any Lender, any such Loan Party will furnish to Agent and
the Lenders a statement or statements in conformity with the
requirements of said Regulation T, U or X to the foregoing effect.
(aa) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT. No Loan Party nor any of its Subsidiaries is an
"investment company" or a company "controlled" by an "investment
company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended). No Loan Party nor any
of its Subsidiaries is a "holding company" or a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company" or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(bb) EMPLOYEE RELATIONS. Each Loan Party and each of
its Subsidiaries has a stable work force in place and is not, except
as set forth on SCHEDULE 8.1(bb), party to any collective bargaining
agreement nor has any labor union been recognized as the
representative of any Loan Party's or any of its Subsidiaries'
employees, and no Loan Party knows of any pending, threatened or
contemplated strikes, work stoppage or other labor disputes
involving any Loan Party's or any of its Subsidiaries' employees.
(cc) PROPRIETARY RIGHTS. SCHEDULE 8.1(cc) sets forth a
correct and complete list of all Proprietary Rights owned by each
Loan Party which must be registered in order to protect its use by
such Loan Party. None of such Proprietary Rights is subject to any
licensing agreement or similar arrangement except as set forth on
SCHEDULE 8.1(cc) or as entered into in the sale or distribution of
Inventory or rendering of services in the ordinary course of
business. To the best knowledge of the Loan Parties, none of such
Proprietary Rights infringes on or conflicts with any other Person's
property and, except matters which could not cause a Materially
Adverse Effect, no other Person's property infringes on or conflicts
with such Proprietary Rights. The Proprietary Rights described on
SCHEDULE 8.1(cc) constitute all of the property of such type
necessary to the current and anticipated future conduct of business
of the Loan Parties and which must be registered in order to protect
its use by any such Loan Party.
(dd) TRADE NAMES. All trade names or styles under which
Borrower sells Inventory or creates Receivables, or to which
instruments in payment of Receivables are made payable, or under
which any other Loan Party conducts any material portion of its
business, are listed on SCHEDULE 8.1(dd).
(ee) INVESTMENT PROPERTY. SCHEDULE 8.1(ee) sets forth a
correct and complete list of all Investment Property owned by each
Loan Party. Each such Loan Party is the legal and beneficial owner
of such Investment Property, as so reflected, free and clear of any
Lien (other than Permitted Liens), and has not sold, granted any
option with respect to, assigned or transferred or otherwise
disposed of any of its rights or interest therein.
LOAN AND SECURITY AGREEMENT - Page 90
<PAGE>
(ff) YEAR 2000 COMPLIANCE. Parent has (i) undertaken a
detailed review and assessment of all areas within the business and
operations of it and its Subsidiaries that could be adversely
affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer
applications used by the Loan Parties may be unable to recognize and
perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a
detailed plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that plan substantially
in accordance with that timetable. Each of the Loan Parties
reasonably anticipates that all computer applications that are
material to the business and operations of it and its Subsidiaries
will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is,
be "YEAR 2000 COMPLIANT") and would not cause a Materially Adverse
Effect. Parent is currently making inquiry of each of the key
suppliers, vendors and customers of it and its Subsidiaries as to
whether such Persons will on a timely basis be Year 2000 Compliant
in all material respects and, on the basis of that inquiry, believes
that all such Persons will be so compliant and would not cause a
Materially Adverse Effect. For purposes hereof, "key suppliers,
vendors and customers" refers to those suppliers, vendors and
customers of Parent and its Subsidiaries the business failure of
which would with reasonable probability be expected to have a
Material Adverse Effect.
(gg) EXISTING STORE LOCATIONS. All locations at which a
Loan Party operates retail stores on the Agreement Date are listed
in SCHEDULE 8.1(gg).
(hh) DEPOSIT ACCOUNTS; MERCHANT ACCOUNT AGREEMENTS. All
Deposit Accounts and Merchant Account Agreements, respectively,
maintained by a Loan Party are listed in SCHEDULE 8.1(hh).
(ii) COMMON ENTERPRISE. The successful operation and
condition of Borrower is dependent on the continued successful
performance of the functions of the group as a whole and the
successful operation of each Loan Party other than Borrower is
dependent on the successful performance and operation of Borrower.
Borrower expects to derive benefit (and its board of directors has
determined that it may reasonably be expected to derive benefit),
directly and indirectly, from successful operations of Parent and
its Subsidiaries. Each Loan Party (other than Borrower) and its
Subsidiaries expect to derive benefit (and the boards of directors
or other governing body of each such Loan Party have determined that
it may reasonably be expected to derive benefit), directly and
indirectly, from the credit extended by Lenders hereunder, both in
their separate capacities and as members of the group of companies.
Each Loan Party has determined that execution, delivery and
performance of this Agreement and any other Loan Documents to be
executed by such Loan Party is within its corporate purpose, will be
of direct and indirect benefit to such Loan Party and is in its best
interest.
LOAN AND SECURITY AGREEMENT - Page 91
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Section 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties set forth in this ARTICLE 8 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by or on behalf of any Loan Party pursuant to or in connection with
this Agreement or any of the other Loan Documents (including, but not limited
to, any such representation, warranty or statement made in or in connection
with any amendment thereto) shall constitute representations and warranties
made under this Agreement. All representations and warranties made under this
Agreement shall be made or deemed to be made at and as of the Agreement Date,
the Effective Date, the effective date of each Borrowing Base Certificate and
at and as of the date of each Loan, except that representations and
warranties which, by their terms are applicable only to one such date shall
be deemed to be made only at and as of such date. All representations and
warranties made or deemed to be made under this Agreement shall survive and
not be waived by the execution and delivery of this Agreement, any
investigation made by or on behalf of the Credit Parties or any borrowing
hereunder.
ARTICLE 9
SECURITY
Section 9.1 SECURITY INTEREST.
(a) To secure the payment, observance and performance
of the Secured Obligations, each Loan Party, respectively, hereby
mortgages, pledges and assigns all of its right, title and interest
in the Collateral to Agent, for the benefit of the Credit Parties,
and grants to Agent, for the benefit of the Credit Parties, a
continuing security interest and collateral assignment in, and a
continuing Lien upon, the Collateral.
(b) As additional security for all of the Secured
Obligations, each Loan Party, respectively, grants to Agent, for the
benefit of the Credit Parties, a security interest and collateral
assignment in, and assigns to Agent, for the benefit of itself as
Agent and the other Credit Parties, all of its right, title and
interest in and to, any deposits or other sums at any time credited
by or due from each Credit Party and each Affiliate of any Credit
Party to such Loan Party or credited by or due from any participant
of any Credit Party to such Loan Party, with the same rights therein
as if the deposits or other sums were credited by or due from such
Credit Party, but specifically excluding any controlled disbursement
payroll account or tax, trust or other special deposit accounts
which are segregated and designated as such and into which no
deposits have been made other than for the specific purposes so
designated. Borrower hereby authorizes each Credit Party and each
Affiliate of such Credit Party and each participant to pay or
deliver to Agent, for the account of the Credit Parties, without any
necessity on Agent's or any Credit Party part to resort to other
security or sources of reimbursement for the Secured Obligations, at
any time during the continuation of any Event of Default with
respect to any Secured Obligations which are due and payable, or on
and after the sending of any notice of intention to accelerate or
notice of acceleration under SECTION 14.2 with respect to any other
Secured Obligations, in each case without further notice (such
notice being expressly waived), any of the aforesaid deposits or
other
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sums for application to any Secured Obligation, irrespective
of whether any demand has been made or whether such Secured
Obligation is mature, and the rights given the Credit Parties, their
Affiliates and participants hereunder are cumulative with such
Person's other rights and remedies, including other rights of
set-off. Agent may give notice of the above grant of a security
interest in and assignment of the aforesaid deposits and other sums,
and authorization, to, and make any suitable arrangements with, any
Credit Party, any such Affiliate of any Credit Party or participant
for effectuation thereof, and each Loan Party hereby irrevocably
appoints Agent as its attorney to collect any and all such deposits
or other sums to the extent any such payment is not made to Agent or
any Credit Party by such Credit Party, Affiliate or participant.
Section 9.2 PERFECTION AND CONTINUED PRIORITY OF SECURITY INTEREST.
(a) The Security Interest granted by each Loan Party
shall at all times, be valid, perfected and enforceable against such
Loan Party and all third parties in accordance with the terms of
this Agreement, as security for the Secured Obligations, and the
Collateral shall not at any time be subject to (i) any Liens that
are prior to the Security Interest, other than (x) Purchase Money
Liens and any renewals or extensions thereof described in CLAUSE
(f)(a)(i) of the definition of "Permitted Liens" in SECTION 1.1 and
which are listed in SCHEDULE 9.2 ("Purchase Money Liens") on the
Agreement Date or (y) Liens of the type described under the
definitions of Permitted Landlords Liens and Permitted
Warehouseman's Liens in SECTION 1.1 (but without limiting the
requirements for inclusion of Inventory as Eligible Inventory or the
obligations of the Loan Parties under SECTION 9.2(b)(ii)), PROVIDED,
that any financing statement (if any) in respect of any such Lien is
terminated within five (5) Business Days after notice by Agent and
the effect of excluding any Inventory from Eligible Inventory as a
result of any such Lien does not cause Availability to be less than
the Minimum Availability Requirement), or (ii) any Liens that are on
a parity with or junior to the Security Interest, other than
Permitted Liens.
(b) Each Loan Party shall, at its sole cost and
expense, take all action that Agent may reasonably request (such
action to be promptly commenced upon written request by Agent and
pursued with reasonable diligence), so as at all times to maintain
the validity, perfection, enforceability and rank of the Security
Interest in the Collateral in conformity with the requirements of
SECTION 9.2(a), or to enable Agent and the other Credit Parties to
exercise or enforce their rights hereunder, including, but not
limited to:
(i) paying all taxes, assessments and other
claims lawfully levied or assessed on any of the Collateral,
except to the extent that such taxes, assessments and other
claims constitute Permitted Liens or that non-payment is
permitted under SECTION 11.6;
(ii) using its best commercially reasonable
efforts to obtain and deliver to Agent third party consents,
landlords', bailee's, mortgagees' and mechanic's and
materialmen's releases, subordinations or waivers (it being
understood that to the
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extent that each such Loan Party, after using its best
commercially reasonable efforts, shall be unable to obtain
and deliver to Agent any such third party consents, land
lords', bailee's, mortgagees' and mechanic's and
materialmen's releases, subordinations or waivers, as the
case may be, such inability to obtain and deliver any such
item shall not constitute an Event of Default);
(iii) delivering to Agent, for the benefit of the
Credit Parties, endorsed or accompanied by such instruments
of assignment as Agent may specify, and stamping or marking,
in such manner as Agent may specify, any and all chattel
paper, instruments, letters and advices of guaranty and
documents evidencing or forming a part of the Collateral; and
(iv) executing and delivering any additional
Security Documents, notices and assignments in each case in
form and substance satisfactory to Agent required for the
creation, validity, perfection, maintenance or continuation
of the Security Interest under the UCC or other Applicable
Law.
(c) Agent is hereby irrevocably authorized to file one
or more financing or continuation statements or amendments thereto
without the signature of or in the name of any Loan Party for any
purpose described in SECTION 9.2(b). A carbon, photographic,
xerographic or other reproduction of this Agreement or of any of the
Security Documents filed in connection with this Agreement is
sufficient as a financing statement.
(d) Each Loan Party shall mark its books and records
as may be necessary or appropriate to evidence, protect and perfect
the Security Interest.
(e) On or after the Termination Date and upon full and
final, indefeasible payment of all of the Secured Obligations and
termination of all of the obligations of Agent, L/C Issuer and any
Lender under this Agreement and all other Loan Documents, Agent
shall, upon the written request of and at the sole expense of
Borrower, execute such releases and terminations of the Security
Interest as Borrower may reasonably request.
Section 9.3 GUARANTIES; LOAN PARTY JOINDER. Each Loan Party other
than Borrower shall guarantee payment and performance of the Secured
Obligations pursuant to a Guaranty Agreement, duly executed by each such
Person and dated as of the Agreement Date. Promptly upon creation or
acquisition of any Domestic Subsidiary of a Loan Party such Loan Party shall
and shall cause each of its Subsidiaries, as applicable, to cause each such
newly created or acquired Subsidiary to become a Loan Party and a Guarantor
by executing and delivering to Agent a Joinder Agreement. Upon execution and
delivery of a Joinder Agreement any such newly created or acquired Subsidiary
shall automatically become a Loan Party and a Guarantor and thereupon shall
have all of the rights, benefits, duties and obligations of a Loan Party and
a Guarantor under the Loan Documents.
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Section 9.4 LIMITATION IN RESPECT OF CERTAIN LOAN PARTIES.
Notwithstanding anything in this Agreement or any of the other Loan
Documents, the liability of each Loan Party other than Borrower, Parent,
General Partner and CompUSA Holdings Company under this Agreement and the
other Loan Documents shall be limited to a maximum aggregate amount equal to
the largest amount that would not render its obligations hereunder and
thereunder subject to avoidance as a fraudulent transfer or conveyance under
any Applicable Law, in each case after giving effect to all other liabilities
of each such Person, contingent or otherwise, that are relevant under such
laws, and after giving effect to the value, as assets (as determined under
the applicable provisions of such laws) of any rights of each such Person to
subrogation or contribution from any other Loan Party or other Person
pursuant to Applicable Law or any agreement providing for an equitable
allocation among such Person and any such other Loan Party or other Person of
their respective obligations hereunder and thereunder. This SECTION 9.4 shall
not apply to limit the liability under the Loan Documents of Borrower,
Parent, General Partner and CompUSA Holdings Company.
ARTICLE 10
COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided in SECTION 17.10:
Section 10.1 COLLECTION OF RECEIVABLES.
(a) Each Loan Party will cause all monies, checks,
notes, drafts and other payments relating to or constituting
proceeds of trade accounts receivable to be forwarded to a Lockbox
for deposit in an Agency Account in accordance with the procedures
set out in the corresponding Agency Account Agreement. Each Loan
Party will promptly cause all monies, checks, notes, drafts and
other payments relating to or constituting proceeds of other
Receivables, of any other Collateral and of any trade accounts
receivable that are not forwarded to a Lockbox, to be transferred to
or deposited in an Agency Account. In particular, each Loan Party
will:
(i) advise each Account Debtor on trade
accounts receivable to address all remittances with respect
to amounts payable on account thereof to a specified Lockbox;
(ii) advise each other Account Debtor that
makes payment to such Loan Party by wire transfer, automated
clearinghouse transfer or similar means to make payment
directly to an Agency Account; and
(iii) stamp or otherwise mark all invoices
relating to trade accounts receivable with a legend
satisfactory to Agent indicating that payment is to be made
to such Loan Party via a specified Lockbox.
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(b) For so long as no Event of Default shall have
occurred and remain in existence and Availability shall equal or
exceed the Minimum Availability Requirement, all collected balances
in each Agency Account may be transmitted daily by wire transfer,
depository transfer check or other means in accordance with the
procedures set forth in the corresponding Agency Account Agreement,
directly to the Loan Parties for use in the ordinary course of
business, subject to the terms of this Agreement. At any time when
any Event of Default is existence or at any time when Availability
is less than the Minimum Availability Requirement, Agent in its
discretion may notify the Loan Parties and each Clearing Bank and
instruct such Clearing Bank, effective upon its receipt of such
notice, to cause all balances in each Agency Account to be
transmitted daily to Agent by wire transfer, depository transfer
check or other means in accordance with the procedures set forth in
the corresponding Agency Account Agreement, to Agent at its
Principal Office for application as provided in SECTION 2.3(c),
SECTION 14.2, and SECTION 14.3, such credits to be entered as of the
Business Day they are received if they are received prior to 1:30
p.m. (Dallas, Texas time) and to be conditioned upon final payment
in cash or solvent credits of the items giving rise to them.
(c) Any monies, checks, notes, drafts or other
payments referred to in SUBSECTION (a) of this SECTION 10.1 which,
notwithstanding the terms of such subsection, are received by or on
behalf of any Loan Party will be held in trust for Agent and will be
delivered to Agent or a Clearing Bank, as promptly as possible, in
the exact form received, together with any necessary endorsements
for application by Agent directly to the Secured Obligations or, if
applicable, for deposit in the Agency Account maintained with a
Clearing Bank and processing in accordance with the terms of this
Agreement and the corresponding Agency Account Agreement.
Section 10.2 VERIFICATION AND NOTIFICATION. Agent shall have the
right at any time and from time to time,
(a) in the name of Agent, the Lenders or in the name
of the Loan Parties, or any of them, to verify the validity, amount
or any other matter relating to any Receivables by mail, telephone,
telegraph or otherwise,
(b) to review, audit and make extracts from all
records and files related to any of the Receivables, and
(c) at any time when any Event of Default is in
existence, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to Agent, for the
benefit of the Credit Parties.
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Section 10.3 DISPUTES, RETURNS AND ADJUSTMENTS. A Loan Party may, in
the ordinary course of business and consistent with past business practices,
unless an Event of Default has occurred and is continuing, grant any
extension of time for payment of any Receivable or compromise, compound or
settle the same for less than the full amount thereof, or release wholly or
partly any Person liable for the payment thereof, or allow any credit or
discount whatsoever therein; PROVIDED that at any time when Availability is
less than the Minimum Availability Requirement, (i) no such action results in
the reduction of more than $7,500,000 in the amount payable with respect to
any Account (in each case, excluding the allowance of credits or discounts
generally available to Account Debtors in the ordinary course of business and
appropriate adjustments to the accounts of Account Debtors in the ordinary
course of business), and (ii) Agent is notified of the amount of such
adjustments and the Receivable(s) affected thereby, (x) promptly if the
amount of such adjustment equals or exceeds $2,500,000 or (y) otherwise on
the next succeeding Schedule of Receivables or Borrowing Base Certificate, as
the case may be, in the case of any adjustment of a smaller amount.
Section 10.4 INVOICES. Upon the request of Agent, the Loan Parties
shall deliver to Agent, at their expense, copies of customers' invoices or
the equivalent, original shipping and delivery receipts or other proof of
delivery, customers' statements (if any), customer address lists, the
original copy of all documents, including, without limitation, repayment
histories and present status reports, relating to Receivables and such other
documents and information relating to the Receivables as Agent shall specify,
any of such items to be delivered, if no Event of Default is in existence, as
promptly as reasonably possible and in any event within three (3) Business
Days after any such request, or if any Event of Default is in existence, upon
Agent's request.
Section 10.5 DELIVERY OF INSTRUMENTS. Each Loan Party will promptly
notify Agent in the event any of its Receivables in excess of $1,000,000 is
at any time evidenced by a promissory note, trade acceptance or any other
instrument for the payment of Money, and upon request by Agent, such Loan
Party will promptly thereafter deliver such instrument to Agent,
appropriately endorsed to Agent, for the benefit of the Credit Parties.
Section 10.6 SALES OF INVENTORY. All sales of Inventory will be made
in compliance with all requirements of Applicable Law except for instances of
noncompliance that do not give rise to a Lien on such Inventory or result in
a material diminution in the value thereof or impair Agent's access thereto
or cause a Materially Adverse Effect.
Section 10.7 OWNERSHIP AND DEFENSE OF TITLE.
(a) Except for Permitted Liens, the Loan Parties,
respectively, shall at all times be the sole owner of each and every
item of Collateral and shall not create any Lien on, or sell, lease,
exchange, assign, transfer, pledge, hypothecate, grant a security
interest or security title in, grant a license in or otherwise
dispose of, any of the Collateral or any interest therein, except
for sales of Inventory in the ordinary course of business, for cash
or on open account or on terms of payment ordinarily extended to its
customers, and except for dispositions that are otherwise expressly
permitted under this Agreement (including without limitation,
SECTION 13.6). The inclusion of "proceeds" of the Collateral under
the Security
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Interest shall not be deemed a consent by Agent or the Lenders to
any other sale or other disposition of any part or all of the
Collateral.
(b) The Loan Parties will promptly notify Agent of,
and at Agent's request shall defend its interest in and to and the
Security Interest in the Collateral against, any claims or demands
of any Person other than the Credit Parties.
Section 10.8 INSURANCE.
(a) The Loan Parties shall at all times maintain
insurance on its Inventory against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Agent
shall reasonably specify, in amounts not to exceed those obtainable
at commercially reasonable rates and under policies issued by
insurers as is customarily maintained by similar businesses or as
may be required by Applicable Law. All premiums on such insurance
shall be paid by the Loan Parties and, if requested by Agent, copies
of the policies shall be delivered to Agent. The Loan Parties will
not use or permit the Inventory to be used in any manner which might
render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION
10.8(a) covering any Collateral shall name Agent, for the benefit of
the Credit Parties, as an additional insured and shall contain loss
payable clauses in form and substance satisfactory to Agent, naming
Agent, for the benefit of the Credit Parties, as loss payee, as its
interests may appear, and providing that:
(i) all proceeds thereunder shall be payable
to Agent, for the benefit of the Credit Parties;
(ii) no such insurance shall be affected by any
act or neglect of the insured or owner of the property
described in such policy; and
(iii) such policy and loss payable clauses may
be canceled, amended or terminated only upon at least ten
(10) days' prior written notice given to Agent.
(c) Any proceeds of insurance referred to in this
SECTION 10.8 shall be paid to Agent for application to the Secured
Obligations (i) to the extent, if any, required to cause
Availability to equal or exceed the Minimum Availability Requirement
and (ii) in full at any time when any Default or Event of Default is
in existence, or if Availability exceeds the Minimum Availability
Requirement and no Default or Event of Default is in existence,
disbursed to Borrower for the Loan Parties.
Section 10.9 LOCATION OF OFFICES AND COLLATERAL.
(a) No Loan Party will change the location of its
chief executive office or the place where it keeps its books and
records relating to the Collateral or change its name, identity or
entity structure without giving Agent thirty (30) days' prior
written notice thereof.
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(b) All Inventory, other than Inventory in transit,
will at all times be kept (i) as to Borrower and Parent, only at the
locations for Borrower or Parent as reflected in such SCHEDULE
8.1(v) and (ii) as to any other Loan Party, only at the locations,
if any, reflected for each such Loan party in such SCHEDULE 8.1(v),
and shall not, without the prior written consent of Agent, be
removed therefrom except pursuant to sales of Inventory permitted
under SECTION 10.7(a), PROVIDED, that SCHEDULE 8.1(v) may not be
amended or supplemented without giving at least thirty (30) days
prior written notice to Agent.
(c) If any Inventory is in the possession or control
of any agent or processor, the applicable Loan Party shall notify
each such agent or processor of the Security Interest (and shall
promptly provide copies of any such notice to Agent and the Lenders)
and, upon the occurrence of an Event of Default, shall instruct them
(and cause them to acknowledge such instruction) to hold all such
Inventory for the account of the Credit Parties, subject to the
instructions of Agent.
Section 10.10 RECORDS RELATING TO COLLATERAL.
(a) Each Loan Party will at all times:
(i) keep complete and accurate records of its
Inventory on a basis consistent with past practices so as to
permit comparison of Inventory records relating to different
time periods, itemizing and describing the kind, type and
quantity of Inventory, cost therefor and a current price
list for such Inventory; and
(ii) keep complete and accurate records of all
other Collateral.
(b) Each Loan Party will prepare a physical listing of
all Inventory, wherever located, at least annually and provide a copy
thereof to Agent.
Section 10.11 INSPECTION; APPRAISALS. Agent and, with the consent of
and accompanied by Agent, any Lender (by any of their officers, employees or
agents) shall have the right, to the extent that the exercise of such right
shall be within the control of any Loan Party, at any time or times to:
(a) visit the properties of each Loan Party, inspect the
Collateral and the other assets of each Loan Party and inspect and
make extracts from its books and records, including, but not limited
to, management letters prepared by independent accountants, all during
customary business hours at such premises;
(b) discuss any Loan Party's business, assets,
liabilities, financial condition, results of operations and business
prospects, insofar as the same are reasonably related to the rights
of Agent or the Lenders hereunder or under any of the other Loan
Documents, with any Loan Party's principal officers, independent
accountants and any other Person (except
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that any such discussion with any third parties shall be conducted
only in accordance with Agent's or such Lender's standard operating
procedures relating to confidentiality);
(c) verify the amount, quantity, value and condition
of, or any other matter relating to, any of the Collateral and in
this connection to review, audit and make extracts from all records
and files related to any of the Collateral.
At Agent's request, each Loan Party will deliver to Agent, for the benefit of
the Lenders, any instrument necessary for it to obtain records from any
service bureau maintaining records on behalf of such Loan Party. At Agent's
request Borrower will furnish to Agent an appraisal or updated appraisal of
any Collateral, prepared by a credentialed appraiser acceptable to Agent, or
Agent may obtain any such appraisal at any time, in each case at Borrower's
expense as provided by SECTION 17.2. Without limiting the foregoing, Borrower
will deliver to Agent an appraisal of Inventory, prepared by a credentialed
appraiser acceptable to Agent, reflecting the Appraised GOB Value thereof at
any time at Agent's request, or otherwise (i) at least once during each
twelve (12) calendar months for so long as no Loans are outstanding in
respect of amounts calculated under CLAUSE (b)(ii) of the definition of
Borrowing Base in SECTION 1.1 or (ii) at least once during each six (6)
calendar months during any time when any Loans are outstanding in respect of
amounts calculated under such CLAUSE (b)(ii).
Section 10.12 INFORMATION AND REPORTS.
(a) SCHEDULE OF RECEIVABLES. Except as provided in
Section (e) below, Borrower shall deliver to Agent, on or before the
Agreement Date and not later than the twentieth (20th) day of each
Fiscal Period thereafter, and at any other time as may be requested by
Agent, a Schedule of Receivables which
(i) shall be as of the last Business Day of
the immediately preceding Fiscal Period,
(ii) except with respect to the Schedule of
Receivables delivered on the Agreement Date, shall be
reconciled to the Borrowing Base Certificate as of such last
Business Day, and
(iii) shall set forth (i) a summary aged trial
balance for the first two Fiscal Periods of a Fiscal Quarter
and (ii) a detailed aged trial balance for the last Fiscal
Period of a Fiscal Quarter, in each such case of all then
existing Receivables of each Loan Party, specifying the
names and balance due for each Account Debtor obligated on a
Receivable so listed.
(b) SCHEDULE OF INVENTORY. Except as provided in
Section (e) below, Borrower shall deliver to Agent on or before the
Agreement Date and not later than the twentieth day of each Fiscal
Period, and at any other time as may be requested by Agent, a
Schedule of Inventory as of the last Business Day of the immediately
preceding Fiscal Period itemizing
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and describing the kind, type and quantity of all Inventory of each
Loan Party, the cost thereof and the location thereof.
(c) BORROWING BASE CERTIFICATE. Except as provided in
Section (e) below, Borrower shall deliver to Agent Borrowing Base
Certificates, as follows:
(A) With respect to (and prior to) each
funding of any Loan or each issuance of any Letter of Credit
at any time when Availability is, at the time of making such
Loan or issuing such Letter of Credit or after giving effect
thereto, less than the Minimum Availability Requirement,
Borrower shall, at a minimum, deliver to Agent a Borrowing
Base Certificate prepared as of the close of business on the
Business Day preceding the Business Day on which such
Borrowing Base Certificate is delivered to Agent;
(B) At any time when the aggregate outstanding
balance of all Revolving Credit Loans plus the Letter of
Credit Reserve exceeds the Threshold Usage Amount, Borrower
shall, at a minimum, deliver to Agent a Borrowing Base
Certificate on the Wednesday of each calendar week prepared
as of the close of business on the Business Day preceding
the Business Day on which such Borrowing Base Certificate is
delivered to Agent;
(C) At any time when the aggregate outstanding
balance of all Revolving Credit Loans plus the Letter of
Credit Reserve is less than the Threshold Usage Amount,
Borrower shall, at a minimum, deliver to Agent a Borrowing
Base Certificate on the twentieth (20th) day of each Fiscal
Period prepared as of the close of business on the last day
of the preceding Fiscal Period;
PROVIDED, that unless otherwise requested by Agent no Borrowing Base
Certificate shall be required by the foregoing at any time when the
sum of Loans outstanding and the Letter of Credit Reserve
outstanding is less than $50,000,000. Each such Borrowing Base
Certificate shall include a schedule of "ineligibles" (I.E.,
Receivables other than Eligible Receivables and Inventory other than
Eligible Inventory) prepared as of the effective date of each such
Borrowing Base Certificate (unless Agent shall request that such
schedule be prepared as of a more recent date, in which case such
schedule will be prepared as of the date so requested).
(d) NOTICE OF DIMINUTION OF VALUE. At the time of
delivery of each Compliance Certificate under SECTION 12.3 or, if
earlier, with reasonable promptness, the Loan Parties shall notify
Agent if any such Loan Party has knowledge of any matter or event
which has resulted in, or may result in, the diminution in excess of
$10,000,000 in the value of any of the Collateral, except for any
such diminution in the value of any Receivables or Inventory in the
ordinary course of business which has been appropriately reserved
against, as reflected in financial statements previously delivered
to Agent and the Lenders pursuant to ARTICLE 12.
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(e) ADDITIONAL INFORMATION. Agent may in its
discretion from time to time request that Borrower deliver any
Schedule of Receivables, Schedule of Inventory or Borrowing Base
Certificate described in SECTIONS 10.12(a), (b) and (c) more or less
often and on different schedules than specified in such Sections and
Borrower will comply with such requests. The Loan Parties will
furnish to Agent such other information with respect to the
Collateral as Agent may from time to time reasonably request.
Section 10.13 POWER OF ATTORNEY. Each Loan Party hereby appoints
Agent as its attorney, with power to
(a) endorse its name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or
security that may come into Agent's or any Credit Party's
possession, and
(b) sign its name on any invoice or bill of lading
relating to any Receivable, Inventory or other Collateral, on any
drafts against customers related to letters of credit, on notices of
assignment, financing statements and other public records relating
to the perfection or priority of the Security Interest,
verifications of account and notices to or from customers.
Section 10.14 ADDITIONAL REAL ESTATE AND LEASES. At the time of
delivery of each Compliance Certificate for the end of a Fiscal Quarter under
SECTION 12.3 the Loan Parties shall notify Agent in writing of the
acquisition of any interest (including a leasehold interest) in any Real
Estate, therein specifying the address and location of such Real Estate and
the nature of any such interest.
Section 10.15 ASSIGNMENT OF CLAIMS ACT. Upon each request of Agent,
each Loan Party shall promptly execute any documents or instruments and shall
take such steps or actions reasonably required by Agent so that all monies
due or to become due under any contract with the U.S., the District of
Columbia or any other Governmental Authority, will be assigned to Agent, for
the benefit the Credit Parties, and notice given thereof in accordance with
the requirements of the Assignment of Claims Act of 1940, as amended, or any
other laws, rules or regulations relating to the assignment of any such
contract and monies due to or to become due.
Section 10.16 VOTING RIGHTS, DISTRIBUTIONS, ETC., IN RESPECT OF
INVESTMENT PROPERTY.
(a) So long as no Event of Default shall have occurred
and be continuing (i) each Loan Party shall be entitled to exercise
any and all voting and other consensual rights (including, without
limitation, the right to give consents, waivers and notifications in
respect of any Security) pertaining to its Investment Property or
any part thereof; PROVIDED, HOWEVER, that without the prior written
consent of Agent and Required Lenders, no vote shall be cast or
consent, waiver or ratification given or action taken which would
(A) be inconsistent with or violate any provision of this Agreement
or any other Loan Document or (B) amend, modify or waive any
material term, provision or condition of the certificate of
incorporation,
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bylaws, certificate of formation or other charter document or other
agreement relating to, evidencing, providing for the issuance of or
securing any such Investment Property, in any manner that would
impair such Investment Property, the transferability thereof or the
Security Interest therein, or, and (ii) each Loan Party shall be
entitled to receive and retain any and all dividends and interest
paid in respect of any of such Investment Property (unless otherwise
required by this Agreement).
(b) Upon the occurrence and during the continuance of
an Event of Default, (i) Agent may, without notice to any Loan
Party, transfer or register in the name of Agent or any of its
nominees, for the ratable benefit of the Credit Parties, any or all
of the Collateral consisting of Investment Property, the proceeds
thereof (in cash or otherwise) and all liens, security, rights,
remedies and claims of any Loan Party with respect thereto (as used
in this Section collectively, the "PLEDGED COLLATERAL") held by
Agent hereunder, and Agent or its nominee may thereafter, after
delivery of notice to the applicable Loan Party, exercise all voting
and corporate rights at any meeting of any corporation, partnership
or other business entity issuing any of the Pledged Collateral and
any and all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any of the Pledged
Collateral as if it were the absolute owner thereof, including,
without limitation, the right to exchange at its discretion any and
all of the Pledged Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any
corporation, partnership or other business entity issuing any of
such Pledged Collateral or upon the exercise by any such issuer or
Agent of any right, privilege or option pertaining to any of the
Pledged Collateral, and in connection therewith, to deposit and
deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as it may determine, all without
liability except to account for property actually received by it,
but Agent shall have no duty to exercise any of the aforesaid
rights, privileges or options, and Agent shall not be responsible
for any failure to do so or delay in so doing, (ii) after Agent's
giving of the notice specified in CLAUSE (i) of this SECTION
10.16(b), all rights of Borrower to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to SECTION 10.16(a)(i) and to receive the dividends,
interest and other distributions which it would otherwise be
authorized to receive and retain thereunder shall be suspended until
such Event of Default shall no longer exist, and all such rights
shall, until such Event of Default shall no longer exist, thereupon
become vested in Agent which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends, interest and other
distributions, (iii) all dividends, interest and other distributions
which are received by any Loan Party contrary to the provisions of
this SECTION 10.16(b) shall be received in trust for the benefit of
Agent, shall be segregated from other funds of such Loan Party and
shall be forthwith paid over to Agent as Collateral in the same form
as so received (with any necessary endorsement), and (iv) each Loan
Party shall execute and deliver (or cause to be executed and
delivered) to Agent all such proxies and other instruments as Agent
may reasonably request for the purpose of enabling Agent to exercise
the voting and other rights which it is entitled to exercise
pursuant to this SECTION 10.16(b) and to receive the dividends,
interest and other distributions which it is
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entitled to receive and retain pursuant to this SECTION 10.16(b).
The foregoing shall not in any way limit Agent's power and authority
granted pursuant to SECTION 10.13.
ARTICLE 11
AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided for in SECTION 17.10, each Loan
Party will keep the following covenants.
Section 11.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Each
Loan Party will, and will cause each of its Subsidiaries to (i) preserve and
maintain its existence, rights, franchises, licenses and privileges in the
jurisdiction of its incorporation, organization or formation (as applicable),
except as otherwise may be allowed pursuant to SECTION 13.6 and (ii) except
for instances of any noncompliance which could not reasonably be expected to
have a Materially Adverse Effect, qualify and remain qualified as a foreign
business enterprise and authorized to do business in each jurisdiction in
which the character of its properties or the nature of its business requires
such qualification or authorization.
Section 11.2 COMPLIANCE WITH APPLICABLE LAW. Each Loan Party will,
and will cause each of its Subsidiaries to, comply with all Applicable Laws
relating to it except instances of any noncompliance which could not
reasonably be expected to have a Materially Adverse Effect and with respect
to which reserves in respect of reasonably anticipated liability therefor has
been appropriately established.
Section 11.3 MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of SECTION 10.7 and of the Security
Documents, each Loan Party will:
(a) protect and preserve all property and interests in
property material to its business and maintain in good repair,
working order and condition in all material respects, with
reasonable allowance for wear and tear, all tangible properties used
in or otherwise material to its business, and
(b) from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements and additions
to such properties necessary for the conduct of its business, so
that the business carried on in connection therewith may be properly
conducted at all times, except for instances of any noncompliance
which could not reasonably be expected to have a Materially Adverse
Effect.
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Section 11.4 CONDUCT OF BUSINESS. Borrower and the other Loan
Parties will engage only the business described in SECTION 8.1(g) and any
other business which is incidental to, or results from, the conduct of any
such business.
Section 11.5 INSURANCE. Each Loan Party will maintain, in addition
to the coverage required by SECTION 10.8 and the Security Documents,
insurance with responsible insurance companies against such risks (including
without limitation, business interruption insurance) and in such amounts as
is customarily maintained by similar businesses or as may be required by
Applicable Law, and from time to time deliver to Agent upon its request a
detailed list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby.
Section 11.6 PAYMENT OF TAXES AND CLAIMS. Each Loan Party will, and
will cause each of its Subsidiaries to, pay or discharge when due
(a) all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any
properties belonging to it, except that real property ad valorem
taxes shall be deemed to have been so paid or discharged if the same
are paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics,
carriers, warehousemen and landlords for labor, materials, supplies
and rentals and other claims which, if unpaid, might become a Lien
on any properties of any Loan Party or any Subsidiary of any Loan
Party;
EXCEPT that this SECTION 11.6 shall not require the payment or discharge of
any such tax, assessment, charge, levy or claim which is being contested in
good faith by appropriate proceedings and with respect to which no Lien or
notice of Lien has been filed which would cause an Event of Default and with
respect to which reserves in respect of the reasonably anticipated liability
therefor have been appropriately established.
Section 11.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Each Loan
Party will, and will cause each of its Subsidiaries to, maintain a system of
accounting, and keep such books, records and accounts (which shall be true
and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP.
Section 11.8 USE OF PROCEEDS.
(a) Borrower will use the proceeds of Loans for
general business purposes, including without limitation (i) working
capital, (ii) funding of Reimbursement Obligations, (iii)
repurchasing or redeeming the Senior Subordinated Notes, (iv)
Capital Expenditures and (v) Acquisitions, in each case subject to
the terms of this Agreement, and for no other purpose.
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(b) Borrower will not use any part of such proceeds to
purchase or, to carry or reduce or retire or refinance any credit
incurred to purchase or carry, any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve
System) or, in any event, for any purpose which in either case would
involve a violation of such Regulation U or of Regulation T or X of
such Board of Governors, or for any purpose prohibited by law or by the
terms and conditions of this Agreement.
Section 11.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL
REQUIREMENTS.
(a) In addition to, and not in derogation of, the
requirements of SECTION 11.2 and of the Security Documents, each Loan
Party will, and will cause each of its Subsidiaries to, (i) comply with
all Environmental Laws and all Applicable Laws relating to occupational
health and safety (except for instances of noncompliance that would not
reasonably be expected to have a Materially Adverse Effect and that are
being contested in good faith by appropriate proceedings if reserves in
respect of reasonably anticipated liability therefor have been
appropriately established), (ii) promptly notify Agent of its receipt
of any notice of a violation of any such Environmental Laws or such
other Applicable Laws that would reasonably be expected to have a
Materially Adverse Effect and (iii) indemnify and hold each Credit
Party harmless from all loss, cost, damage, liability, claim and
expense incurred by or imposed upon any Credit Party on account of
failure to perform its obligations under this SECTION 11.9.
(b) Whenever any Loan Party or any of its Subsidiaries
gives notice to Agent pursuant to SECTION 11.9(a)(ii) with respect to
any matter that reasonably could be expected to result in liability to
any Loan Party in excess of $10,000,000 in the aggregate, such Loan
Party will, or will cause such Subsidiary to, at Agent's request and at
such Loan Party's or such Subsidiary's expense, (i) cause an
independent credentialed environmental engineer acceptable to Agent to
conduct an assessment meeting all requirements of Agent and Applicable
Law, including tests where necessary, feasible and appropriate of the
site where the noncompliance or alleged noncompliance with
Environmental Law has occurred and prepare and deliver to Agent a
report setting forth the results of such assessment, a proposed plan to
bring such Loan Party into compliance with such Environmental Law (if
such assessment indicates noncompliance) and an estimate of the costs
thereof, and (iii) provide to Agent a supplemental report of such
engineer whenever the scope of the noncompliance, or the response
thereto or the estimated costs thereof, shall materially adversely
change.
ARTICLE 12
INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in SECTION 17.10, the Loan Parties
will provide the following information to Agent and to each Lender
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at the offices then designated for such notices pursuant to SECTION 17.1 and
keep the other covenants contained in this ARTICLE 12.
Section 12.1 FINANCIAL STATEMENTS.
(a) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the
end of each Fiscal Year, a copy of (i) the consolidated balance sheets
of Parent and its Consolidated Subsidiaries, as of the end of the
current and prior Fiscal Years and (ii) the consolidated statements of
operations and consolidated statements of stockholders' equity, and
consolidated statements of changes in cash flows as of and through the
end of such Fiscal Year, all of which are prepared in accordance with
GAAP applied consistently throughout the periods reflected therein, and
certified by independent certified public accountants acceptable to
Agent and the Lenders, whose opinion shall be in scope and substance in
accordance with generally accepted auditing standards and shall be
unqualified.
(b) FISCAL QUARTER FINANCIAL STATEMENTS AND INFORMATION.
Within 45 days after the end of each Fiscal Quarter (except the last
Fiscal Quarter) of each Fiscal Year, a consolidated balance sheet of
Parent and its Consolidated Subsidiaries as at the end of such Fiscal
Period and the related consolidated statement of operations for such
Fiscal Quarter and for the elapsed portion of the year ended with the
last day of such Fiscal Quarter, and a consolidated statement of cash
flows for the elapsed portion of the year ended with the last day of
such Fiscal Quarter, all of which shall be certified by the president,
chief financial officer, senior vice president-finance, vice president-
finance or vice president-controller of Parent, to be, in his or her
opinion acting solely in his or her capacity as an officer of
Parent, complete and correct in all material respects and to present
fairly, in accordance with GAAP applied consistently throughout the
periods reflected therein, the financial position and results of
operations of Parent and its Consolidated Subsidiaries as at the end
of and for such Fiscal Quarter, and for the elapsed portion of the
year ended with the last day of such Fiscal Quarter, subject only to
normal year-end adjustments.
(c) FISCAL PERIOD FINANCIAL STATEMENTS AND INFORMATION.
Within 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), an internally prepared consolidated balance sheet of
Parent and its Consolidated Subsidiaries as at the end of such Fiscal
Period and the related consolidated statement of operations for such
Fiscal Period 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 of which shall be certified by the president,
chief financial officer, senior vice president-finance, vice president-
finance or vice president-controller of Parent, to be a true copy of
Parent's routine internally prepared financial statements prepared for
Parent's management in the ordinary course of business for such Fiscal
Period.
(d) CONSOLIDATING FINANCIAL STATEMENTS. Together with
each of the financial statements required to be delivered under SECTION
12.1(a), (b) and (c), the associated
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consolidating financial statements for CompUSA Net.com, which in each
case shall be included within the respective certifications required to
be delivered under such Sections.
Section 12.2 RESERVED
Section 12.3 OFFICER'S CERTIFICATE. At the time that Parent provides
the financial statements pursuant to SECTION 12.1 for any Fiscal Period, Parent
shall also provide a Compliance Certificate which:
(a) sets forth as at the end of such Fiscal Period, (i) a
listing of Investments made pursuant to SUBPARAGRAPH (i) of the
definition of "Permitted Investments" and (ii) the calculations
required to establish compliance with the requirements of SECTIONS
13.1, 13.9 and 13.12 as at the end of each respective period,
(b) if any Loan Party has made any payment or payments of
principal of, or interest or premium on, any Subordinated Indebtedness
since the last preceding date as of which a Compliance Certificate was
required to be delivered hereunder, sets forth a statement (i)
identifying the Subordinated Indebtedness which was the subject of such
payment, (ii) specifying the amount of each such payment, and whether
such payments were in respect of principal, interest or premium and
(iii) certifying that no Default or Event of Default was in existence
as of the time of making, or after giving effect to, each such payment,
(c) states that the information on the schedules to this
Agreement is complete and accurate as of the date of such certificate
or, if such is not the case, attaches to such certificate updated
schedules, and
(d) states that, based on a reasonably diligent
examination, no Default or Event of Default has occurred or exists, or,
if such is not the case, specifies such Default or Event of Default and
its nature, when it occurred, whether it is continuing and the steps
taken or being taken by the Loan Parties with respect to such Default
or Event of Default.
Section 12.4 COPIES OF OTHER REPORTS. The Loan Parties will provide
Agent and the Lenders the following:
(a) Promptly upon receipt thereof, copies of all reports,
if any, submitted to any Loan Party or its Board of Directors by its
independent public accountants, including, without limitation, any
management report;
(b) As soon as practicable, copies of all financial
statements and reports that any Loan Party sends to its shareholders
generally and of all registration statements and all regular or
periodic reports which any Loan Party files with the Securities and
Exchange Commission or any successor commission;
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(c) From time to time and as soon as reasonably
practicable following each request, such forecasts, data, certificates,
reports, statements, opinions of counsel, documents or further
information regarding the business, assets, liabilities, financial
condition or results of operations of any Loan Party or any of its
Subsidiaries as Agent or any Lender may reasonably request and that any
such Loan Party has or (except in the case of legal opinions relating
to the perfection or priority of the Security Interest) without
unreasonable expense can obtain; PROVIDED, HOWEVER, that the Lenders
shall, to the extent reasonably practicable, coordinate examinations of
the Loan Parties' records by their respective internal auditors; and
PROVIDED FURTHER, that no such opinion of counsel shall be required to
be so provided to the extent such counsel has determined (and has so
advised Agent in writing) that matters that would be required to be
disclosed in any such opinion would waive an attorney-client privilege
or attorney work product privilege of a Loan Party as to significant
privileged information of such Loan Party.
(d) If requested by Agent or any Lender, Borrower will
provide to Agent and the Lenders statements in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of
the Board of Governors of the Federal Reserve System.
The rights of Agent and the Lenders under this SECTION 12.4 are in addition to
and not in derogation of their rights under any other provision of this
Agreement or of any other Loan Document.
Section 12.5 NOTICE OF LITIGATION AND OTHER MATTERS. Each Loan Party
will provide Agent and the Lenders prompt notice of each of the following:
(a) promptly upon receipt thereof, (i) notices (and
information with respect thereto and copies thereof) any received from
any Governmental Authority that relates to a breach of or noncompliance
with any Applicable Law, or might result in the liability or obligation
of any Loan Party or any of its Subsidiaries in an amount of
$10,000,000 or more in the aggregate, or otherwise have a Materially
Adverse Effect, or result in the loss or suspension of any Governmental
Approval which is necessary for operation of a significant portion of
its business and (ii) promptly becoming aware thereof, the commencement
of any proceeding or investigation by or before any Governmental
Authority or any action or proceeding before any Governmental Authority
against or in any other way relating to or affecting any Loan Party or
any of its Subsidiaries or any of such Loan Party's or Subsidiary's
properties, assets or businesses, which might, singly or in the
aggregate, result in the occurrence of a Default or an Event of
Default, or have a Materially Adverse Effect;
(b) any amendment of the articles of incorporation or
bylaws of any Loan Party or any of its Subsidiaries;
(c) any change (i) in the business, assets, liabilities,
financial condition or results of operations of any Loan Party or any
of its Subsidiaries which has had or may have, singly or in the
aggregate, a Materially Adverse Effect; and
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(d) promptly upon becoming aware thereof, that (i) the
holder(s) of any note(s) or other evidence of Indebtedness or other
security of any Loan Party in excess of $10,000,000 in the aggregate
has given notice or taken any action with respect to a breach, failure
to perform, claimed default or event of default thereunder, (ii) any
party to any Capitalized Lease Obligation in excess of $10,000,000 or
any party to any obligations in respect of any Operating Lease, the
termination or default with respect to which could reasonably be
expected to have a Materially Adverse Effect, has given notice or taken
any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (iii) any occurrence or
non-occurrence of any event which constitutes or which with the passage
of time or giving of notice or both could constitute a breach by any
Loan Party under any agreement or instrument other than this Agreement
to which such Loan Party is a party or by which any of its properties
may be bound, if any such event could reasonably be expected to have a
Materially Adverse Effect, or (iv) any event, circumstance or condition
which could reasonably be expected to cause a Material Adverse Effect
with respect to any Loan Party, such notice to specify the details
thereof (or the nature of any claimed default or event of default) and
what action is being taken or is proposed to be taken with respect
thereto.
Section 12.6 ERISA. As soon as possible and in any event within thirty
(30) days after any Loan Party knows, or has reason to know, that
(a) any Termination Event with respect to a Plan listed
in SCHEDULE 8.1(q) has occurred or will occur, or
(b) the aggregate present value of the Unfunded Vested
Accrued Benefits under all Plans listed in SCHEDULE 8.1(q) subject to
either Title IV of ERISA or the provisions of Section 302 of ERISA or
Section 412 of the Internal Revenue Code is equal to an amount in
excess of $0, or
(c) Any Loan Party or any of its Subsidiaries is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan required by reason of such Loan
Party's or Subsidiary's complete or partial withdrawal (as described in
Section 4203 or 4205 of ERISA) from such Multiemployer Plan,
such Loan Party will provide Agent and the Lenders a certificate of its
Authorized Signatory setting forth the details of such event and the action
which is proposed to be taken with respect thereto, together with any notice or
filing which may be required by the PBGC or other Governmental Authority with
respect to such event.
Section 12.7 ACCURACY OF INFORMATION. All written information, reports,
statements and other papers and data provided to Agent or any Lender, whether
pursuant to this ARTICLE 12 or any other provision of this Agreement or of any
other Loan Document, shall be, at the time the same is so provided, complete and
correct in all material respects to the extent necessary to give Agent and the
Lenders true and accurate knowledge of the subject matter.
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Section 12.8 REVISIONS OR UPDATES TO SCHEDULES. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, the Loan Parties
shall deliver to Agent and the Lenders as part of the officer's certificate
required pursuant to SECTION 12.3(b) such revisions or updates to such
Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s), PROVIDED that no such revisions or updates to SCHEDULES 1.1B, 1.1C,
8.1(f), 8.1(h), 8.1(i), 8.1(l), 8.1(m), 8.1(o), 8.1(y), 8.1(bb), 8.1(gg) or 9.2
shall be deemed to have amended, modified or superseded any such Schedules as
originally attached hereto, or to have cured any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any such
Schedules, unless and until the Required Lenders shall have accepted in writing
such revisions or updates to any such Schedules.
Section 12.9 YEAR 2000 COMPLIANCE. The Loan Parties will promptly
notify the Agent in the event Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
Compliant on a timely basis, except to the extent that such failure could not
reasonably be expected to have a Material Adverse Effect on Borrower or the Loan
Parties.
Section 12.10 ANNUAL PROJECTIONS. As soon as available, but in any
event within 90 days following the end of each Fiscal Year, Parent shall deliver
to Agent and the Lenders a copy of the annual consolidated operating budget of
Parent and its Subsidiaries for the succeeding Fiscal Year.
ARTICLE 13
NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in SECTION 17.11:
Section 13.1 FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage
Ratio calculated as of any Fixed Charge Coverage Ratio Test Date shall not be
less than 1.0 to 1.0.
Section 13.2 INDEBTEDNESS. No Loan Party will, nor will it permit any
Restricted Subsidiary to, directly or indirectly, create, assume or otherwise
become or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding any Indebtedness, except that
this SECTION 13.2 shall not apply to:
(a) Indebtedness under the Loan Documents;
(b) Purchase Money Indebtedness incurred for the purchase
of Inventory in the ordinary course of business, and accounts payable
and accrued liabilities incurred in the ordinary course of business and
not otherwise expressly prohibited by this Agreement;
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(c) Guaranties to the extent permitted under SECTION
13.3;
(d) (i) Indebtedness for the purpose of acquiring and/or
constructing new store locations, PROVIDED that no Default or Event of
Default shall be in existence and Availability shall exceed the Minimum
Availability Requirement, in each case at the time of incurring and
after giving effect to such Indebtedness, (ii) Indebtedness secured by
Existing Store Locations and which does not exceed the original cost of
acquiring and/or constructing such Existing Store Locations and (iii)
refinancings (but not increases) of Indebtedness described in CLAUSES
(i) and (ii) of this SECTION 13.2(d) on terms not materially different
than those existing on the date such Indebtedness was incurred in the
case of CLAUSE (i) or on the Agreement Date in the case of Indebtedness
described in CLAUSE (ii);
(e) Indebtedness of a Loan Party or a Restricted
Subsidiary to a Loan Party;
(f) Indebtedness which is described on SCHEDULE 8.1(k) on
the Agreement Date, including renewals and refinancings (but no
increases) thereof on terms not materially different than those
existing on the Agreement Date;
(g) Subordinated Indebtedness, including renewals and
refinancings thereof which constitute Subordinated Indebtedness, not
exceeding $250,000,000 in the aggregate at any time outstanding;
(h) Indebtedness in respect of deferred income taxes,
deferred revenues, commitments, contingencies and reserves, in each
case to the extent set forth on the balance sheet of Parent and its
Subsidiaries in accordance with GAAP; and
(i) Indebtedness not otherwise permitted pursuant to
CLAUSES (a) through (h) above, not to exceed $150,000,000 in the
aggregate, PROVIDED that no Default or Event of Default shall be in
existence at the time of incurring and after giving effect to such
Indebtedness; and
Section 13.3 GUARANTIES. The Loan Parties shall not, and shall not
permit any Restricted Subsidiary to, at any time make or issue any Guaranty, or
assume, be obligated with respect to, or permit to be outstanding any Guaranty
of any obligation of any other Person except (a) under a Guaranty Agreement
pursuant to the Loan Documents, (b) a Guaranty of obligations of a Loan Party
that are not prohibited by this Agreement, (c) endorsement in the ordinary
course of business of negotiable instruments for deposit or collection, (d)
Guaranty of any Indebtedness permitted by SECTION 13.2, (e) a Guaranty that is a
Permitted Investment under CLAUSE (i) of the definition of Permitted Investments
in SECTION 1.1 and (f) the Guaranty of Indebtedness of directors, officers and
employees of a Loan Party or a Subsidiary of a Loan Party during any Fiscal Year
not to exceed, together with the loans to officers and employees permitted
pursuant to SECTION 13.4 (calculated net of loan repayments) for such Fiscal
Year, $1,000,000 in aggregate amount, PROVIDED that no Default or Event of
Default shall be in existence at the time of incurring and after giving effect
to such Guaranty under this CLAUSE (f).
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Section 13.4 INVESTMENTS. No Loan Party will, nor will it permit any of
its Restricted Subsidiaries to, directly or indirectly, acquire or maintain any
Investment other than Permitted Investments and Guaranties permitted by SECTION
13.3.
Section 13.5 RESTRICTED DIVIDEND PAYMENTS, RESTRICTED PAYMENTS AND
RESTRICTED PURCHASES. No Loan Party will, nor will it permit any Restricted
Subsidiary to, directly or indirectly, declare or make any Restricted Dividend
Payment, Restricted Payment or Restricted Purchase, PROVIDED, that for so long
as no Default or Event of Default has occurred and is continuing or would exist
after giving effect thereto, (i) a Loan Party or a Restricted Subsidiary may
declare and pay Dividends to a Loan Party, (ii) Parent may defease, redeem,
repurchase or repay the Senior Subordinated Notes in part or in full, (iii)
Parent may prepay the certain subordinated promissory note dated August 31, 1998
executed by Parent payable to Tandy Corporation, PROVIDED that such prepayment
is made with proceeds of Subordinated Indebtedness or of newly issued Capital
Stock, or of the sale of treasury Capital Stock, of Parent, (iv) Parent may make
Treasury Stock Purchases if Availability both at the time of any such Treasury
Stock Purchase and after giving effect thereto equals or exceeds an amount equal
to the sum of the Minimum Availability Requirement at such time, PROVIDED that
such Treasury Stock Purchases shall not exceed $100,000,000 (net of cash
proceeds received by Parent upon any resales thereof) in the aggregate during
any Fiscal Year of Parent and (v) Restricted Payments on Indebtedness, excluding
Subordinated Indebtedness, allowed under SECTION 13.2.
Section 13.6 LIQUIDATION, DISPOSITION OR ACQUISITION OF ASSETS, MERGER,
NEW SUBSIDIARIES. The Loan Parties shall not, and shall not permit any
Restricted Subsidiary to, at any time:
(a) liquidate or dissolve itself (or suffer any
liquidation or dissolution) or otherwise wind up; or sell, lease,
abandon, transfer or otherwise dispose of all or any part of its
assets, properties or business other than (i) inventory and other
assets sold in the ordinary course of business (ii) sales or closures
of stores or distribution centers in the normal course of business, and
disposition of Inventory located at such locations on reasonable terms
consistent with such Loan Party's usual practice in connection with
such sales or closures (PROVIDED that disposition of other Collateral
at any such store or distribution center shall otherwise be subject to
this SECTION 13.6), (iii) transfers of assets from a Loan Party to a
Loan Party or from a Subsidiary to a Loan Party (PROVIDED, that a
Borrowing Base Party may not transfer Inventory to a Loan Party that is
not a Borrowing Base party without the prior consent of Agent, unless a
Financing Statement reflecting the transferee Loan Party as debtor and
Agent as secured party has been signed by the transferee Loan Party and
has been filed with the appropriate Governmental Authority in each
jurisdiction in which such Inventory is located and Agent shall have
received acknowledgment of such filing from such Governmental
Authority), (iv) liquidation, sale or other disposition of Permitted
Investments described in CLAUSE (a) and (b) of the definition of
Permitted Investments in SECTION 1.1, (v) any transaction permitted by
SECTION 13.11, (vi) sales of Capital Stock in CompUSA Net.com, (vii)
transfer of assets to CompUSA Net.com to the extent not prohibited by
SECTION 13.12, (viii) liquidation or dissolution of a Loan Party into
another Loan Party, (ix) any sale, lease, abandonment, transfer or
disposition of assets not otherwise allowed by
LOAN AND SECURITY AGREEMENT - Page 113
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CLAUSES (i) through (viii) hereof, in any Fiscal Year (other than
Receivables, Inventory or Proprietary Rights listed in a Schedule to a
Trademark Security Agreement, Copyright Security Agreement or Patent
Security Agreement, or Capital Stock of a Loan Party whose Receivables
or Inventory are included in the most recent Borrowing Base Certificate
delivered to Agent) for full and fair consideration and which assets do
not in aggregate amount exceed 5% of Net Worth as of the end of the
immediately preceding Fiscal Year (in the case of Capital Stock of a
Restricted Subsidiary, measured by the net worth (determined according
to GAAP) thereof, and in the case of any other assets, measured by the
fair value thereof net of any associated liabilities assumed by the
purchaser thereof), in each of the foregoing cases subject to SECTION
5.11(a) to the extent applicable;
(b) enter into any merger or consolidation (i) unless
with respect to a merger or consolidation, Parent or Borrower shall be
the surviving corporation, unless the merger or consolidation involves
a Loan Party or Restricted Subsidiary and neither Parent nor Borrower
is merging or consolidating with another Person, and either (A) such
Restricted Subsidiary shall be the surviving corporation and is or
becomes a Loan Party, (B) the survivor of the merger becomes a Loan
Party or (C) the entity formed in the consolidation becomes a Loan
Party, (ii) if such transaction is being utilized to circumvent
compliance with any term or provision herein, (iii) unless no Default
or Event of Default shall be then in existence or shall occur as a
result of such transaction, (iv) unless Availability shall be equal or
greater than the Minimum Availability Requirement at the time of such
transaction and after giving effect thereto, except in the case of a
merger or consolidation of a Loan Party or a Subsidiary of a Loan Party
with and into a Loan Party, and (v) unless Agent shall have received a
certificate signed by an Authorized Signatory of Borrower certifying
that no Default or Event of Default is in existence or would result
from such merger or consolidation, together with confirmation of
Availability referenced in CLAUSE (iv) preceding in form and substance
satisfactory to Agent; or
(c) create or acquire any Subsidiary except as permitted
by SECTION 13.14.
Section 13.7 TRANSACTIONS WITH AFFILIATES. Except for this Agreement or
a Guaranty Agreement a Loan Party shall not, and shall not permit any Restricted
Subsidiary to, at any time engage in any transaction with an Affiliate (other
than a Loan Party), nor make an assignment or other transfer of any of its
assets or properties to any Affiliate (other than a Loan Party) other than
Investments permitted to be made pursuant to SECTION 13.4, on terms materially
less advantageous to such Loan Party than would be the case if such transaction
had been effected with a non-Affiliate (other than advances to employees in the
ordinary course of business). Notwithstanding the foregoing, Borrower may loan
the proceeds of a Loan to another Loan Party or Subsidiary of a Loan Party so
long as (a) such proposed loan, or the transfer to such Loan Party of the
proceeds of such Loan, is not otherwise prohibited by this Agreement and there
shall exist no Default or Event of Default prior to or after giving effect to
any such proposed loan and (b) such loan is a bona fide loan evidenced by
appropriate documentation and entries in the financial records of Borrower and
such borrowing Loan Party or Subsidiary are made to accurately reflect such
loans and repayments thereof.
LOAN AND SECURITY AGREEMENT - Page 114
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Section 13.8 LIENS. No Loan Party will, nor will it permit any of its
Restricted Subsidiaries to, create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of its assets or property, other than in
favor of Agent, for the benefit of the Credit Parties, or Permitted Liens. No
Loan Party or Restricted Subsidiary will enter into or become subject to any
Negative Pledge (other than as described in the proviso following the definition
of Collateral in SECTION 1.1).
Section 13.9 CAPITAL EXPENDITURES. The Loan Parties will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, make or incur
any Capital Expenditures in the aggregate (for all Loan Parties and any such
Restricted Subsidiary) in excess of the amount set forth below for the Fiscal
Year of Parent set forth opposite such amount:
<TABLE>
<CAPTION>
Fiscal Years Amount
------------ ------
<S> <C>
2000 $175,000,000
2001 $125,000,000
2002 $150,000,000
</TABLE>
PROVIDED, that to the extent Capital Expenditures paid during any Fiscal Year
are less than the amount allowed for such Fiscal Year as provided above, then an
amount equal to the difference between the amount so allowed and the actual
amount so paid may be carried forward and added to the amount allowed for the
next succeeding Fiscal Year as provided above, PROVIDED FURTHER that (i) no such
amount may be carried forward beyond such next succeeding Fiscal Year and (ii)
Capital Expenditures paid during such next succeeding Fiscal Year shall be
deemed to apply first in reduction of amounts allowed for such Fiscal Year and
then against amounts so carried forwarded from such previous Fiscal Year.
Section 13.10 PLANS. No Loan Party will, nor will it permit any of its
Subsidiaries to, (i) permit any condition to exist in connection with any Plan
listed in SCHEDULE 8.1(q) which might constitute grounds for the PBGC to
institute proceedings to have such Plan terminated or for the PBGC to have a
trustee appointed to administer such Plan, or (ii) permit to exist any other
condition, event or transaction with respect to any Plan listed in SCHEDULE
8.1(q) which could result in the incurrence by any Loan Party or any of its
Subsidiaries of either (A) any material liability which is not satisfied in full
or which remains outstanding after the date payment for such liability is due
and owing or (B) any other material fine or penalty.
Section 13.11 SALES AND LEASEBACKS. If a Default or Event of Default
shall occur and be continuing, a Loan Party shall not, and shall not permit any
Restricted Subsidiary to, enter into any arrangement whereby it sells or
transfers any of its assets, and thereafter rents or leases such assets.
LOAN AND SECURITY AGREEMENT - Page 115
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Section 13.12 CONTRIBUTED ASSETS AND CONTRIBUTED INDEBTEDNESS. The sum
of Contributed Assets and Contributed Indebtedness shall not at any time exceed
the aggregate amount of $60,000,000.
Section 13.13 AMENDMENT AND MODIFICATION OF SUBORDINATED DEBT
DOCUMENTS. Parent shall not, and shall not permit any other Loan Party or any
Restricted Subsidiary to, directly or indirectly, amend, modify, supplement,
waive compliance with, or assent to noncompliance with, any term, provision or
condition of any of the documents governing or evidencing any Subordinated Debt
which (i) the Required Lenders deem material (including, without limitation,
provisions relating to events of default, acceleration rights, interest rates,
maturity date, redemption price, subordination, payment dates, guaranties,
collateral, covenants and the definitions with respect thereto (including,
without limitation, the definition of "Change of Control")) or (ii) places any
further restrictions on any Loan Party or Restricted Subsidiary or increases the
obligations of a Loan Party or any Restricted Subsidiary thereunder or confers
on the holders thereof any additional rights.
Section 13.14 ACQUISITIONS. A Loan Party shall not, and shall not
permit any Restricted Subsidiary to, make any Acquisition; PROVIDED, HOWEVER, if
immediately prior to and after giving effect to the proposed Acquisition there
shall not exist a Default or Event of Default, a Loan Party may make
Acquisitions so long as (i) such Acquisition shall not be opposed by the board
of the directors of the Person being acquired, (ii) the Non-Stock Acquisition
Consideration for such Acquisition does not exceed $150,000,000, (iii) the
assets, property or business acquired shall be within the description contained
in SECTION 8.1(g), (iv) if the Acquisition results in a new Restricted
Subsidiary, (A) at the time of such Acquisition such Subsidiary shall become a
Loan Party and a Guarantor by executing and delivering a Joinder Agreement
pursuant to SECTION 9.3 and (B) the Agent receives within five (5) calendar days
after the consummation of such Acquisition such board resolutions, officer's
certificates and opinions of counsel as Agent shall reasonably request in
connection with such Acquisition, (v) Availability shall equal or exceed the
Minimum Availability Requirement at the time of such Acquisition and after
giving effect thereto and (vi) Agent shall have received a certificate signed by
an Authorized Signatory of Borrower certifying that no Default or Event of
Default is in existence or would result from such Acquisition, together with
confirmation of Availability referenced in CLAUSE (v) preceding in form and
substance satisfactory to Agent.
ARTICLE 14
DEFAULT
Section 14.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or nongovernmental body:
(a) DEFAULT IN PAYMENT. Borrower shall default in any
payment of principal of or interest on any Loan or any Note when and as
due (whether at maturity, by reason of acceleration or otherwise).
LOAN AND SECURITY AGREEMENT - Page 116
<PAGE>
(b) OTHER PAYMENT DEFAULT. Borrower or any other Loan
Party shall default in the payment, as and when due, of principal of or
interest on, any other Secured Obligation, and such default shall
continue for a period of ten (10) days after written notice thereof has
been given to Borrower or such Loan Party by Agent.
(c) MISREPRESENTATION. Any representation or warranty
made or deemed to be made by any Loan Party under this Agreement or any
other Loan Document, or any amendment hereto or thereto, shall at any
time prove to have been incorrect or misleading in any material respect
when made.
(d) DEFAULT IN PERFORMANCE. Any Loan Party shall default
in the performance or observance of any term, covenant, condition or
agreement to be performed by it, contained in
(i) ARTICLES 9, 10, 12 or 13, or SECTION 11.1
(insofar as it requires the preservation of the corporate
existence of the Loan Parties), or SECTION 11.8, and Agent
shall have delivered to Borrower written notice of such
default, PROVIDED, that with respect to any such default under
SECTIONS 10.14, or 12.5(b), thirty (30) days shall have
expired since the date of occurrence thereof, or
(ii) this Agreement or any other Loan Document
(other than as specifically provided for otherwise in this
SECTION 14.1) and such default shall continue for a period of
thirty (30) days after written notice thereof has been given
to Borrower by Agent.
(e) INDEBTEDNESS CROSS-DEFAULT.
(i) Any Loan Party shall fail to pay when due
and payable the principal of or interest on any Indebtedness
for Money Borrowed (other than the Loans) in an amount in
excess of $10,000,000, PROVIDED that failure to make a payment
of the principal of or interest on Subordinated Indebtedness
solely on account of the operation of the subordination
provisions thereof shall not be an Event of Default, or
(ii) the maturity of any such Indebtedness shall
have (A) been accelerated in accordance with the provisions of
any indenture, contract or instrument providing for the
creation of or concerning such Indebtedness, or (B) been
required to be prepaid prior to the stated maturity thereof,
or
(iii) any event shall have occurred and be
continuing which would permit any holder or holders of such
Indebtedness, any trustee or agent acting on behalf of such
holder or holders or any other Person so to accelerate such
maturity, and the
LOAN AND SECURITY AGREEMENT - Page 117
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Loan Parties shall have failed to cure such default prior to
the expiration of any applicable cure or grace period.
(f) OTHER CROSS-DEFAULTS. Any Loan Party or any of its
Restricted Subsidiaries shall default in the payment when due, or in
the performance or observance, of any obligation or condition of any
agreement, contract or lease (other than this Agreement, the Security
Documents or any such agreement, contract or lease relating to
Indebtedness for Money Borrowed) (and the Loan Parties shall have
failed to cure such default prior to the expiration of any applicable
cure period) if the existence of any such defaults, singly or in the
aggregate would, during any period of twelve (12) months, result in
losses which would exceed an amount equal to 15% of Net Worth
(excluding, for these purposes, CompUSA Net.com) as reflected on the
most recent financial statements delivered under SECTION 12.1.
(g) VOLUNTARY BANKRUPTCY PROCEEDING. Any Loan Party or
any of its Restricted Subsidiaries shall
(i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect),
(ii) file a petition seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for
adjustment of debts,
(iii) consent to or fail to contest in a timely
and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest
in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of a substantial part of its property,
domestic or foreign,
(v) admit in writing its inability to pay its
debts as they become due,
(vi) make a general assignment for the benefit of
creditors, or
(vii) take any corporate action for the purpose of
authorizing any of the foregoing.
(h) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other
proceeding shall be commenced against any Loan Party or any of its
Restricted Subsidiaries in any court of competent jurisdiction seeking
LOAN AND SECURITY AGREEMENT - Page 118
<PAGE>
(i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic
or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts,
(ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of any Loan Party or any of
its Subsidiaries or of all or any substantial part of the
assets, domestic or foreign, of any Loan Party or any of its
Subsidiaries,
and such case or proceeding shall continue undismissed or unstayed for
a period of sixty (60) consecutive calendar days, or an order granting
the relief requested in such case or proceeding (including, but not
limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
(i) FAILURE OF AGREEMENTS. Any Loan Party shall challenge
the validity and binding effect of any provision of any Loan Document
after delivery thereof hereunder or shall state in writing its
intention to make such a challenge, or any Security Document, after
delivery thereof hereunder, shall for any reason (except to the extent
permitted by the terms thereof) cease to create a valid, exclusive
(except for Permitted Liens) and perfected first priority (except as
otherwise allowed under SECTION 9.2(a)(i)) Lien on, or security
interest in, the Collateral.
(j) JUDGMENT. A final, unappealable judgment or order for
the payment of Money in an amount that exceeds the uncontested
insurance available therefor by an amount equal to or exceeding 15% of
Net Worth (excluding, for these purposes, CompUSA Net.com) as reflected
on the most recent financial statements delivered under SECTION 12.1
shall be entered against any Loan Party by any court or other
Governmental Authority and such judgment or order shall continue
undischarged or unstayed for thirty (30) days.
(k) ATTACHMENT. A warrant or writ of attachment or
execution or similar process which equals or exceeds an amount equal to
15% of Net Worth (excluding, for these purposes, CompUSA Net.com) as
reflected on the most recent financial statements delivered under
SECTION 12.1 shall be issued against any property of any Loan Party or
any of its Subsidiaries and such warrant or process shall continue
undischarged or unstayed for thirty (30) days.
(l) ERISA.
(i) Any Termination Event with respect to a Plan
listed in Schedule 8.1(q) shall occur that, after taking into
account the excess, if any, of (A) the fair market value of
the assets of any other Plan with respect to which a
Termination Event occurs on the same day (but only to the
extent that such excess is the property of Borrower) over (B)
the present value on such day of all vested nonforfeitable
benefits under such other Plan listed in Schedule 8.1(q),
results in an Unfunded Vested Accrued Benefit in excess of $0,
or
LOAN AND SECURITY AGREEMENT - Page 119
<PAGE>
(ii) any Plan listed in Schedule 8.1(q) subject
to the provisions of Section 302 of ERISA or Section 412 of
the Internal Revenue Code shall incur an "accumulated funding
deficiency" (as defined in Section 412 of the Internal Revenue
Code or Section 302 of ERISA) for which a waiver has not been
obtained in accordance with the applicable provisions of the
Internal Revenue Code and ERISA, or
(iii) any Loan Party is in "default" (as defined
in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from such Loan Party's complete
or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan.
(m) CHANGE IN CONTROL. The occurrence of a Change of
Control.
(n) INDENTURE. An event of default (as defined in the
Indenture) shall occur under the Indenture prior to the discharge
thereof.
Section 14.2 REMEDIES.
(a) AUTOMATIC ACCELERATION AND TERMINATION OF
COMMITMENTS. Upon the occurrence of an Event of Default specified in
SECTION 14.1(g) or (h), (i) the principal of and the interest on the
Loans and any Note at the time outstanding, and all other amounts owed
to Agent or the Lenders under this Agreement or any of the other Loan
Documents and all other Secured Obligations, shall thereupon become due
and payable without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Agreement or
any of the other Loan Documents to the contrary notwithstanding, and
(ii) the Commitments, and the Revolving Credit Facility and the right
of Borrower to request borrowings and Letters of Credit under this
Agreement, shall immediately terminate.
(b) OTHER REMEDIES. If any Event of Default shall have
occurred, and during the continuance of any such Event of Default,
Agent may, and at the direction of the Required Lenders in their sole
and absolute discretion shall, do any of the following:
(i) declare the principal of and interest on the
Loans and any Note at the time outstanding, and all other
amounts owed to Agent or the Lenders under this Agreement or
any of the other Loan Documents and all other Secured
Obligations, to be forthwith due and payable, whereupon the
same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in this Agreement or
the other Loan Documents to the contrary notwithstanding;
(ii) terminate the Revolving Credit Facility and
any other right of Borrower to request borrowings thereunder;
LOAN AND SECURITY AGREEMENT - Page 120
<PAGE>
(iii) notify, or request any Loan Party to notify,
in writing or otherwise, any Account Debtor or obligor with
respect to any one or more of the Receivables to make payment
to Agent, for the benefit of the Lenders, or any agent or
designee of Agent, at such address as may be specified by
Agent and if, notwithstanding the giving of any notice, any
Account Debtor or other such obligor shall make payments to
any Loan Party, such Loan Party shall hold all such payments
it receives in trust for Agent, for the account of the
Lenders, without commingling the same with other funds or
property of, or held by, such Loan Party and shall deliver the
same to Agent or any such agent or designee of Agent
immediately upon receipt by such Loan Party in the identical
form received, together with any necessary endorsements;
(iv) settle or adjust disputes and claims
directly with Account Debtors and other obligors on
Receivables for amounts and on terms which Agent considers
advisable and in all such cases only the net amounts received
by Agent, for the account of the Lenders, in payment of such
amounts, after deductions of costs and attorneys' fees, shall
constitute Collateral and the Loan Parties shall have no
further right to make any such settlements or adjustments or
to accept any returns of merchandise;
(v) enter upon any premises in which any
Collateral may be located and, without resistance or
interference by Borrower, take physical possession of any or
all thereof and maintain such possession on such premises or
move the same or any part thereof to such other place or
places as Agent shall choose, without being liable to any Loan
Party on account of any loss, damage or depreciation that may
occur as a result thereof, so long as Agent shall act
reasonably and in good faith;
(vi) require the Loan Parties to and the Loan
Parties shall, without charge to Agent or any Lender, assemble
the tangible Collateral and maintain or deliver it into the
possession of Agent or any agent or representative of Agent at
such place or places as Agent may designate and as are
reasonably convenient to both Agent and the Loan Parties;
(vii) without notice, demand or other process, and
without payment of any rent or any other charge, enter any of
Loan Party's premises and, without breach of the peace, until
Agent, on behalf of the Lenders, completes the enforcement of
its rights in the Collateral, take possession of such premises
or place custodians in exclusive control thereof, remain on
such premises and use the same and any of Loan Party's
equipment, for the purpose of (A) completing any work in
process, preparing any Inventory for disposition and disposing
thereof, and (B) collecting any Receivable, and Agent, for the
benefit of the Lenders, is hereby granted a license or
sublicense and all other rights as may be necessary,
appropriate or desirable to use the Proprietary Rights in
connection with the foregoing, and the rights of the Loan
Parties under all licenses, sublicenses and franchise
agreements shall inure to Agent,
LOAN AND SECURITY AGREEMENT - Page 121
<PAGE>
for the benefit of the Lenders (PROVIDED, HOWEVER, that any
use of any federally registered trademarks as to any goods
shall be subject to the control as to the quality of such
goods of the owner of such trademarks and the goodwill of the
business symbolized thereby);
(viii) exercise any and all of its rights under any
and all of the Security Documents;
(ix) apply any Collateral consisting of cash to
the payment of the Secured Obligations in any order in which
Agent, on behalf of the Lenders, may elect or use such cash in
connection with the exercise of any of its other rights
hereunder or under any of the Security Documents;
(x) establish or cause to be established one or
more Lockboxes or other arrangement for the deposit of
proceeds of Receivables, and, in such case, each Loan Party
shall cause to be forwarded to Agent at its Principal Office,
on a daily basis, copies of all checks and other items of
payment and deposit slips related thereto deposited in such
Lockboxes, together with collection reports in form and
substance satisfactory to Agent; and
(xi) exercise all of the rights and remedies of a
secured party under the UCC and under any other Applicable
Law, including, without limitation, the right, without notice
except as specified below and with or without taking the
possession thereof, to sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any
location chosen by Agent, for cash, on credit or for future
delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Each Loan
Party agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice of the time
and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification, but notice given in any other reasonable manner
or at any other reasonable time shall constitute reasonable
notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given.
Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and
place to which it was so adjourned.
(c) L/C CASH COLLATERAL ACCOUNT. Without limitation of,
and in addition to, any of the foregoing remedies, if any Letter of
Credit shall be then outstanding, Agent may make demand upon Borrower
to, and forthwith upon such demand (but in the case of an Event of
Default specified in SECTION 14.1(g) or (h) hereof, without any demand
or taking of any other action by Agent or any Lender), Borrower shall,
pay to Agent in same day funds at the office of Agent for deposit in an
L/C Cash Collateral Account, an amount equal to the maximum amount
available to be drawn under the Letters of Credit then outstanding.
LOAN AND SECURITY AGREEMENT - Page 122
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Section 14.3 APPLICATION OF PROCEEDS. All proceeds from each sale of,
or other realization upon, all or any part of the Collateral following an Event
of Default shall be applied or paid over as follows:
(a) FIRST: to the payment of all costs and expenses incurred
in connection with such sale or other realization, including reasonable
attorneys' fees;
(b) SECOND: to the payment of the Secured Obligations
(with Borrower remaining liable for any deficiency) as Agent may elect;
and
(c) THIRD: the balance (if any) of such proceeds shall be
paid to Borrower, subject to any duty imposed by law, or otherwise to
whomsoever shall be entitled thereto.
BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY REMAINING
IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON AT A RATE
PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH SECURED
OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED OBLIGATIONS.
Section 14.4 POWER OF ATTORNEY. In addition to the authorizations
granted to Agent under SECTION 10.13, SECTION 10.16 or under any other provision
of this Agreement or of any other Loan Document, during the continuance of an
Event of Default, each Loan Party hereby irrevocably designates, makes,
constitutes and appoints Agent (and all Persons designated by Agent from time to
time) as such Loan Party's true and lawful attorney, and agent in fact, and
Agent, or any such Person, may, without notice to any Loan Party, and at such
time or times as Agent, or any such Person in its sole discretion may determine,
in the name of such Loan Party, Agent or the Lenders,
(i) demand payment of the Loan Parties'
Receivables,
(ii) enforce payment of the Loan Parties'
Receivables by legal proceedings or otherwise,
(iii) exercise all of the Loan Parties' rights and
remedies with respect to the collection of Receivables,
(iv) settle, adjust, compromise, extend or renew
any or all of the Loan Parties' Receivables,
(v) settle adjust or compromise any legal
proceedings brought to collect the Loan Parties' Receivables,
(vi) discharge and release the Loan Parties'
Receivables or any of them,
LOAN AND SECURITY AGREEMENT - Page 123
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(vii) prepare, file and sign the name of any Loan
Party on any proof of claim in bankruptcy or any similar
document against any Account Debtor,
(viii) prepare, file and sign the name of any Loan
Party on any notice of Lien, assignment or satisfaction of
Lien, or similar document in connection with any of the
Collateral,
(ix) endorse the name of any Loan Party upon any
chattel paper, document, instrument, notice, freight bill,
bill of lading or similar document or agreement relating such
Loan Parties' Receivables or any other Collateral,
(x) use the stationery of any Loan Party and
sign the name of such Loan Party to verifications of such Loan
Party's Receivables and on any notice to the Account Debtors,
(xi) open any Loan Party's mail,
(xii) notify the post office authorities to change
the address for delivery of any Loan Party's mail to an
address designated by Agent, and
(xiii) use the information recorded on or contained
in any data processing equipment and computer hardware and
software relating to any Loan Party's Receivables or other
Collateral to which such Loan Party has access.
Section 14.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of the
Credit Parties under this Agreement, the Notes and each of the other
Loan Documents shall be cumulative and not exclusive of any rights or
remedies which it or they would otherwise have. In exercising such
rights and remedies the Credit Parties may be selective and no failure
or delay by the Credit Parties in exercising any right shall operate as
a waiver of it, nor shall any single or partial exercise of any power
or right preclude its other or further exercise or the exercise of any
other power or right.
(b) WAIVER OF MARSHALING. Each Loan Party hereby waives
any right to require any marshaling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this
Article or elsewhere in this Agreement or in any of the other Loan
Documents shall be construed as requiring or obligating any Credit
Party or any agent or designee of any Credit Party to make any demand
or to make any inquiry as to the nature or sufficiency of any payment
received by it, or to present or file any claim or notice or take any
action, with respect to any Receivable or any other Collateral or the
monies due or to become due thereunder or in connection therewith, or
to take any steps necessary to preserve any rights against prior
parties, and the Credit
LOAN AND SECURITY AGREEMENT - Page 124
<PAGE>
Parties and their agents or designees shall have no liability to any
Loan Party for actions taken pursuant to this Article, any other
provision of this Agreement or any of the other Loan Documents so long
as such Credit Party shall act reasonably and in good faith.
(d) APPOINTMENT OF RECEIVER. In any action under this
Article, Agent shall be entitled during the continuance of an Event of
Default to the appointment of a receiver, without notice of any kind
whatsoever, to take possession of all or any portion of the Collateral
and to exercise such power as the court shall confer upon such receiver
in accordance with Applicable Law.
Section 14.6 REGISTRATION RIGHTS; PRIVATE SALES; ETC.
(a) Each Loan Party recognizes that Agent may be unable
to effect a public sale of any or all of the Collateral or other
property to be sold by reason of certain prohibitions contained in the
laws of any jurisdiction outside the U.S. or in the Securities Act and
applicable state securities laws but may be compelled to resort to one
or more private sales thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such
Collateral or other property to be sold for their own account for
investment and not with a view to the distribution or resale thereof.
Each Loan Party acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if
such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall, to the extent permitted by
law, be deemed to have been made in a commercially reasonable manner.
Unless required by Applicable Law, Agent shall not be under any
obligation to delay a sale of any of the Collateral or other property
to be sold for the period of time necessary to permit the Issuer of
such securities to register such securities under the laws of any
jurisdiction outside the U.S., under the Securities Act or under any
applicable state securities laws, even if such Issuer would agree to do
so.
(b) Each Loan Party further agrees to do or cause to be
done, to the extent that such Loan Party may do so under Applicable
Law, all such other acts and things as may be necessary to make such
sales or resales under SECTION 14.6(a) of any portion or all of the
Collateral or other property to be sold valid and binding and in
compliance with any and all Applicable Laws of any and all Governmental
Authorities having jurisdiction over any such sale or sales, all at the
Loan Parties' expense. Each Loan Party further agrees that a breach of
any of the covenants contained in this SECTION 14.6 will cause
irreparable injury to the Credit Parties and that the Credit Parties
have no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this
SECTION 14.6 shall be specifically enforceable against such Loan Party
and such Loan Party hereby waives and agrees, to the fullest extent
permitted by law, not to assert as a defense against an action for
specific performance of such covenants that (i) such Loan Party's
failure to perform such covenants will not cause irreparable injury to
the Credit Parties or (ii) the Credit Parties have an adequate remedy
at law in respect of such breach. Each Loan Party further acknowledges
the impossibility of ascertaining the amount of damages which would
be suffered by the Credit Parties by reason of a breach of any of
the covenants contained in
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this SECTION 14.6 and, consequently, agrees that, if such Loan Party
shall breach any of such covenants and the Credit Parties shall sue for
damages for such breach, such Loan Party shall pay to the Credit
Parties, as liquidated damages and not as a penalty, an aggregate
amount equal to the value of the Collateral or other property to be
sold on the date Agent shall demand compliance with this SECTION 14.6.
(c) EACH LOAN PARTY HEREBY AGREES TO INDEMNIFY, PROTECT
AND SAVE HARMLESS THE CREDIT PARTIES AND ANY CONTROLLING PERSONS
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY
AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING
COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE
SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER
APPLICABLE LAW IN CONNECTION WITH THE ABOVE REFERENCED DISPOSITION
UNDER SECTION 14.6(a), INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS,
COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN
ANY STATEMENT MADE BY A LOAN PARTY RELATING TO ANY PART OF THE
COLLATERAL OR OTHER PROPERTY TO BE SOLD, OR ARISES OUT OF, OR IS BASED
UPON, THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING; PROVIDED, THAT SUCH LOAN PARTY SHALL NOT BE
LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS,
CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION
MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION
FURNISHED TO SUCH LOAN PARTY BY ANY CREDIT PARTY SPECIFICALLY FOR
INCLUSION THEREIN. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO
ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT SUCH LOAN PARTY MAY
OTHERWISE HAVE TO ANY CREDIT PARTY OR ANY SUCH CONTROLLING PERSON.
LOAN AND SECURITY AGREEMENT - Page 126
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ARTICLE 15
ASSIGNMENTS
Section 15.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Lender may assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Loans, its Notes and its Commitment); PROVIDED, HOWEVER, that:
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to
another Lender or an assignment of all of a Lender's rights
and obligations under this Agreement, any such partial
assignment shall be in an amount at least equal to $15,000,000
or an integral multiple of $5,000,000 in excess thereof;
PROVIDED that no such assignment may result in a reduction of
such Lender's Commitment to less than $15,000,000;
(iii) each such assignment by a Lender shall be of
a constant, and not varying, percentage of all of its rights
and obligations under this Agreement and the Notes;
(iv) the parties to such assignment shall execute
and deliver to Agent for its acceptance an Assignment and
Acceptance in the form of EXHIBIT "C" hereto, together with
any Notes subject to such assignment and a processing fee of
$3,500; and
(v) the prior written consent of Agent (such
consent to not be unreasonably withheld) shall be required.
Upon execution, delivery and acceptance of an Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights and benefits of
a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Agreement. Upon the consummation of any
assignment pursuant to this Section, the assignor, Agent and Borrower
shall make appropriate arrangements so that, if required, new Notes are
issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the U.S., or a state thereof, it shall
deliver to Borrower and Agent certification as to exemption from
deduction or withholding of Taxes in accordance with SECTION 6.6.
(b) Agent shall maintain at its address referred to in
SECTION 17.1 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of
LOAN AND SECURITY AGREEMENT - Page 127
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the Loans owing to, each Lender from time to time (the "REGISTER").
The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and Borrower, Agent and the Lenders
may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance
executed by the parties thereto, together with any Note subject to such
Assignment and Acceptance and payment of the processing fee, Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of EXHIBIT "D" hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the
parties thereto.
(d) Each Lender may sell participations to one or more
Persons in all or a portion of its rights, obligations or rights and
obligations under this Agreement (including all or a portion of its
Commitment or its Loans); PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
ARTICLE 6 and the right of set-off contained in SECTION 17.4, and (iv)
the Loan Parties shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under
this Agreement, and such Lender shall retain the sole right to enforce
the obligations of Borrower relating to its Loans and its Notes and to
approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers decreasing
the amount of principal of or the rate at which interest is payable on
such Loans or Notes, extending any scheduled principal payment date or
date fixed for the payment of interest on such Loans or Notes, or
extending its Commitment).
(e) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release
the assigning Lender from its obligations hereunder.
(f) Any Lender may furnish any information concerning any
Loan Party in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and
participants).
LOAN AND SECURITY AGREEMENT - Page 128
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Section 15.2 REPRESENTATION OF LENDERS. Each Lender hereby represents
that it will make each Loan hereunder as a commercial loan for its own account
in the ordinary course of its business; PROVIDED, HOWEVER, that subject to
SECTION 15.1, the disposition of the Notes or other evidence of the Secured
Obligations held by any Lender shall at all times be within its exclusive
control.
ARTICLE 16
AGREEMENTS AMONG CREDIT PARTIES
Section 16.1 APPOINTMENT, POWERS, AND IMMUNITIES. Each Lender and L/C
Issuer hereby irrevocably appoints and authorizes Agent to act as its nominee as
administrative agent under this Agreement and the other Loan Documents with such
powers and discretion as are specifically delegated to Agent by the terms of
this Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto, including without limitation, to receive all
documents and items to be furnished hereunder; to act as nominee for and on
behalf of all Lenders under the Loan Documents; to, except as otherwise
expressly set forth herein, take such action as may be requested by the Required
Lenders, PROVIDED that, unless and until Agent shall have received any such
request, Agent Lender may take such administrative action, or refrain from
taking such administrative action, as it may deem advisable; to arrange the
means whereby the proceeds of amounts made available by the Lenders to Agent for
Loans are to be made available to Borrower; and to deliver to Borrower requests,
demands, approvals and consents received from the Lenders. The duties of Agent
under this Agreement and the other Loan Documents are mechanical and
administrative in nature and Agent shall have no fiduciary relationship in
respect of any Lender by reason of this Agreement or any other Loan Document.
Agent (which term as used in this sentence and in SECTION 16.5 and the first
sentence of SECTION 16.6 shall include its Affiliates and Subsidiaries, and its
own and its Affiliates' and Subsidiaries', officers, directors, employees and
agents):
(a) shall not have any duties or responsibilities except
those expressly set forth in this Agreement and shall not be a trustee
or fiduciary for any Lender or L/C Issuer;
(b) shall not be responsible to the Lenders or L/C Issuer
for any recital, statement, representation or warranty (whether written
or oral) made in or in connection with any Loan Document or any
certificate or other document referred to or provided for in, or
received by any of them under, any Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
any Loan Document, or any other document referred to or provided for
therein or for any failure by any Loan Party or any other Person to
perform any of its obligations thereunder;
(c) shall not be responsible for or have any duty to
ascertain, inquire into or verify the performance or observance of any
covenants or agreements by any Loan Party or the satisfaction of any
condition or to inspect the property (including the books and records)
of any Loan Party or any of its Subsidiaries or Affiliates;
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(d) except in accordance with SECTION 16.2, shall not be
required to initiate or conduct any litigation or collection
proceedings under any Loan Document; and
(e) shall not be responsible for any action taken or
omitted to be taken by it under or in connection with any Loan
Document, except for its own gross negligence or willful misconduct.
Agent may perform its duties by or through officers, directors, employees,
attorneys or agents, and shall be entitled to (and shall be protected in relying
upon) advice of counsel concerning all matters pertaining to its duties
hereunder. Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
Section 16.2 RELIANCE BY AGENT. Agent and its officers, directors,
employees, attorneys and agents shall be entitled to rely upon and shall be
fully protected in relying on any writing, instrument, resolution, notice,
consent, certificate, affidavit, letter, electronic mail, cablegram, telegram,
telex or teletype message, statement, order, or other document, conversation
(including without limitation conversations by telephone) or communication
reasonably believed by it or them to be genuine and correct and to have been
signed or made by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel for any Loan Party),
independent accountants and other experts selected by Agent. Agent may deem and
treat the payee of any Note as the holder thereof for all purposes hereof unless
and until Agent receives and accepts an Assignment and Acceptance executed in
accordance with SECTION 15.1. As to any matters not expressly provided for by
this Agreement, Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding on all of the
Lenders; PROVIDED, HOWEVER, that Agent shall not be required to take any action
that exposes Agent to personal liability or that is contrary to any Loan
Document or Applicable Law or unless it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking any such action.
Section 16.3 DEFAULTS. Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless Agent has
received written notice from a Lender or a Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default." In the
event that Agent receives such a notice of the occurrence of a Default or Event
of Default, Agent shall give prompt notice thereof to the Lenders. Agent shall
(subject to SECTION 16.2) take such action with respect to such Default or Event
of Default as shall reasonably be directed by the Required Lenders, PROVIDED
that, unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interest of the Credit Parties.
LOAN AND SECURITY AGREEMENT - Page 130
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Section 16.4 RIGHTS AS LENDER. With respect to its Commitment and the
Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include Agent in its individual capacity. NationsBank (and any
successor acting as Agent) and its Affiliates or Subsidiaries may (without
having to account therefor to any Lender) accept deposits from, lend money to,
make investments in, provide services to and generally engage in any kind of
lending, trust or other business with any Loan Party or any of its Affiliates or
Subsidiaries as if it were not acting as Agent, and NationsBank (and any
successor acting as Agent) and its Affiliates or Subsidiaries may accept fees
and other consideration from any Loan Party or any of its Affiliates or
Subsidiaries for services in connection with this Agreement or otherwise
without having to account for the same to the other Lenders.
Section 16.5 LIMITATION OF LIABILITY; INDEMNIFICATION. Neither Agent
nor any of its officers, directors, employees, attorneys, agents or Affiliates
shall be liable for any action taken or omitted to be taken by it or them
hereunder in good faith and believed by it or them to be within the discretion
or power conferred to it or them by the Loan Documents or be responsible for the
consequences of any error of judgment, except for its or their own gross
negligence or willful misconduct. Agent shall not be compelled to do any act
hereunder or to take any action towards the execution or enforcement of the
powers hereby created or to prosecute or defend any suit in respect hereof,
unless indemnified to its satisfaction against loss, cost, liability and
expense. Agent shall not be responsible in any manner to any Lender for the
effectiveness, enforceability, genuineness, validity or due execution of any of
the Loan Documents, or for any representation, warranty, document, certificate,
report or statement made herein or furnished in connection with any Loan
Documents, or be under any obligation to any Lender to ascertain or to inquire
as to the performance or observation of any of the terms, covenants or
conditions of any Loan Documents on the part of the Borrower. THE LENDERS AGREE
TO INDEMNIFY AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 17.2, BUT WITHOUT
LIMITING THE OBLIGATIONS OF THE LOAN PARTIES UNDER SUCH SECTION) RATABLY IN
ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) OR DISBURSEMENTS OF
ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST AGENT (INCLUDING BY ANY LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF
ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN
OR OMITTED BY AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING
ARISING FROM THE NEGLIGENCE OF AGENT); PROVIDED THAT NO LENDER SHALL BE LIABLE
FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE
FOREGOING, EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND FOR ITS
RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY THE LOAN PARTIES UNDER SECTION
17.2, TO THE EXTENT THAT AGENT IS NOT PROMPTLY
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REIMBURSED FOR SUCH COSTS AND EXPENSES BY ANY LOAN PARTY. THE AGREEMENTS
CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF THE LOANS AND ALL
OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 16.6 EXPENSES. Each Lender shall pay its pro rata share, based
on its Commitment Percentage, of any expenses paid by Agent in connection with
performance of its duties hereunder if Agent does not receive reimbursement
therefor from other sources within 60 days after the date incurred. Any amount
so paid by the Lenders to Agent shall be returned by Agent pro rata to each
paying Lender to the extent later paid to Agent by a Loan Party or any other
Person on a Loan Party's behalf, or received by Agent as proceeds of Collateral
pursuant to this Agreement.
Section 16.7 LENDER CREDIT DECISION; NON-RELIANCE ON AGENT AND OTHER
LENDERS. Each Credit Party agrees that it has, independently and without
reliance on any other Credit Party, and based on such documents and information
as it has deemed appropriate, made its own credit analysis of the Loan Parties
and decision to enter into this Agreement and that it will, independently and
without reliance upon any other Credit Party, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under the Loan Documents.
Except for notices, reports and other documents and information expressly
required to be furnished to the Credit Parties by Agent hereunder, Agent shall
not have any duty or responsibility to provide any Credit Party with any credit
or other information concerning the affairs, financial condition or business of
any Loan Party or any of its Affiliates or Subsidiaries that may come into the
possession of Agent or any of its Affiliates or Subsidiaries.
Section 16.8 RESIGNATION OF AGENT. Agent may resign at any time by
giving notice thereof to the Lenders and Borrower. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the other Credit Parties, appoint a successor Agent which shall be a
commercial bank organized under the laws of the U.S. having combined capital and
surplus of at least $100,000,000. Any such appointment of a successor Agent
shall require consent of Borrower unless a Default or Event of Default has
occurred and is continuing at the time any such appointment is effected, such
approval not to be unreasonably withheld or delayed by Borrower and such
approval to be deemed given by Borrower if no objection from Borrower is
received by the resigning Agent or such Required Lenders, as the case may be,
within two (2) Business Days after notice of such proposed appointment has been
provided to Borrower by Agent or such Required Lenders, as the case may be. Upon
the acceptance of any appointment as Agent hereunder by a successor, such
successor shall thereupon succeed to and become vested with all the rights,
powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
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Section 16.9 ENFORCEMENT. Each of the Lenders and L/C Issuer agrees
that it shall not take any legal action, nor institute any actions or
proceedings, in respect of the Secured Obligations or against or with respect to
any Collateral without the prior written consent of Agent. Without limiting the
generality of the foregoing, no Lender may accelerate or otherwise enforce its
portion of the Secured Obligations, or terminate its Commitment except in
accordance with SECTION 14.2(b) or a set-off permitted under SECTION 17.4.
Section 16.10 BENEFITS OF ARTICLE 16. None of the provisions of this
ARTICLE 16 shall inure to the benefit of any Person other than the Credit
Parties. No Person shall be entitled to rely upon, or to raise as a defense, in
any manner whatsoever, the failure of any Credit Party to comply with any of
such provisions.
ARTICLE 17
MISCELLANEOUS
Section 17.1 NOTICES.
(a) METHOD OF COMMUNICATION. Except as specifically
provided in this Agreement or in any of the other Loan Documents, all
notices and the communications hereunder and thereunder shall be in
writing or by telephone, subsequently confirmed in writing. Notices in
writing shall be delivered personally or sent by certified or
registered mail, postage prepaid, or by overnight courier, telex or
facsimile transmission and shall be deemed received in the case of
personal delivery, when delivered, in the case of mailing, when
receipted for, in the case of overnight delivery, on the next Business
Day after delivery to the courier, and in the case of telex and
facsimile transmission, upon transmittal, PROVIDED that in the case of
notices to Agent, notice shall be deemed to have been given only when
such notice is actually received by Agent. A telephonic notice to
Agent, as understood by Agent, will be deemed to be the controlling and
proper notice in the event of a discrepancy with or failure to receive
a confirming written notice.
(b) ADDRESSES FOR NOTICES. Notices to any party shall be
sent to it at the address of such party set forth on the signature
pages hereof, in any Assignment and Acceptance or any other address of
which all the other parties are notified in writing.
(c) PRINCIPAL OFFICE. Agent hereby designates its office
located at 901 Main Street, Dallas, Dallas County, Texas 75202, or any
subsequent office which shall have been specified for such purpose by
written notice to Borrower, as the office to which payments due are to
be made and at which Loans will be disbursed.
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Section 17.2 EXPENSES. Borrower agrees to pay or reimburse on demand
all costs and expenses incurred ((i) with respect to SUBSECTION (a) below, by
Agent or L/C Issuer at any time, (ii) with respect to SUBSECTIONS (b) through
(f) below, by Agent or L/C Issuer at any time and by any other Credit Party at
any time when any Default or Event of Default is in existence and (iii) with
respect to SUBSECTIONS (g) and (h), by any Credit Party at any time), in
connection with the following:
(a) the negotiation, preparation, execution, delivery,
administration, enforcement and termination of this Agreement and each
of the other Loan Documents, whenever the same shall be executed and
delivered, including, without limitation, the following:
(i) the out-of-pocket costs and expenses
incurred in connection with the administration and
interpretation of this Agreement and the other Loan Documents;
(ii) the costs and expenses of appraisals of the
Collateral;
(iii) the costs and expenses of lien and title
searches; and
(iv) taxes, fees and other charges for filing the
Financing Statements and continuations and the costs and
expenses of taking other actions to perfect, protect and
continue the Security Interests;
(b) the preparation, execution and delivery of any
waiver, amendment, supplement or consent by Agent and the Lenders
relating to this Agreement or any of the other Loan Documents;
(c) sums paid or incurred to pay any amount or take any
action required of the Loan Parties under the Loan Documents that the
Loan Parties fail to pay or take;
(d) costs of inspections and verifications of the
Collateral, including, without limitation, standard per diem fees
charged by Agent, travel, lodging and meals (all of such travel,
lodging and meals to be charged in conformity with NationsBank's
internal policies and procedures) for inspections of the Collateral and
the Loan Parties' operations and books and records by Agent's agents up
to four (4) times per year and whenever an Event of Default exists;
(e) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and
maintaining each Disbursement Account, Agency Account and Lockbox;
(f) costs and expenses of preserving and protecting the
Collateral;
(g) consulting, after the occurrence of a Default, with
one or more Persons, including appraisers, accountants and lawyers,
concerning the value of any Collateral for the Secured Obligations or
related to the nature, scope or value of any right or remedy of Agent
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or any Lender hereunder or under any of the Loan Documents, including
any review of factual matters in connection therewith, which expenses
shall include the fees and disbursements of such Persons;
(h) reasonable costs and expenses paid or incurred to
obtain payment of the Secured Obligations, enforce the Security
Interests, sell or otherwise realize upon the Collateral, and otherwise
enforce the provisions of the Loan Documents, or to prosecute or defend
any claim in any way arising out of, related to or connected with this
Agreement or any of the other Loan Documents, which expenses shall
include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by Agent or any Lender; and
in each such case, all reasonable attorney's fees and expenses (including,
without limitation, the cost of internal counsel) incurred in connection with
any of the foregoing other than attorneys' fees and expenses incurred by a
Person in becoming a Lender hereunder not covered pursuant to SECTION 17.2(a).
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by Borrower. Borrower hereby
authorizes Agent to debit Borrower's Loan Accounts (by increasing the principal
amount of the Revolving Credit Loan) in the amount of any such costs and
expenses owed by Borrower when due, unless such costs and expenses are otherwise
timely made. Without prejudice to the survival of any other agreement hereunder,
the agreements and obligations contained in this SECTION 17.2 shall survive
the payment in full of the Loans and all other amounts payable under this
Agreement.
Section 17.3 STAMP AND OTHER TAXES. Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Credit Parties against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the other Loan Documents or the perfection of any rights or security interest
thereunder, including, without limitation, the Security Interest.
Section 17.4 RIGHT OF SET-OFF; ADJUSTMENTS.
(a) Upon the occurrence and during the continuance of any
Event of Default, each Lender (and each of its Affiliates and
Subsidiaries) is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set-off and apply any and
all deposits (general or special, time or demand, provisional or final)
at any time held and other Indebtedness at any time owing by such
Lender (or any of its Affiliates or Subsidiaries) to or for the credit
or the account of any Loan Party against any and all of the obligations
of Borrower now or hereafter existing under this Agreement and the
Notes held by such Lender, irrespective of whether Agent or such Lender
shall have made any demand under this Agreement or such Notes and
although such obligations may be unmatured. The rights of each Lender
under this SECTION 17.4 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such
Lender may have.
LOAN AND SECURITY AGREEMENT - Page 135
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(b) If any Lender (a "BENEFITTED LENDER") shall at any
time receive any payment of all or part of the Loans owing to it, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off or otherwise), in a greater
proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans owing to it, or
interest thereon, such Benefitted Lender shall purchase for cash from
the other Lenders a participating interest in such portion of each such
other Lender's Loans owing to it, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess
payment or benefits of such collateral or proceeds ratably with each of
the Lenders; PROVIDED, HOWEVER, that if all or any portion of such
excess payment or benefit is thereafter recovered from such Benefitted
Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without
interest. Borrower agrees that any Lender so purchasing a participation
from a Lender pursuant to this SECTION 17.4 may, to the fullest extent
permitted by law, exercise all of its rights of payment (including the
right of set-off) with respect to such participation as fully as if
such Person were the direct creditor of Borrower in the amount of such
participation.
Section 17.5 LITIGATION; WAIVER OF TRIAL BY JURY. EACH LOAN PARTY AND
CREDIT PARTY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED BY OR AGAINST ANY LOAN PARTY OR CREDIT PARTY ARISING OUT
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, THE COLLATERAL OR ANY
ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN
OR AMONG ANY LOAN PARTY OR CREDIT PARTY OF ANY KIND OR NATURE. EACH SUCH PARTY
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING. EACH LOAN PARTY AND CREDIT PARTY HEREBY
AGREES THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS AND THE FEDERAL
COURTS IN ANY OTHER JURISDICTION WHERE A MATERIAL AMOUNT OF THE COLLATERAL IS
LOCATED SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN OR AMONG ANY OF THE LOAN PARTIES AND THE CREDIT PARTIES,
PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS
OR TO ANY MATTER ARISING THEREFROM. EACH OF THE LOAN PARTIES EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED IN SUCH COURTS. WITHOUT LIMITING THE APPLICABILITY OF ANY LAW
PROVIDING FOR SERVICE OF PROCESS UPON A STATUTORY AGENT AND NOTIFICATION THEREOF
BY MAIL, EACH LOAN PARTY HEREBY WAIVES (TO THE FULLEST EXTENT ALLOWED BY LAW)
PERSONAL SERVICE OF THE SUMMONS AND
LOAN AND SECURITY AGREEMENT - Page 136
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COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREES (TO THE
FULLEST EXTENT ALLOWED BY LAW) THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED
TO SUCH LOAN PARTY AT THE ADDRESS OF SUCH LOAN PARTY SET FORTH ON THE
SIGNATURE PAGES HEREOF. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
Section 17.6 CONSENT TO ADVERTISING AND PUBLICITY. With the prior
written consent of Borrower, which consent shall not be unreasonably withheld,
Agent, on behalf of the Credit Parties, may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, including the name and address of the Loan Parties, the amount,
interest rate, maturity, collateral and a general description of Loan Parties'
business.
Section 17.7 REVERSAL OF PAYMENTS. Agent and each Lender shall have the
continuing and exclusive right to apply, reverse and re-apply any and all
payments to any portion of the Secured Obligations in a manner consistent with
the terms of this Agreement. To the extent Borrower makes a payment or payments
to Agent, for the account of the Credit Parties, or any Credit Party receives
any payment or proceeds of the Collateral for Borrower's benefit, which
payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the Secured Obligations or part thereof intended
to be satisfied shall be revived and continued in full force and effect, as if
such payment or proceeds had not been received by Agent or such other Credit
Party.
Section 17.8 INJUNCTIVE RELIEF. Each of the Loan Parties expressly
acknowledges and agrees that an action for damages for any breach of the
requirements of SECTION 10.1 shall not be an adequate remedy at law. In the
event of any such breach, each of the Loan Parties agrees to the fullest extent
allowed by law that Agent shall be entitled to injunctive relief to restrain
such breach and require compliance with such requirements.
Section 17.9 ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized to
determine compliance with any covenant contained herein, shall, unless this
Agreement otherwise provides or unless Required Lenders shall otherwise consent
in writing, be performed in accordance with GAAP.
LOAN AND SECURITY AGREEMENT - Page 137
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Section 17.10 AMENDMENTS; WAIVERS.
(a) Except as set forth in SUBSECTIONS (b) and (c) below, any
term, covenant, agreement or condition of this Agreement or any of the
other Loan Documents may be amended or waived, and any departure
therefrom may be consented to by the Required Lenders, if, but only if,
such amendment, waiver or consent is in writing signed by the Required
Lenders and, in the case of an amendment (other than an amendment
described in SECTION 17.10(e)), by each of the Loan Parties, and in any
such event, the failure to observe, perform or discharge any such term,
covenant, agreement or condition (whether such amendment is executed or
such waiver or consent is given before or after such failure) shall not
be construed as a breach of such term, covenant, agreement or condition
or as a Default or an Event of Default. Unless otherwise specified in
such waiver or consent, a waiver or consent given hereunder shall be
effective only in the specific instance and for the specific purpose
for which given. In the event that any such waiver or amendment is
requested by Borrower, Agent and the Lenders may require and charge a
fee in connection therewith and consideration thereof in such amount as
shall be determined by Agent and the Required Lenders in their
discretion.
(b) Except as otherwise set forth in this Agreement,
(i) without the prior unanimous written consent
of the Lenders,
(A) no amendment, consent or waiver
shall affect the amount or extend the time of the
obligation of the Lenders to make Loans or extend the
originally scheduled time or times of payment of the
principal of any Loan or alter the time or times of
payment of interest on any Loan or the amount of the
principal thereof or the rate of interest thereon or
the amount of any commitment fee payable hereunder,
or other fees payable ratably to the Lenders
hereunder, or permit any subordination of the
principal or interest on such Loan, permit the
subordination of the Security Interests in any
material Collateral (except with respect to Purchase
Money Liens described in CLAUSE (f)(a)(i) of the
definition of "Permitted Liens" in SECTION 1.1, which
shall be governed by SECTION 17.10(a)) or amend the
provisions of ARTICLE 14 or of this SECTION 17.10(b)
or (c),
(B) the definition of "Borrowing Base",
"AR Advance Rate", "INV Advance Rate" and "Minimum
Availability Requirement", respectively, shall not be
amended,
(C) no material Collateral shall be
released by Agent other than as specifically
permitted in this Agreement (including, without
limitation, SECTION 17.10(c)), PROVIDED that no
consent of a Credit Party other than Agent shall be
required in order to release Collateral which is
transferred by a Loan
LOAN AND SECURITY AGREEMENT - Page 138
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Party in a transaction which is specifically allowed
by this Agreement (including, without limitation,
SECTION 13.6 and SECTION 17.10(c)),
(D) no Loan Party shall be released of
its obligations under this Agreement or any other
Loan Document; PROVIDED that no consent of a Credit
Party other than Agent shall be required in order to
release the obligations of a Loan Party all of whose
Capital Stock is sold to a Person who is not a Loan
Party in a transaction permitted under SECTION
13.6(a)(ix);
(E) the definition of "Required
Lenders" shall not be amended; and
(F) the Termination Date may not be
amended;
PROVIDED, HOWEVER, that anything herein to the contrary
notwithstanding, Required Lenders shall have the right to waive any
Default or Event of Default and the consequences hereunder of such
Default or Event of Default and shall have the right to enter into an
agreement with any Loan Party providing for the forbearance from the
exercise of any remedies provided hereunder or under the other Loan
Documents without waiving any Default or Event of Default.
(c) Notwithstanding any provision of this Agreement or
the other Loan Documents to the contrary, Agent in its sole discretion
(i) without requirement of consent by any other Credit Party, may
release any Collateral, the aggregate value of which (determined by
Agent on any reasonable valuation basis and not including Collateral
disposed of in a disposition allowed by CLAUSES (i) through (viii)
of SECTION 13.6(a)) does not exceed $25,000,000 and (ii) with the
prior written consent of any combination of Lenders whose Commitment
Percentages at such time equals or exceeds, in the aggregate,
seventy-five percent (75%), may release any Collateral, the
aggregate value of which, together with any Collateral previously
released by Agent pursuant to CLAUSE (i) preceding (determined by
Agent on any reasonable valuation basis and not including Collateral
disposed of in a disposition allowed by CLAUSES (i) through (viii)
of SECTION 13.6(a)) does not exceed $100,000,000.
(d) The making of Loans hereunder by the Lenders, or the
issuance of any Letter of Credit by L/C Issuer, during the existence of
a Default or Event of Default shall not be deemed to constitute a
waiver of such Default or Event of Default.
(e) Notwithstanding any provision of this Agreement or
the other Loan Documents to the contrary, no consent, written or
otherwise, of any Loan Party shall be necessary or required in
connection with any amendment to ARTICLE 16 or SECTION 5.10, and any
amendment to such provisions shall be effected solely by and among
Agent and the Lenders, PROVIDED that no such amendment shall impose any
obligation on Borrower.
LOAN AND SECURITY AGREEMENT - Page 139
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Section 17.11 ASSIGNMENT. All the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Loan Parties may not assign or transfer
any of their rights under this Agreement.
Section 17.12 PERFORMANCE OF DUTIES.
(a) The Loan Parties obligations under this Agreement and
each of the Loan Documents shall be performed by the Loan Parties at
their sole cost and expense.
(b) If any Loan Party shall fail to do any act or thing
which it has covenanted to do under this Agreement or any of the other
Loan Documents, Agent, on behalf of the Credit Parties, may (but shall
not be obligated to) do the same or cause it to be done either in the
name of Agent or the other Credit Parties or in the name and on behalf
of any Loan Party, and each Loan Party hereby irrevocably authorizes
Agent so to act.
Section 17.13 INDEMNIFICATION.
(a) EACH LOAN PARTY AGREES TO INDEMNIFY AND HOLD HARMLESS
AGENT AND EACH OTHER CREDIT PARTY AND EACH OF THEIR AFFILIATES AND
SUBSIDIARIES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY
AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS AND EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND
EXPENSES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY
INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH
OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH
ANY INVESTIGATION, LITIGATION OR PROCEEDING OR PREPARATION OF
DEFENSE IN CONNECTION THEREWITH) THE LOAN DOCUMENTS, ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF
THE PROCEEDS OF THE LOANS (INCLUDING ANY OF THE FOREGOING ARISING
FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY), EXCEPT TO THE EXTENT
SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST OR EXPENSE IS FOUND IN A
FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION
TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION, LITIGATION OR
OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 17.13
APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH
INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY ANY LOAN
PARTY, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED
PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A
PARTY THERETO AND WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED
HEREBY ARE
LOAN AND SECURITY AGREEMENT - Page 140
<PAGE>
CONSUMMATED. EACH LOAN PARTY AGREES NOT TO ASSERT ANY CLAIM AGAINST
AGENT, ANY OTHER CREDIT PARTY, ANY OF THEIR AFFILIATES OR
SUBSIDIARIES OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, ATTORNEYS, AGENTS AND ADVISERS, ON ANY THEORY OF
LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES
ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS, ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE
OF THE PROCEEDS OF THE LOANS.
(b) WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER
AGREEMENT OF THE LOAN PARTIES HEREUNDER, THE AGREEMENTS AND OBLIGATIONS
OF THE LOAN PARTIES CONTAINED IN THIS SECTION 17.13 SHALL SURVIVE THE
PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS
AGREEMENT.
Section 17.14 ALL POWERS COUPLED WITH INTEREST. All powers of attorney
and other authorizations granted to Agent and the other Credit Parties and any
Persons designated by Agent or the other Credit Parties pursuant to any
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the Secured
Obligations remain unpaid or unsatisfied.
Section 17.15 SURVIVAL. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably
paid in full or otherwise satisfied, Agent, for the benefit of the
Credit Parties, shall retain its Security Interest and shall retain all
rights under this Agreement and each of the Security Documents with
respect to such Collateral as fully as though this Agreement had not
been terminated,
(b) the indemnities to which Agent and the other Credit
Parties are entitled under the provisions of this ARTICLE 17 and any
other provision of this Agreement and the other Loan Documents shall
continue in full force and effect and shall protect Agent and the other
Credit Parties against events arising after such termination as well as
before, and
(c) in connection with the termination of this Agreement
and the release and termination of the Security Interests, Agent, on
behalf of itself as agent and the other Credit Parties, may require
such assurances and indemnities as it shall reasonably deem necessary
or appropriate to protect Agent and the other Credit Parties against
loss on account of such release and termination, including, without
limitation, with respect to credits previously applied to the Secured
Obligations that may subsequently be reversed or revoked.
LOAN AND SECURITY AGREEMENT - Page 141
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Section 17.16 TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
Section 17.17 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or any Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 17.18 GOVERNING LAW. THIS AGREEMENT AND ALL OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS, PROVIDED THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW A HIGHER
RATE OF INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF TEXAS, THEN
WITH RESPECT TO THE PROVISIONS OF ANY LAWS WHICH PURPORT TO LIMIT THE AMOUNT OF
INTEREST THAT MAY BE CONTRACTED FOR, CHARGED OR RECEIVED IN CONNECTION WITH ANY
OF THE SECURED OBLIGATIONS, SUCH FEDERAL LAW SHALL APPLY.
Section 17.19 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
Section 17.20 REPRODUCTION OF DOCUMENTS. This Agreement, each of the
other Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by Agent or any other Credit Party, and (c)
financial statements, certificates and other information previously or hereafter
furnished to Agent or any other Credit Party, may be reproduced by Agent or such
other Credit Party by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and such Person may destroy any
original document so produced. Each party hereto stipulates that, to the extent
permitted by Applicable Law, any such reproduction shall be as admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original shall be in existence and whether or not such
reproduction was made by Agent or such other Credit Party in the regular course
of business), and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
Section 17.21 TERM OF AGREEMENT. This Agreement shall remain in effect
from the Agreement Date through the Termination Date and thereafter until all
Secured Obligations shall have been irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
LOAN AND SECURITY AGREEMENT - Page 142
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Section 17.22 PRO-RATA PARTICIPATION.
(a) Each Lender agrees that
(i) if it or any of its Affiliates or
Subsidiaries shall exercise any right of counterclaim,
set-off, banker's lien or similar right, or if under any
applicable bankruptcy, insolvency or other similar law it
receives a secured claim the security for which is a debt owed
by it to any Loan Party, it shall apportion the amount
thereof, on a pro rata basis, between (A) amounts at the time
owed to it by Borrower under this Agreement, and (B) amounts
otherwise owed to it by any Loan Party, and
(ii) if, as a result of the exercise of a right
or the receipt of a secured claim and the apportionment
thereof described in CLAUSE (i) of this SECTION 17.21(a) or
otherwise, it shall receive payment of a proportion of the
aggregate amount of principal and interest due with respect to
the Secured Obligations owed to it under this Agreement
greater than the proportion of such amounts then received by
any other Lender, such Lender shall purchase a participation
(which it shall be deemed to have purchased simultaneously
upon the receipt of such payment) in the Secured Obligations
then held by the other Lenders so that all such recoveries of
principal and interest with respect to all Secured Obligations
owed to each Lender shall be pro rata on the basis of its
respective amount of the Secured Obligations owed to all
Lenders, PROVIDED that if all or part of such proportionately
greater payment received by such purchasing Lender is
thereafter recovered by or on behalf of any Borrower from such
Lender, such purchase shall be rescinded and the purchase
price paid for such participation shall be returned to such
Lender to the extent of such recovery, but without interest.
(b) Each Lender which receives such a secured claim shall
exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this SECTION
17.21 to share in the benefits of any recovery on such secured claim.
(c) Each Loan Party expressly consents to the foregoing
arrangements and agrees that any holder of a participation in any
Secured Obligation so purchased or otherwise acquired may exercise any
and all rights of banker's lien, set-off or counterclaim with respect
to any and all monies owing by any Loan Party to such holder as fully
as if such holder were a holder of such Secured Obligation in the
amount of the participation held by such holder.
Section 17.23 INTEREST LIMITATION. In no contingency or event
whatsoever shall the amount of interest under the Loan Documents paid by
Borrower, received by the Lenders, agreed to be paid by Borrower, or requested
or demanded to be paid by the Lenders, exceed the Maximum Rate. In the event any
such sums paid to the Lenders by Borrower would exceed the Maximum Rate, the
Lenders shall automatically apply such excess to any unpaid amount of the
Secured Obligations or, if the amount of such excess exceeds said unpaid amount,
such excess shall be paid to Borrower, as applicable. All sums paid, or agreed
to be paid, by Borrower which are or hereafter may be
LOAN AND SECURITY AGREEMENT - Page 143
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construed to be compensation for the use, forbearance or detention of money
shall be amortized, prorated, spread and allocated in respect of the Secured
Obligations throughout the full term of this Agreement until the Secured
Obligations are paid in full. Notwithstanding any provisions contained in the
Loan Documents, or in any Notes or other related documents executed pursuant
hereto, the Lenders shall never be entitled to receive, collect or apply as
interest any amount in excess of the Maximum Rate and, in the event any
Lender ever receives, collects or applies any amount in respect of Borrower
that otherwise would be in excess of the Maximum Rate, such amount shall
automatically be deemed to be applied in reduction of the unpaid principal
balance of the Secured Obligations and, if such principal balance is paid in
full, any remaining excess shall forthwith be paid to Borrower, as
applicable. In determining whether or not the interest paid or payable under
any specific contingency exceeds the Maximum Rate, Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (i) characterize
any non-principal payment as a standby fee, commitment fee, prepayment
charge, delinquency charge or reimbursement for a third-party expense rather
than as interest, (ii) exclude voluntary prepayments and the effect thereof,
and (iii) amortize, prorate, allocate and spread in equal parts throughout
the entire period during which the Secured Obligations were outstanding the
total amount of interest at any time contracted for, charged or received.
Nothing herein contained shall be construed or so operate as to require
Borrower to pay any interest, fees, costs or charges greater than is
permitted by Applicable Law. Subject to the foregoing, Borrower hereby agrees
that the actual effective rate of interest from time to time existing with
respect to Loans made by the Lenders to Borrower, including all amounts
agreed to by Borrower or charged or received by the Lenders, which may be
deemed to be interest under Applicable Law, shall be deemed to be a rate
which is agreed to and stipulated by Borrower and the Lenders in accordance
with Applicable Law.
Section 17.24 MUTUAL BENEFIT. Each of the Loan Parties is part of a
combined enterprise the success and prosperity of which is dependent, in part,
on the operations of each Loan Party. Each Loan Party has determined that
entering into this Agreement is necessary or convenient to the conduct,
promotion or attainment of the business of such Loan Party, and that executing
and entering into this Agreement and the other Loan Documents is within its
corporate purpose, will be of direct and indirect benefit to, will result in a
reasonably equivalent value to, such Loan Party and is in its best interest.
Section 17.25 EXPRESS WAIVERS BY LOAN PARTIES IN RESPECT OF CROSS
GUARANTIES AND CROSS COLLATERALIZATION. Each Loan Party agrees as follows:
(a) Each Loan Party hereby waives: (1) notice of
acceptance of this Agreement; (2) notice of the making of any Loans,
the issuance of any Letter of Credit or any other financial
accommodations made or extended under the Loan Documents or the
creation or existence of any Secured Obligations; (3) notice of the
amount of the Secured Obligations, subject, however, to such Loan
Party's right to make inquiry of Agent to ascertain the amount of the
Secured Obligations at any reasonable time; (4) notice of any adverse
change in the financial condition of any other Loan Party or of any
other fact that might increase such Loan Party's risk with respect to
such other Loan Party under this Agreement;
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(5) notice of presentment for payment, demand, protest and notice
thereof as to any promissory notes or other instruments among the
Loan Documents; and (7) all other notices (except if such notice is
specifically required to be given to such Loan Party hereunder or
under any of the other Loan Documents to which such Loan Party is a
party) and demands to which such Loan Party might otherwise be
entitled.
(b) Each Loan Party hereby waives the right by statute or
otherwise to require any Credit Party to institute suit against any
other Loan Party or to exhaust any rights and remedies which such
Credit Party has or may have against any other Loan Party. Each Loan
Party further waives any defense arising by reason of any disability or
other defense of any other Loan Party (other than the defense that the
Secured Obligations shall have been fully and finally performed and
indefeasibly paid) or by reason of the cessation from any cause
whatsoever of the liability of any such Loan Party in respect thereof.
(c) Each Loan Party hereby waives and agrees not to
assert against any Credit Party: (i) any defense (legal or equitable),
set-off, counterclaim or claim which such Loan Party may now or at any
time hereafter have against any other Loan Party or any other party
liable to the Credit Parties; (ii) any defense, set-off, counterclaim
or claim of any kind or nature available to any other Loan Party
against any Credit Party, arising directly or indirectly from the
present or future lack of perfection, sufficiency, validity or
enforceability of the Secured Obligations or any security therefor;
(iii) any right or defense arising by reason of any claim or defense
based upon an election of remedies by any Credit Party under any
applicable law; (iv) the benefit of any statute of limitations
affecting any other Loan Party's liability hereunder.
(d) In addition to the foregoing waivers, each Loan Party
hereby waives outright and absolutely, any right of subrogation such
Loan Party has or may have against any other Loan Party with respect to
the Secured Obligations. In addition, each Loan Party hereby waives any
right to proceed against any other Loan Party, now or hereafter, for
contribution, indemnity, reimbursement and any other suretyship rights
and claims, whether direct or indirect, liquidated or contingent,
whether arising under express or implied contract or by operation of
law, which such Loan Party may now have or hereafter have as against
any such other Loan Party with respect to the Secured Obligations. Each
Loan Party also hereby waives any rights of recourse to or with respect
to any asset of any other Loan Party. Each Loan Party agrees that in
light of the immediately foregoing waivers, the execution of this
Agreement shall not be deemed to make such Loan Party a "creditor" of
any other Borrower, and that for purposes of Sections 547 and 550 of
the Bankruptcy Code such Loan Party shall not be deemed a "creditor" of
any other Loan Party.
(e) Each Loan Party consents and agrees that, without
notice to or by such Loan Party and without affecting or impairing the
obligations of such Loan Party hereunder, the Credit Parties may, by
action or inaction: (a) compromise, settle, extend the duration or the
time for the payment of, or discharge the performance of, or may refuse
to or otherwise not
LOAN AND SECURITY AGREEMENT - Page 145
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enforce the Loan Documents; (b) release all or any one or more
parties to any one or more of the Loan Documents or grant other
indulgences to any other Loan Party in respect thereof; (c) amend or
modify in any manner and at any time (or from time to time) any of
the Loan Documents; or (d) release or substitute any Guarantor or
other Person liable for payment of the Secured Obligations, if any,
or enforce, exchange, release or waive any security for the Secured
Obligations or any Guaranty of the Secured Obligations.
(f) The Credit Parties shall have the right to seek
recourse against any Loan Party to the fullest extent provided for
herein, and no election by any Credit Party to proceed in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of such Credit Party's right to proceed in any
other form of action or proceeding or against other parties unless such
Credit Party has expressly waived such right in writing. Specifically,
but without limiting the generality of the foregoing, no action or
proceeding by any Credit Party under any document or instrument
evidencing the Secured Obligations shall serve to diminish the
liability of any Loan Party under this Agreement or any other Loan
Document except to the extent that the Credit Parties finally and
unconditionally shall have realized indefeasible payment by such action
or proceeding.
(g) Each Loan Party represents and warrants to the Credit
Parties that such Loan Party is currently informed of the financial
condition of all other Loan Parties (including, without limitation, all
other Guarantors) of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Secured
Obligations. Each Loan Party further represents and warrants to the
Credit Parties that such Loan Party has read and understands the terms
and conditions of the Loan Documents. Each Loan Party hereby covenants
that such Loan Party will continue to keep informed of the financial
condition of all other Loan Parties, and of all other circumstances
which bear upon the risk of nonpayment or nonperformance of the
Secured Obligations.
Section 17.26 DETERMINATION BY THE LENDERS CONCLUSIVE AND BINDING. Any
calculation or material determination required or expressly permitted to be made
by any Credit Party under this Agreement shall be made in its reasonable
judgment and in good faith, and shall when made, absent manifest error, be
controlling.
Section 17.27 EXCEPTION TO COVENANTS. No Loan Party nor any Subsidiary
shall be deemed to be permitted to take any action or fail to take any action
which is permitted as an exception to any of the covenants contained herein or
which is within the permissible limits of any of the covenants contained herein
if such action or omission would result in the breach of any other covenant
contained herein.
LOAN AND SECURITY AGREEMENT - Page 146
<PAGE>
Section 17.28 JUDGMENT CURRENCY. The payment obligations of any Loan
Party under this Agreement or any of the other Loan Documents shall not be
discharged by an amount paid in any currency other than Dollars, or in any other
place than required by this Agreement or any such Loan Documents, to the extent
that the amount so paid on conversion to Dollars and transferred to Agent in
Dallas, Dallas County, Texas, U.S., under normal banking procedures does not
yield the amount of Dollars due under this Agreement or any such other Loan
Document. If for the purpose of obtaining judgment in any court it is necessary
to convert a sum due under this Agreement or any of the other Loan Documents in
any currency to another currency (the "OTHER CURRENCY"), then the rate of
exchange which shall be applied shall be the Spot Rate, determined as of the
Business Day preceding the date on which such judgment is signed by the judge or
other Person acting on behalf of such court. The payment obligations of any Loan
Party in respect of any such amount due by it to any Credit Party pursuant to
such judgment, notwithstanding the rate of exchange actually applied in
rendering such judgment, shall be discharged only to the extent that on the
Business Day following receipt by such Credit Party of any such sum in the Other
Currency pursuant to such judgment, such Credit Party in accordance with normal
banking procedures may purchase and transfer to Dallas, Dallas County, U.S.,
Dollars with the amount of the Other Currency so received.
Section 17.29 REPLACEMENT/RESTATEMENT OF EXISTING CREDIT AGREEMENT.
This Agreement and the other Loan Documents amends and restates in its
entirety the Existing Credit Agreement and the Existing Loan Documents. All
rights, benefits, indebtedness, interest, liabilities, and obligations of the
parties to the Existing Loan Documents are hereby amended, restated, and
superseded in their entirety according to the terms and provisions set forth
in this Agreement and in the other Loan Documents. All "Obligations" as
defined by the Existing Credit Agreement and all "Notes" as defined by the
Existing Credit Agreement are hereby replaced and renewed in their entirety
by this Agreement, the Notes, and the other Loan Documents and shall, from
and after the Agreement Date, be included in the Secured Obligations and
governed by this Agreement and the other Loan Documents. The existing liens
and security interests in all "Collateral" as defined by the Existing Credit
Agreement and the Existing Loan Documents are hereby expressly renewed and
continued by, and as a part of, the Security Interest and shall remain in
full force and effect, hereafter governed by this Agreement and the other
Loan Documents and as security for the Secured Obligations. Each Loan Party
represents and warrants that as of the date hereof there are no claims or
offsets against, or defenses or counterclaims to, its obligations under the
Existing Agreement or any of the Existing Loan Documents, as amended and
restated by this Agreement and the other Loan Documents. To induce the Credit
Parties to enter into this Agreement, each Loan Party waives any and all such
claims, offsets, defenses, or counterclaims, whether known or unknown,
arising prior to the date hereof and relating to the Existing Credit
Agreement or the Existing Loan Documents. As of the Agreement Date (i) no
"Advances" as defined by the Existing Credit Agreement are outstanding
thereunder and (ii) no "Letters of Credit" as defined by the Existing Credit
Agreement are outstanding thereunder other than the Existing Letters of
Credit.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
LOAN AND SECURITY AGREEMENT - Page 147
<PAGE>
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
Remainder of Page Blank Signatures Follow
LOAN AND SECURITY AGREEMENT - Page 148
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers in several
counterparts all as of the day and year first written above.
COMPUSA STORES L.P.
By: CompUSA GP Holdings Company
Its sole General Partner
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway ----------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPUSA INC.
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Senior Vice President
COMPUSA GP HOLDINGS COMPANY
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPUSA HOLDINGS COMPANY
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
LOAN AND SECURITY AGREEMENT - Page 149
<PAGE>
COMPUSA HOLDINGS I INC.
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPUSA HOLDINGS II INC.
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPUSA PC INC.
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPUSA PC OPERATING COMPANY
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
COMPTEAM INC.
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway --------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
LOAN AND SECURITY AGREEMENT - Page 150
<PAGE>
COMPUSA MANAGEMENT COMPANY
Address for Notice: By: /s/ J. Robert Gary
14951 North Dallas Parkway ---------------------------------
Dallas, Texas 75240 J. Robert Gary
Vice President
LOAN AND SECURITY AGREEMENT - Page 151
<PAGE>
AGENT:
NATIONSBANK, N.A.
In its capacity as administrative agent
By: /s/ Phillip A. Worden
---------------------------------
Phillip A. Worden
Vice President
Address:
NationsBank, N.A.
Bank of America Plaza, 6th Floor
901 Main Street
Dallas, Texas 75202
Attention: Bank of America Business Credit
URGENT: Division Manager
LOAN AND SECURITY AGREEMENT - Page 152
<PAGE>
LENDERS:
Commitment NATIONSBANK, N.A.
Amount: $230,555,556
ADDRESS: 901 Main Street, 6th Floor By: /s/ Phillip A. Worden
Dallas, Texas 75202 ---------------------------------
Attn: Bank of America Phillip A. Worden
Business Credit Vice President
Facsimile No.: 214-209-3501
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
NationsBank, N.A.
Bank of America Plaza, 6th Floor
901 Main Street
Dallas, Texas 75202
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
NationsBank, N.A.
Bank of America Plaza, 6th Floor
901 Main Street
Dallas, Texas 75202
LOAN AND SECURITY AGREEMENT - Page 153
<PAGE>
Commitment CONGRESS FINANCIAL CORPORATION
Amount: $69,444,444
ADDRESS: 1201 Main Street By: /s/ M. Galovicor
P.O. Box 50728 -------------------------------
Attn: Mark Galovick M. Galovicor
Facsimile No.: 214-748-9118 Vice President
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
Congress Financial Corporation
1201 Main Street, Suite 1625
P.O. Box 50728
Dallas, TX 75202
Attn: Mark Galovick
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
Congress Financial Corporation
1201 Main Street, Suite 1625
P.O. Box 50728
Dallas, TX 75202
Attn: Mark Galovick
<PAGE>
Commitment THE CHASE MANHATTAN BANK
Amount: $50,000,000
ADDRESS: 600 Fifth Avenue By: /s/ Michael W. Lewis
New York, NY 10020 -------------------------------
Attn: Credit Deputy Name: Michael W. Lewis
Asset Based Lending -----------------------------
Facsimile No.: 212-332-4297 Title: Vice President
----------------------------
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
The Chase Manhattan Bank
200 Jericho Quad
Jericho, NY 11753-2790
Attn: Diane Butler
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
The Chase Manhattan Bank
200 Jericho Quad
Jericho, NY 11753-2790
Attn: Diane Butler
LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment FOOTHILL CAPITAL CORPORATION
Amount: $50,000,000
ADDRESS: 11111 Santa Monica Blvd. By: /s/ Michael P. Sadilek
Suite 1500 -----------------------------
Los Angeles, CA 90025 Michael P. Sadilek
Attn: Michael P. Sadilek Senior Vice President
Facsimile No.: 310-479-8952
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
Foothill Capital Corporation
11111 Santa Monica Blvd., Suite 1500
Los Angeles, CA 90025
Attn: Michael P. Sadilek
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
Foothill Capital Corporation
11111 Santa Monica Blvd., Suite 1500
Los Angeles, CA 90025
Attn: Michael P. Sadilek
LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment HELLER FINANCIAL, INC.
Amount: $35,000,000
ADDRESS: 150 East 42nd Street, 7th Floor By: /s/ Albert J. Forzano
New York, NY 10017 -------------------------------
Attn: Albert J. Forzano Albert J. Forzano
Facsimile No.: 212-880-7002 Vice President
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
Heller Financial, Inc.
500 West Monroe Street, 13th Floor
Chicago, IL 60661
Attn: Kris Krishnan
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
Heller Financial, Inc.
500 West Monroe Street, 13th Floor
Chicago, IL 60661
Attn: Kris Krishnan
LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment PNC BANK NATIONAL ASSOCIATION
Amount: $25,000,000
ADDRESS: Two PNC Plaza, 18th Floor By: /s/ Rose Crump
620 Liberty Avenue -------------------------------
Pittsburg, PA 15222 Rose Crump
Attn: Rose Crump Vice President
Facsimile No.: 412-768-4369
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
PNC Business Credit
Two Tower Center Blvd., 8th Floor
East Brunswick, NY 08816
Attn: Gurdatt Jagnanan
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
PNC Business Credit
Two Tower Center Blvd., 8th Floor
East Brunswick, NY 08816
Attn: Susan Padgett
LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment AMSOUTH BANK
Amount: $20,000,000
ADDRESS: 350 Park Avenue By: /s/ Kevin R. Rogers
New York, NY 10022 -------------------------------
Attn: Kevin R. Rogers Kevin R. Rogers
Facsimile No.: 212-935-7458 Attorney-in-Fact
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
AmSouth Bank
1900 Fifth Avenue North
Birmingham, AL 35203
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
AmSouth Bank
1900 Fifth Avenue North
Birmingham, AL 35203
LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment IBJ WHITEHALL BUSINESS CREDIT
Amount: $20,000,000 CORPORATION
ADDRESS: One State Street By: /s/ Thomas M. Bayer
New York, NY 10004 -------------------------------
Attn: Yolanda Lopez Thomas M. Bayer
Facsimile No.: 212-858-2936 Senior Vice President
APPLICABLE LENDING OFFICE FOR BASE RATE LOANS:
IBJ Whitehall Business Credit Corporation
One State Street
New York, NY 10004
Attn: Yolanda Lopez
APPLICABLE LENDING OFFICE FOR EURODOLLAR LOANS:
IBJ Whitehall Business Credit Corporation
One State Street
New York, NY 10004
Attn: Yolanda Lopez
LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT "A"
to
LOAN AND SECURITY AGREEMENT
FORM OF REVOLVING CREDIT NOTE
EXHIBIT "A", Cover Page
<PAGE>
REVOLVING CREDIT NOTE
$_______ Dated as of ______
For value received, COMPUSA STORES L.P., a Texas limited partnership
("BORROWER"), hereby promises to pay to the order of __________________, a
____________________, with its principal office located at______________________
("PAYEE") the principal amount of ____________ DOLLARS ($________) or such
lesser amount as may from time to time be advanced and remain unpaid and
outstanding hereunder, together with accrued interest as provided hereinbelow.
This promissory note ("NOTE") is executed and delivered by Borrower
pursuant to the certain Loan and Security Agreement dated as of _________ among
Borrower, the other Loan Parties from time to time party thereto, NationsBank,
N.A., as administrative agent for the Lenders as provided therein, and each of
the Lenders (including, without limitation, Payee) from time to time party
thereto (as such agreement may be renewed, extended, modified, amended,
supplemented or restated from time to time, the "LOAN AND SECURITY AGREEMENT"),
and is a Revolving Credit Note as defined therein. Unless otherwise defined
herein, capitalized terms used in this Note which are defined in the Loan and
Security Agreement, wherever used herein, shall have the same meanings as are
prescribed by the Loan and Security Agreement.
All Loans from time to time requested by Borrower, and from time to
time made and outstanding hereunder, are subject to the terms and provisions of
the Loan and Security Agreement. Reference hereby is made to the Loan and
Security Agreement for a statement of the obligations of Borrower and the rights
of Payee in relation thereto, PROVIDED that nothing shall impair the absolute
and unconditional obligation of Borrower to pay the outstanding principal and
unpaid accrued interest on this Note when due.
The unpaid principal from day to day outstanding under this Note shall
bear interest at the applicable rate prescribed for Revolving Credit Loans as
provided by the Loan and Security Agreement. Agent's and Payee's books and
records shall be prima facie evidence of Revolving Credit Loans, interest
accruals and payments hereunder.
Borrower promises to pay all principal of and accrued interest on the
Revolving Credit Loans from time to time outstanding under this Note as
prescribed by the Loan and Security Agreement. On or after each Interest Payment
Date, to the extent that any accrued interest hereunder is not paid as specified
by the Loan and Security Agreement, Agent may at its option (but with no
obligation to do so) add the amount of such accrued interest to the Revolving
Credit Facility, in which event such accrued interest will be deemed paid and
the aggregate amount thereof shall be treated as a Revolving Credit Loan to
Borrower by Payee under the Revolving Credit Facility and outstanding under this
Note.
REVOLVING CREDIT NOTE - Page 1
<PAGE>
Any Event of Default shall be a default under this Note. All rights and
remedies of Payee, and of Agent for the benefit of Payee, with respect to this
Note (including, without limitation, Agent's right, at its option or at the
direction of the Required Lenders, to accelerate the entire unpaid principal
balance and unpaid accrued interest hereunder to be immediately due and payable)
as provided by the Loan and Security Agreement are incorporated herein by
reference. All obligations and indebtedness from time to time evidenced by this
Note are secured by the Security Interest as provided by the Loan and Security
Agreement and the other Security Documents.
No delay or omission by Payee or Agent in exercising of any power,
right, or remedy hereunder shall operate as a waiver or impair Payee's powers,
rights, and remedies under this Note or the other Loan Documents. Except as
specifically provided in the Loan and Security Agreement, Borrower and each
other party ever liable hereunder severally hereby expressly waives presentment,
demand, notice of intention to accelerate, notice of acceleration, protest,
notice of protest, and any other notice of any kind, and agrees that its
liability hereunder shall not be affected by any renewals, extensions, or
modifications, from time to time, of the time or manner of payment hereof, or by
any release or modification of or with respect to the Security Interest or any
other party liable hereunder.
Borrower hereby promises to pay to Agent, for the benefit of Agent and
Payee, all fees, costs, and expenses incurred by Agent or Payee in enforcement
and collection of any amounts under this Note, including, without limitation,
reasonable attorneys' fees and expenses.
In no contingency or event whatsoever shall the amount of interest
under this Note paid by Borrower, received by Payee, agreed to be paid by
Borrower, or requested or demanded to be paid by Payee, exceed the Maximum Rate.
In the event any such sums paid to Payee by Borrower would exceed the Maximum
Rate, Payee shall automatically apply such excess to any unpaid amount of the
Secured Obligations or, if the amount of such excess exceeds said unpaid amount,
such excess shall be paid to Borrower. All sums paid, or agreed to be paid, by
Borrower which are or hereafter may be construed to be compensation for the use,
forbearance, or detention of money shall be amortized, prorated, spread, and
allocated in respect of the Secured Obligations throughout the full term of this
Note until the Secured Obligations are paid in full. Notwithstanding any
provisions contained in this Note or any other Loan Document or other related
documents executed pursuant to the Loan and Security Agreement, Payee shall
never be entitled to receive, collect, or apply as interest any amount in excess
of the Maximum Rate and, in the event Payee ever receives, collects, or applies
any amount in respect of Borrower that otherwise would be in excess of the
Maximum Rate, such amount shall automatically be deemed to be applied in
reduction of the unpaid principal balance of the Secured Obligations and, if
such principal balance is paid in full, any remaining excess shall forthwith be
paid to Borrower. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Rate, Borrower and Payee
shall, to the maximum extent permitted under Applicable Law, (i) characterize
any non-principal payment as a standby fee, commitment fee, prepayment charge,
delinquency charge, or reimbursement for a third-party expense rather than as
interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii)
amortize, prorate, allocate, and spread in equal parts throughout the entire
period during which the Secured Obligations were outstanding the total amount of
interest at any time contracted for, charged, or received. Nothing herein
contained shall be construed or so operate as to require Borrower to pay any
interest, fees, costs, or charges greater than is permitted by Applicable Law.
REVOLVING CREDIT NOTE - Page 2
<PAGE>
Subject to the foregoing, Borrower hereby agrees that the actual effective rate
of interest from time to time existing with respect to Loans made by Payee to
Borrower, including all amounts agreed to by Borrower or charged or received by
Payee, which may be deemed to be interest under Applicable Law, shall be deemed
to be a rate which is agreed to and stipulated by Borrower and Payee in
accordance with Applicable Law.
This Note may not be changed, amended, or modified except in writing
executed by Payee and Borrower in the manner prescribed by the Loan and Security
Agreement.
[This Note is in renewal of and is issued in amendment and restatement
of (but, not in extinguishment of) part of the indebtedness evidenced by that
certain Revolving Credit Note dated ________, ____ previously executed and
delivered by Borrower payable to the order of ____________________, in the face
amount of $__________, and the portion of such indebtedness represented hereby
shall hereafter be governed by and payable in accordance with the terms hereof.]
(Insert language, modified as appropriate into Notes issued after the Closing
Date.)
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS, PROVIDED, THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW
A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF
TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAW WHICH PURPORTS TO LIMIT
THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR, CHARGED, OR RECEIVED IN
CONNECTION WITH THIS NOTE, SUCH FEDERAL LAW SHALL APPLY.
This Note shall be binding upon Borrower and its successors and
assigns.
EXECUTED as of the date first written above.
COMPUSA STORES L.P.
By: CompUSA GP Holdings Company, a
Delaware business trust, General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
REVOLVING CREDIT NOTE - Page 3
<PAGE>
AMENDMENT NO. 2
TO THE
COMPSAVINGS PLAN FOR EMPLOYEES OF COMPUSA INC. AND TRUST
WHEREAS, CompUSA Inc. (the "Company"), approved and adopted the
CompSavings Plan for Employees of CompUSA Inc. (the "Plan") and Trust Agreement
(the "Trust") which were originally effective January 1, 1995, restated
effective January 1, 1996 and January 1, 1998, and subsequently amended;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that the Plan is amended as follows:
EFFECTIVE JANUARY 1, 1997:
1. Section 1 is amended to restate Subsection 1.49 as follows:
1.49 "Required Beginning Date". The latest date benefit payments
shall commence to Participant.
(a) For calendar years commencing before January 1, 1997,
such date shall mean:
(1) with regard to a Participant who attained
age 70 1/2 in 1996, did not terminate
employment with all Related Companies before
January 1, 1997, and is not or was not a 5%
Owner, the April 1 that next follows (i) the
calendar year in which the Participant
attained age 70 1/2, or (ii) if the
Participant elects to apply this clause
(ii), the calendar year in which the
Participant terminates employment with all
Related Companies (and any such election
must be made prior to January 1, 1998); and
(2) with regard to a Participant who attained
age 70 1/2 after December 31, 1987 and
before January 1, 1996 or, in 1996 if he or
she terminated employment with all Related
Companies before January 1, 1997 or is or
was a 5% Owner, the April 1 that next
follows the calendar year in which the
Participant attains age 70 1/2; and
(3) with regard to a Participant who attained
age 70 1/2 before January 1, 1988 and who is
not 5% Owner, the April 1 that next follows
the later of (i) the calendar year in which
the Participant attained age 70 1/2, or (ii)
the calendar year in which the Participant
terminates employment with all Related
Companies; and
(4) with regard to a Participant who attained
age 70 1/2 before January 1, 1988 and who is
a 5% Owner, the April 1 that next follows
the later of (i) the calendar year in which
the Participant attained age 70 1/2, or (ii)
the earlier of the calendar year in which or
within which ends the Plan Year in which the
Participant becomes a 5% Owner or the
calendar year in which he or she terminates
employment with all Related Companies.
1
<PAGE>
COMPSAVINGS PLAN AMENDMENT NO. 2
FOR EMPLOYEES OF COMPUSA INC. AND TRUST AGREEMENT
A Participant shall be considered a 5% Owner for this purpose if such
Participant is a 5% Owner as defined in Code section 416(i) (determined in
accordance with Code section 416 but without regard to whether the Plan is
top-heavy) at any time during the Plan Year ending with or within the calendar
year in which the Participant attains age 66 1/2 or in any subsequent Plan Year.
(b) For calendar years commencing after December 31, 1996, or before
January 1999, such date shall mean:
(1) with regard to a Participant who attained age 70 1/2 in 1997
or 1998 thereafter, the April 1 that next follows the calendar
year in which he or she attained age 70 1/2, except that if
the Participant did not terminate employment with all Related
Companies before January 1 of the calendar year following the
calendar year in which he or she attained age 70 1/2, is not a
5% Owner, such date shall instead mean the April 1 that next
follows (i) the calendar year in which the Participant
attained age 70 1/2, or (ii) if the Participant elects to
apply this clause (ii), the calendar year in which the
Participant terminates employment with all Related Companies
(and any such election must be made prior to the April 1 of
the calendar year following the calendar year in which he or
she attained age 70 1/2); and
(2) with regard to a Participant who is a 5% Owner, the April 1
that next follows the calendar year in which the Participant
attains age 70 1/2.
A Participant shall be considered a 5% Owner for this purpose if such
Participant is a 5% Owner with respect to the Plan Year ending in the calendar
year in which the Participant attains age 70 1/2.
(c) For calendar years commencing after December 31, 1998, such date shall
mean:
(1) with regard to a Participant who is not a 5% Owner, the April
1 that next follows the later of (i) the calendar year in
which the Participant attained age 70 1/2, or (ii) the
calendar year in which the Participant terminates employment
with all Related Companies; and
(2) with regard to a Participant who is a 5% Owner, the April 1
that next follows the calendar year in which the Participant
attains age 70 1/2.
A Participant shall be considered a 5% Owner for this purpose if such
Participant is a 5% Owner with respect to the Plan Year ending in the calendar
year in which the Participant attains age 70 1/2.
2
<PAGE>
COMPSAVINGS PLAN AMENDMENT NO. 2
FOR EMPLOYEES OF COMPUSA INC. AND TRUST AGREEMENT
Date: 4-29 , 1999 COMPUSA INC.
---------------
By: Mel McCall
----------------------------
Title: S VP HR
--------------------------
The provisions of the above amendment that relate to the Trustee are hereby
approved and executed.
Date: MAY 3 , 1999 MERRILL LYNCH TRUST COMPANY, FSB
-------------------
By: Robin Hopkins
-----------------------------
Title: Assistant Vice President
--------------------------
3
<PAGE>
AMENDMENT TO THE
COMPUSA INC. DEFERRED COMPENSATION PLAN
WHEREAS, CompUSA Inc. (the "Company") is the employer and sponsor of the CompUSA
Inc. Deferred Compensation Plan (the "CompDC Plan"), which is a nonqualified
plan maintained for a select group of management and highly compensated
employees; and
WHEREAS, the CompSavings Plan Committee, acting on behalf of the Company, is
authorized to amend the CompDC Plan from time to time; and
WHEREAS, the CompSavings Plan Committee has authorized an amendment to the
CompDC Plan to permit forfeitures from the accounts of terminated participants
to be used for the payment of CompDC Plan administrative expenses as more
specifically set forth below;
NOW, THEREFORE, the CompDC Plan is amended as follows:
1. The second sentence of Section 6.2.1 of the CompDC Plan regarding
forfeitures upon termination of employment is deleted in its entirety
and replaced with the following language:
FORFEITURES RESULTING FROM THE PLAN SHALL BE USED TO PAY PLAN
FEES AND EXPENSES AND TO OFFSET THE AMOUNT OF FUTURE MATCHING
CONTRIBUTIONS AND SUPPLEMENTAL MATCHING CONTRIBUTIONS.
2. Section 7.6 regarding administrative expenses is amended and restated
in its entirety to read as follows:
UNLESS PAID FROM ASSETS HELD IN THE TRUST, ALL EXPENSES
INCURRED IN THE ADMINISTRATION OF THE PLAN SHALL BE PAID BY
THE EMPLOYERS.
3. The foregoing amendments shall be effective as of the date hereof.
4. In all other respects, the CompDC Plan remains unamended and in full
force and effect.
Date: November 23, 1998 COMPUSA INC.
By: /s/ Mel McCall
-------------------------------------
Mel McCall
Senior Vice President - Human Resources
<PAGE>
COMPUSA INC.
NONSTATUTORY 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. 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.
1.3. 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.
1.4. COMMISSION means the United States Securities and Exchange
Commission.
1.5. COMPANY means CompUSA Inc., a Delaware corporation.
1.6. 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.
1.7. EMPLOYEE means any employee of the Company or of any of its
subsidiaries who is not also an officer or director of the Company.
1.8. 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.
1.9. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.10. MARKET VALUE means, on any date, the closing price per share
of the Stock on the New York Stock Exchange on such date.
1.11. OPTION means an option to purchase Stock granted under the
Plan.
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1.12. OPTION AGREEMENT means a written agreement between the Company
and a Participant setting forth the terms and conditions of an Option.
1.13. OPTION PRICE means the price to be paid by a Participant for a
share of Stock upon exercise of an Option.
1.14. PARTICIPANT means a person to whom an Option has been granted.
1.15. PLAN means this Nonstatutory Option Plan of the Company, as
amended from time to time.
1.16. 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.
1.17. SECURITIES ACT means the Securities Act of 1933, as amended.
1.18. 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.
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.
2.2. TERM OF THE PLAN. Options may be granted not later than May 4,
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 issued from time to
time pursuant to the Plan may not exceed 1,000,000 shares. Shares to be issued
pursuant to Options 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.
2.4. ELIGIBILITY. Any Employee will be eligible to be a
Participant.
2.5. ACCELERATION 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:
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(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 will become immediately exercisable with respect to the full
number of shares subject to that Option; provided that no Option will
be immediately exercisable 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 will become
immediately exercisable 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 Option 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 Option has been effectively registered under the
Securities Act, the Company will be under no obligation
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to issue any shares of Stock pursuant to an Option 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 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 issued pursuant to 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 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 Option 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.
(a) Whenever shares of Stock are to be issued pursuant to
an Option, 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 Option, 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 equal to the amount required to be
withheld, (iv) with respect to Options, through the withholding by the
Company 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.
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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 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 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 Participants 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 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. TIME OF GRANTING OPTIONS. The granting of an Option will take
place at the time specified in the Option Agreement.
4.3. OPTION PRICE. The Option 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 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.
4.6. 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 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 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
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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.
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. 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
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 Participant to whom any Option has theretofore been granted,
adversely affect the rights of such Participant under such Option.
5.2. 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 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 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 Option immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance (together
with all other shares, stock and securities
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thereafter issued in respect thereof) will thereupon be subject to the Option.
Upon dissolution or liquidation of the Company, all Options will terminate, but
the Participant 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 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, 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.
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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COMPUSA INC.
SUPPLEMENTAL BONUS AND RETENTION PLAN
1. PURPOSE. The purpose of this CompUSA Inc. Supplemental Bonus
and Retention Plan (the "Plan") is to provide additional incentive compensation
opportunities for certain officers of CompUSA Inc. (the "Company") and its
affiliates. The Plan is designed to assist in the attraction, motivation and
retention of superior talent at the officer level and to align the officers'
interests with those of the stockholders by giving the officers the opportunity
to earn cash bonuses based upon appreciation in the market price of the
Company's common stock, par value $.01 per share (the "Stock").
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"). Subject to the provisions of the Plan, the Committee shall have
the right and authority, in its sole and absolute discretion, to: (i) adopt,
amend or rescind administrative and interpretive rules and regulations relating
to the Plan, (ii) construe the Plan, (iii) make all other determinations
necessary or advisable for administering the Plan and (iv) exercise the powers
conferred on the Committee under the Plan. The Committee may correct any defect
or supply any omission or reconcile any inconsistency in the Plan in the manner
and to the extent it shall deem expedient to carry it into effect, and it shall
be the sole and final judge of such expediency. The determinations of the
Committee on the matters referred to in this Section 2 shall be final and
binding.
3. PARTICIPANTS. Participants in the Plan shall consist of such
officers of the Company as the Committee in its sole discretion may designate
from time to time to receive Bonuses (as hereinafter defined) hereunder. Nothing
in the Plan, including an officer's eligibility for participation in the Plan,
shall confer upon such officer any right with respect to the continuation of
such officer's employment by the Company or an affiliate or interfere in any way
with the right of the Company or an affiliate at any time to terminate such
employment or to increase or decrease the compensation of the officer.
4. BONUSES.
(a) AWARDS. Each participant in the Plan shall be entitled to
receive, at the times and under the circumstances provided in this Section 4, a
bonus (a "Bonus") in a maximum amount determined by the Committee, in its
discretion. Such determination shall be made by the Committee on the date the
Bonus is awarded to the participant (the "Award Date"). All Bonuses shall be
payable in cash and shall be subject to the normal rules and regulations
regarding withholding for taxes and other deductions, if any, as may be in
effect from time to time.
(b) VESTING AND ELECTIONS. Each Bonus shall vest with respect to
one-half of the total amount of the Bonus (each such half is referred to herein
as a "Bonus Amount") on each of the first two anniversaries of the Award Date. A
participant shall have the right to make a written election (an "Election") at
any time during a Window Period, but not after the last day of the Bonus Period
(as hereinafter defined), to receive a vested Bonus Amount or Bonus Amounts. A
single Election may relate to one or more of the vested Bonus Amounts, but may
not relate to less than all of a
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vested Bonus Amount. The phrase "Window Period" shall have the same meaning as
described under the heading "Trading Windows" in Addendum I (containing
limitations applicable to "Designated Insiders") to the Company's Statement of
Company Policy: Securities Trades By Company Personnel, as the same may be
revised from time to time. For purposes of the Plan, a Window Period is any such
period all or part of which is during a Bonus Period. If on any date during a
Bonus Period a vested Bonus Amount would be payable in full (that is, without
reduction pursuant to Section 4(c)) based on the closing sale price of the Stock
on the preceding trading day and the participant has the right under this
Section 4(b) to make an Election on that date to receive such Bonus Amount, then
the participant shall automatically be deemed to have made such an Election on
that date and the Bonus Amount shall thereafter be paid to him or her pursuant
to Section 4(d).
(c) AMOUNTS PAYABLE. Each Bonus Amount shall be subject to
reduction in accordance with a schedule (a "Calculation Schedule") established
by the Committee on the Award Date. The Calculation Schedule shall be based on
the closing sale price of the Stock on the New York Stock Exchange (or such
other principal stock exchange or stock market on which the Stock may be traded
from time to time) on the last trading day preceding the date on which the
participant makes the Election to receive the Bonus Amount. The maximum Bonus
Amount shall be payable only if such closing sale price equals or exceeds a
target price (the "Target Price") specified by the Committee, in its discretion,
and reduced portions of the Bonus Amount shall be payable if such closing sale
price falls within lower price ranges specified by the Committee, in its
discretion, in the Calculation Schedule. Upon payment of a reduced Bonus Amount
in accordance herewith, the amount by which the maximum Bonus Amount exceeds the
reduced amount paid as a result of an Election shall be forfeited by the
participant. The determination of the portion of a maximum Bonus Amount payable
following an Election shall be made by the Committee in accordance with this
Section 4(c) without regard to whether any other Bonus Amount has previously
been paid in full or in a reduced amount.
(d) BONUS PERIODS. The term of each Bonus (a "Bonus Period") shall
be a period of five years ending at 5:00 p.m., Dallas, Texas time on the day
immediately preceding the fifth anniversary of the Award Date, and the
participant who has been awarded the Bonus may make an Election with respect to
any vested Bonus Amount at any time during such Bonus Period, provided that the
Election is made in a Window Period and otherwise in accordance with the Plan.
Each vested Bonus Amount with respect to which a participant has made a proper
Election, subject to reduction in accordance with Section 4(c), shall be paid to
the participant within 75 days after the date of the Election (whether or not
the date of payment is within a Bonus Period). If a participant (or his or her
beneficiary, as contemplated in Section 4(e)(i), if applicable) fails to make an
Election with respect to any Bonus Amount prior to the expiration of the Bonus
Period, then an Election with respect to such Bonus Amount shall be deemed to
have been made on the last day of the final Window Period during the Bonus
Period (or on the last day of such Bonus Period, if such day is within a Window
Period).
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(e) TERMINATION OF EMPLOYMENT.
(i) If during a Bonus Period a participant's employment
with the Company and its affiliates terminates due to death, Disability
or Retirement or is terminated by the Company or an affiliate for any
reason other than Cause, then the participant (or his or her
beneficiary) shall have the right to make an Election in the next
succeeding Window Period (but not after the last day of the Bonus
Period) with respect to any Bonus Amounts vested on the date of such
termination of employment. An Election shall be deemed to have been
made on the last day of such Window Period (or on the last day of the
Bonus Period, if such day is within a Window Period) with respect to
any such vested Bonus Amounts with respect to which the participant (or
his or her beneficiary) fails to make such an Election. If there is no
Window Period between the date of termination of a participant's
employment and the end of the Bonus Period, the last sentence of
Section 4(d) shall apply with respect to such vested Bonus Amounts. The
vested Bonus Amounts, subject to reduction in accordance with Section
4(c), shall be paid to the participant (or his or her beneficiary)
within 75 days after such Election is made or deemed to have been made.
The "Disability" of a participant shall be deemed to have occurred
whenever a participant is rendered unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has
lasted or can be expected to last for a continuing period of not less
than 12 months. In the case of any dispute, the determination of
Disability shall be made by a licensed physician selected by the
Committee, which physician's decision shall be final and binding.
"Retirement" means resignation by the participant on or after the date
on which the participant has served the Company or one or more of its
affiliates for at least five years in the aggregate. In the event of a
participant's death, the beneficiary of the participant under the Plan
shall be the same as the participant's designated beneficiary under the
CompSavings Plan for Employees of CompUSA Inc., or in the absence of
such designation, the persons or entities entitled to receive the
assets of the participant's estate by will, if applicable, or if not,
by the laws of descent and distribution. With respect to the
termination of a participant's employment, "Cause" shall have the
meaning given to that term in any employment agreement between the
Company and such participant.
(ii) If a participant's employment terminates for any
reason after an Election has been properly made but before payment of
the Bonus Amount or Bonus Amounts to which such Election relates, the
participant shall be entitled to receive such Bonus Amount or Bonus
Amounts, subject to reduction in accordance with Section 4(c),
notwithstanding such termination of employment.
(iii) If a participant's employment is terminated by the
Company or an affiliate for Cause or is terminated by the participant
for any reason other those specified in Section 4(e)(i), then the
participant's right to receive any Bonus Amounts under the Plan shall
be forfeited immediately upon such termination.
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(f) LIMITATION ON AMOUNTS. There is no limit on the amount of
Bonuses that may be awarded or paid under the Plan.
(g) COORDINATION WITH EMPLOYMENT AGREEMENTS. The Bonuses provided
for in the Plan shall constitute "bonuses" and "management incentive bonuses,"
and the Plan shall constitute a "management incentive bonus plan," for purposes
of any employment agreement between the Company and a participant, including
without limitation the change-in-control provisions in such employment
agreement. In addition, for that purpose, the Bonus Period of each Bonus awarded
under the Plan shall constitute a "bonus period" and the aggregate Bonus Amounts
comprising a Bonus shall (together with any other bonuses awarded to a
participant under any other plans maintained by the Company) constitute a
"Target Bonus" for such bonus period. Accordingly, the payment of Bonuses shall
be subject, among other things, to acceleration in accordance with the terms of
a participant's employment agreement. In the event of such an acceleration, the
Bonus shall be payable at the time and in the manner specified in the applicable
employment agreement, the Election and Window Period requirements set forth in
this Section 4 shall not apply and there shall be no reduction pursuant to
Section 4(c) in the amount payable; provided that in the event of a Change In
Control (as defined in a participant's employment agreement) in which the
purchase price paid or proposed to be paid by the acquiring person for each
outstanding share of Stock is less than the Target Price specified in a
participant's Calculation Schedule, the amount payable under the Plan to such
participant as contemplated by this Section 4(g) shall be the amount determined
by reference to the participant's Calculation Schedule but using the per share
amount paid or proposed to be paid by such acquiring person (and not the Target
Price or the closing sale price contemplated by Section 4(c)) as the reference
price.
5. ADJUSTMENTS. In the event of any change in the outstanding
shares of Stock by reason of any stock dividend or stock split, reverse stock
split or other similar change in the Stock, the target prices and price ranges
for the Stock set forth in the Calculation Schedules contemplated by Section
4(c) relating to outstanding Bonus awards shall be proportionately adjusted, and
the adjusted prices shall be used for purposes of determining the amount of the
reductions, if any, in the Bonus Amounts that shall be payable to participants.
In the event of any reclassification or change of outstanding shares of the
Stock, or any consolidation or merger of the Company with or into another
company or any sale or conveyance to another company of the property of the
Company as a whole or substantially as a whole, or upon dissolution or
liquidation of the Company, in each case in circumstances in which the
participants' rights to receive Bonuses hereunder are not accelerated as
contemplated by Section 4(g), the Committee shall establish new target prices
and price ranges for the Stock for purposes of the Calculation Schedules
contemplated by Section 4(c) and make such other adjustments with respect to
outstanding Bonus awards as it shall deem appropriate under the circumstances.
6. AMENDMENT AND TERMINATION OF THE PLAN. Subject to the
provisions of the Plan, the Board of Directors shall have the exclusive
authority to amend, modify, suspend or terminate the Plan at any time with or
without notice; provided that no amendment, modification, suspension or
termination of the Plan shall, without the consent of the participant, in any
manner adversely affect
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the rights of any participant with respect to any Bonus that has been awarded
prior to such amendment, modification, suspension or termination.
7. EFFECTIVE DATE AND TERM OF THE PLAN. The Plan shall be
effective on the date of its adoption by the Board of Directors of the Company
and shall remain in effect until terminated by the Board of Directors.
8. MISCELLANEOUS.
(a) A participant shall not have the right to anticipate,
alienate, sell, transfer, assign, pledge or encumber his or her right to receive
Bonuses hereunder.
(b) The Plan is intended to constitute an unfunded plan of
incentive compensation. No participant shall have any lien on or rights with
respect to any assets of the Company or its affiliates that are greater than
those of a general creditor by reason of any rights to receive Bonuses
hereunder.
(c) The adoption of the Plan or any modification or amendment
hereof does not imply any commitment to continue or adopt the same plan, or any
modification hereof, or any other plan for incentive compensation for any
succeeding year.
(d) The internal laws of the State of Texas (and not the
principles relating to conflicts of laws) shall govern the Plan.
(e) The Plan shall be binding upon and inure to the benefit of the
successors and assigns of the Company and its affiliates.
(f) Headings and captions are used in the Plan for convenience
only and shall not affect the meaning or interpretation of the Plan or any of
its provisions.
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COMPUSA INC.
RESTRICTED STOCK 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. CODE means the federal Internal Revenue Code of 1986, as
amended.
1.3. COMMISSION means the United States Securities and Exchange
Commission.
1.4. 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.
1.5. COMPANY means CompUSA Inc., a Delaware corporation.
1.6. 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.
1.7. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.8. PARTICIPANT means a person to whom a Restricted Stock Award
has been granted.
1.9. PLAN means this Restricted Stock Plan of the Company, as
amended from time to time.
1.10. RESTRICTED STOCK or RESTRICTED STOCK AWARD means an award of
Stock granted under Article IV.
1.11. RESTRICTED STOCK AGREEMENT means a written agreement between
the Company and a Participant with respect to a Restricted Stock Award.
1.12. 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.
1.13. RULE 16b-3 means Rule 16b-3 or its successors promulgated
under the Exchange Act.
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1.14. SECURITIES ACT means the Securities Act of 1933, as amended.
1.15. 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.
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.
2.2. TERM OF THE PLAN. No Awards may be granted after July 6, 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 issued from time to
time pursuant to the Plan may not exceed 1,000,000. Only shares held by the
Company in its treasury may be issued pursuant to Restricted Stock Awards
granted hereunder. If shares of Stock are reacquired by the Company pursuant to
the provisions of the Plan, the reacquired shares will again be available for
issuance under the Plan to the extent permitted by law.
2.4. ELIGIBILITY. Only officers of the Company or any subsidiary
thereof will be eligible to be a Participant.
2.5. ACCELERATION IN CERTAIN EVENTS. The Committee may waive any
restrictions with respect to shares of Restricted Stock in whole or in part at
any time. In addition, notwithstanding the provisions of any Restricted Stock
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 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, all restrictions
will be deemed lapsed, waived and/or satisfied (as applicable), with
respect to any Restricted Stock Award; provided that no restriction
will be deemed lapsed, waived and/or satisfied with respect to a
Restricted Stock 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 restrictions related to any
Restricted Stock 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
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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 as of 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 a Restricted Stock 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 a Restricted Stock Award has been effectively registered
under the Securities Act, the Company will be under no obligation to
issue any shares of Stock pursuant to a Restricted Stock 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 Restricted Stock 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 a
Restricted Stock 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 a Restricted
Stock 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
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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.
(a) Whenever shares of Stock are to be issued pursuant to
a Restricted Stock 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 a Restricted Stock 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 fair 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, or (iv) in any other form
of valid consideration, as permitted by the Committee in its sole
discretion.
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 Restricted Stock 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 a Restricted Stock 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. The
Committee will have sole discretion and authority to
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determine from time to time the Participants to whom Restricted Stock Awards
will be granted and the number of shares of Stock subject to each Restricted
Stock 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 Restricted Stock Agreement or waive any conditions and/or restrictions
applicable to any shares of Restricted Stock, 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
RESTRICTED STOCK
4.1 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.
4.2. 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 Restricted Stock
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 the 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).
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(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. RESTRICTED STOCK
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 which the
restrictions have 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).
4.3. 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 V
TERMINATION, AMENDMENT AND ADJUSTMENT
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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; 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 Restricted Stock Award
has theretofore been granted, adversely affect the rights of such Participant
under such Restricted Stock Award.
5.2. 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 a Restricted Stock Award is granted and prior to the lapse, waiver and/or
satisfaction of any restrictions related to a Restricted Stock Award, the number
of shares subject to such Restricted Stock Award 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 Restricted Stock 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 Restricted Stock Award. Upon
dissolution or liquidation of the Company, all Restricted Stock Awards will
terminate. In the event any adjustment hereunder of the number of shares covered
by a Restricted Stock 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 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 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.
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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* Confidential Treatment has been requested for portions of this
exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as *. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.
PRODUCTS AND SERVICES AGREEMENT
This Products and Services Agreement (this "Agreement") is entered into to
be effective as of the 28th day of August, 1999 (the "Effective Date"), by and
between CompUSA Inc., a Delaware corporation and Ingram Micro Inc., a Delaware
corporation ("Ingram").
Background:
A. Ingram is a provider of technology services and products.
B. CompUSA desires to purchase certain products for resale to its customers
and acquire certain services from Ingram on the terms set forth in this
Agreement.
C. CompUSA and Ingram desire to enter into a mutually beneficial arrangement
whereby Ingram shall provide products and services to CompUSA, all as set
forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1 "BUSINESS DAY" shall mean, days other than Saturday, Sundays, and
holidays on which banks in Dallas, Texas are authorized to close. Whenever
this Agreement requires action to be taken on a day that is not a business
day, the applicable provision shall be construed to require such action to
be taken on the next business day following the day the action would
otherwise be required to be taken.
1.2 "CATALOG" is defined in Section 1.12 (definition of Ingram
Products).
1.3 "COMPLEX BUILD" means a Configuration of a system that will be set
up for connectivity to a network which requires changes to the network
operating system (e.g., Novell, Windows NT, and UNIX).
1.4 "CONFIGURATION SERVICES" shall mean those Services to be provided by
Ingram as described on Schedule B.
1.5 "CONFIGURATIONS" shall mean Products or Goods which are to be
configured by Ingram prior to shipment to Customers.
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1.6 "CONSTRAINED INVENTORY" shall mean Product which is available on a
limited basis from the Vendor because Product demand exceeds Product
availability from the Vendor.
1.7 "CUSTOMER" or "CUSTOMERS" shall mean purchasers of Goods and/or
Products which are direct shipped to the Customer by Ingram on behalf of
CompUSA.
1.8 "EFFECTIVE DATE" is defined in the first paragraph of this
Agreement.
1.9 "GOODS" shall mean, individually and/or collectively, any and all
products owned by Customers which CompUSA arranges to have Ingram store
and warehouse under the terms of this Agreement.
1.10 "GOODS WAREHOUSING SERVICES" shall mean those services to be
provided by Ingram as described in Schedule E.
1.11 "INGRAM COST" shall mean *.
1.12 "INGRAM PRODUCTS" shall mean all hardware, software and other
products offered for sale from time to time as reflected in Ingram's
electronic product listing database that is provided to CompUSA
("Catalog").
1.13 "LIBOR" shall mean the British Bankers Association's London Inter
Bank Offered Rate fixed as of the last business day of each calendar
month, as published by Bloomberg, and effective as of the first day of the
following calendar month.
1.14 "MANAGEMENT FEE" shall mean the fee due Ingram as calculated in
Section 8.1 hereof.
1.15 "PROCUREMENT SERVICES" shall mean those services to be provided by
Ingram as described in Schedule D.
1.16 "PRODUCTS" shall mean "Ingram Products" and "Third Party Products."
1.17 "RESERVE INVENTORY" shall mean Constrained Inventory, Large Account
Programs, or Available Inventory as defined in Schedule A.
1.18 "RMA" shall mean an Ingram Return Material Authorization as
described in Schedule F hereof.
1.19 "SERVICES" shall mean all of the services described in Section 5 and
detailed in the Schedules attached hereto and any other additional
services which CompUSA may request and Ingram may provide as permitted
under Section 5.2.
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1.20 "SLA" shall mean one of the Service Level Agreements entered or to
be entered into by CompUSA and a Customer.
1.21 "TERM" shall mean the period of time beginning on the Effective Date
and ending on the earlier of (a) the fifth anniversary of the Effective
Date or (b) date on which a party terminates the Agreement as permitted
under the Agreement.
1.22 "THIRD PARTY PRODUCT" or "3P PRODUCT" shall mean hardware, software
or other products that Ingram does not offer in its Catalog, but which
Ingram shall procure on behalf of or from CompUSA under this Agreement.
1.23 "TOTAL PURCHASES" shall mean *.
1.24 "VENDOR" shall mean the manufacturer or publisher of a Product or
Goods.
2. SCOPE OF AGREEMENT.
2.1 This Agreement applies to purchases of Product by CompUSA for resale
to its Customers only.
3. COMPUSA COMMITMENTS.
3.1 SOLE SUPPLIER: Beginning on January 1, 2000 and continuing
throughout the Term, and except as provided under Sections 3.4.4, 7.1.5,
and 7.2, CompUSA shall purchase from Ingram not less than * (the "Purchase
Requirement") of all of the Product purchases for its Customers as
measured on a monthly aggregate basis.
3.2 THIRD PARTY PRODUCTS: CompUSA and Ingram shall work together to
transfer at no cost or expense to CompUSA and within ninety (90) days
after the Effective Date, any purchasing relationship which CompUSA has
with the 3P Product Vendors listed on Exhibit 3.2 attached hereto to a
direct purchasing relationship with Ingram. Promptly following the
Effective Date, CompUSA shall provide Ingram with a version of Exhibit 3.2
that prioritizes the order in which all Vendors on Exhibit 3.2 shall be
transferred to a direct purchasing relationship with Ingram. Ingram shall
use commercially reasonable efforts to transfer all 3P Product Vendors
listed on Exhibit 3.2 to direct purchasing relationships, and to do so in
the order specified by CompUSA, during the ninety (90) day period referred
to above. Until such time as Ingram has established a purchasing
relationship with a Vendor listed on Exhibit 3.2, CompUSA shall purchase
its 3P Product requirements directly from that Vendor and sell or
otherwise transfer such 3P Product to Ingram at CompUSA's cost.
3.3 STANDARD PRODUCTS: CompUSA has provided Ingram a list of Products
which it considers to be the standard products offered to its Customer
base (the "Standard Products"). The Standard Product list is attached
hereto as Exhibit 3.3 and may be
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updated from time to time by CompUSA with ten (10) business days' notice
with the addition of such Products as CompUSA may select from the
Catalog.
3.4 FORECASTS AND CAPACITY:
3.4.1 CompUSA and Ingram agree to work together in good faith to
develop, by the 15th of each calendar month, forecasts for the
following calendar month for such items as the parties deem
appropriate. At a minimum, the forecasts will include estimates of
the number of configurations to be performed during the following
month on a weekly (or daily) basis and an estimate of the Standard
Products. For purposes of the forecasting provisions of this
Agreement, the following general procedures shall be applicable:
(a) On or before the first business day of each month,
Ingram shall provide CompUSA with historical run
rate data.
(b) Within seven (7) days following receipt of such
historical run rate data, CompUSA shall submit to
Ingram CompUSA's good faith forecast based on such
data.
(c) Within four (4) days after Ingram's receipt of
CompUSA's forecast, Ingram shall provide CompUSA
with any reasonable objections Ingram may have
regarding any item contained in such forecast.
(d) No later than the 15th day of each month, CompUSA
shall provide Ingram with CompUSA's analysis and/or
rationale substantiating its forecast. All
forecasted items that are not objected to, or for
which CompUSA provides substantiation, shall be
deemed final.
(e) In the event Ingram fails to provide the data
required by (a) above, any forecast submitted by
CompUSA on or before the 15th of any month shall be
deemed to be the governing forecast for the next
calendar month.
CompUSA will update its forecasts to reflect new orders, new
customers, or other significant developments as mutually agreed by
the parties. Ingram shall advise CompUSA of its concurrence or
disagreement with any forecast modifications proposed by CompUSA
within forty-eight (48) hours. In the event Ingram disagrees with
any forecast modification, CompUSA shall have the right to service
the business relating to such forecast modification from sources
other than Ingram, and such purchases shall not be included in the
calculation of the Purchase Requirement.
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3.4.2 For those Customers for which Ingram has agreed to specific
SLA's under Section 7.2, the parties agree to work together in
good faith to develop forecasts of such items as the parties deem
appropriate by the 15th day of each month for a rolling 90-day
period beginning on the first day of the following month. If
necessary, the parties will update their forecasts to reflect new
orders, new customers, or other significant developments. The
first thirty (30) days of each forecast agreed to during under
this Section 3.4.2 shall be binding and may be modified only with
Ingram's consent.
3.4.3 Ingram will staff at 100% of the forecasting requirements
on a daily basis. Ingram will use its best efforts to support up
to 120% of the forecasted requirements. Ingram will provide
adequate warehouse space for Product inventory to support the
Configuration and assembly volumes as provided from the monthly
forecast. For purposes of sections 3.4.3 through 3.4.5 and 7.l.1,
the relevant forecasts will be the forecasts prepared by the 15th
for the following month and any updated forecasts agreed to at
least 5 business days prior to the date(s) forecasted.
3.4.4 In the event that CompUSA's Configuration requirements are
more than 120% of the forecasted requirements, Ingram will use its
best efforts to meet the requirements in excess of forecast. The
forecast for September 1999 will not exceed 375 Configurations per
day. Beginning, January 1, 2000, CompUSA shall reimburse Ingram
for direct payroll and other direct variable costs incurred by
Ingram for staffing in excess of the levels required to meet 120%
of the forecasted requirements; provided however, that no
reimbursement shall be made for any costs that were not approved
in writing by CompUSA before being incurred by Ingram. If CompUSA
does not agree to pay the costs requested by Ingram, CompUSA may
either (i) modify its work requirements to fall within the 120%
limit or (ii) meet the excess requirements from sources other than
Ingram, in which case such purchases will not be included in the
calculation of the Purchase Requirement.
3.4.5 Beginning January 1, 2000, if CompUSA Configuration
requirements are less than 80% of the forecasted requirements,
CompUSA shall reimburse Ingram for the direct payroll and other
direct variable costs incurred by Ingram for the difference
between the cost of staffing for the actual requirements and the
cost of staffing for 80% of the forecasted requirements.
4. PRODUCT SALES AND PRICING.
4.1 PRICE: Ingram will invoice CompUSA for *. Products will be priced
and invoiced at the time of shipment to Customers.
4.2 SHIPPING AND FREIGHT: Ingram will ship all Products and Goods
F.O.B. origin except (i) Ingram shall bear all standard ground freight
costs related to such shipments
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and (ii) risk of loss will not transfer until delivery to the Customer.
In the event CompUSA directs Ingram to ship the Product in any manner
other than standard ground, for any reason other than an Ingram error,
all freight and special handling costs shall be charged to a third party
freight account provided by CompUSA at the time of shipment. Consistent
with the practices used by Ingram and CompUSA as of the Effective Date,
following the close of each month, Ingram shall issue a credit to CompUSA
in an amount equal to the ground freight costs which Ingram would have
incurred on any shipments where the freight costs were charged to
CompUSA's freight carrier account. CompUSA shall bear all freight and
handling costs for shipments of Goods and Products to destinations
outside of the United States.
4.3 SHIPPING DISCREPANCIES: No later than 30 days after delivery of
the Product or Goods to CompUSA or its Customer, CompUSA shall notify
Ingram of all claimed shortages or damaged Products or Goods. Ingram
shall bear all costs arising due to shipping errors made by Ingram.
4.4 REFUSALS: Ingram shall credit CompUSA the invoice amount and, by
separate invoice, charge CompUSA for any return freight costs incurred by
Ingram relating to any Product orders which are refused at time of
delivery to the Customer. However, Ingram shall bear all costs arising
due to shipping errors made by Ingram.
4.5 VENDOR RESTRICTIONS: Ingram shall not be required to sell to
CompUSA Products which may only be sold to resellers, unless CompUSA is
an authorized reseller of the Product. All Products delivered to CompUSA
or its Customers hereunder are subject to any restrictions or limitations
placed on them by the original seller (other than Ingram) or Vendor of
the Products. CompUSA is solely responsible for ensuring its adherence to
any and all such restrictions or requirements.
5. INGRAM SERVICES.
5.1 Ingram shall provide the following services to CompUSA as more
fully described in the designated Schedules attached to this Agreement:
<TABLE>
<CAPTION>
SERVICES SCHEDULE
<S> <C>
Order Fulfillment A
Configuration B
Ship Consolidation C
Goods Warehousing E
Product Returns F
Export Services G
</TABLE>
5.2 After the Effective Date, CompUSA may request and Ingram may agree
to perform additional services not provided for under this Agreement. A
description of those additional services and the service fees relating
thereto shall be set forth in
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additional Schedules to be mutually agreed upon by the parties and
attached to this Agreement.
5.3 During the initial year of the Term of the Agreement, Ingram will
evaluate and implement ways and means of adding efficiencies to
operations-related processes and the parties shall split equally all
mutually agreed to and identified cost savings.
6. TRANSITION SERVICES.
6.1 INVENTORY/RETURN AUTHORIZATIONS (RTV'S): Ingram shall issue to
CompUSA return authorizations for all CompUSA's product inventory as set
forth on the list dated August 26, 1999 (the "Inventory Product") which
is in resalable condition and currently offered by Ingram in its Catalog
at the time it is physically inspected by Ingram. Such inventory returns
will be transferred at Ingram Cost as of the date of inspection of such
Inventory Product.
6.2 INSPECTION OF THE INVENTORY PRODUCT:
6.2.1 Ingram shall be permitted to inspect the Inventory Product
located at CompUSA's Grapevine, Texas distribution center (the
"Grapevine Facility") within 30 days following the Effective Date.
At time of inspection of any Inventory Products, Ingram shall
advise CompUSA whether it will issue a return authorization for
such Inventory Products. Ingram shall remove all Inventory
Products which it intends to issue a return authorization from the
Grapevine Facility no later than 30 days following completion of
the physical inspection.
6.2.2 CompUSA shall ship at its cost all Inventory Product not
located at the Grapevine Facility to Ingram's facility located in
Rancho Cucamonga, California, prior to October 15, 1999. As soon
as practical, but not later than October 31, 1999, Ingram shall
inspect the Inventory Products and advise CompUSA for which of the
Inventory Products it will issue return authorizations.
6.3 REMAINDER INVENTORY: All Inventory Product for which Ingram
chooses not to issue return authorizations because it was either not in
resalable condition or in Ingram's Catalog at the time of inspection or
was not made available for inspection as required under Section 6.2 shall
be deemed to be "Remainder Inventory." At CompUSA's direction, Ingram
shall dispose of all Remainder Inventory through liquidation or
destruction or at CompUSA's direction return such Remainder Inventory to
CompUSA at CompUSA's expense on or before December 31, 1999. Ingram will
promptly remit to CompUSA all proceeds from the sale or other disposition
of the Remainder Inventory. Upon completion of the disposition of the
Remainder Inventory, Ingram shall issue an invoice to CompUSA for $3.25
per unit of Remainder
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Inventory, and CompUSA shall pay such invoice within thirty days
following the date of receipt of the invoice.
6.4 FACILITIES SUBSIDY: On the next business day following execution
of this Agreement, Ingram shall pay CompUSA by wire transfer of
immediately available funds the sum of $ * to subsidize CompUSA's
operating costs related to its Grapevine Facility.
7. PERFORMANCE STANDARDS.
7.1 GENERAL PERFORMANCE STANDARDS: During the Term, Ingram shall
perform the Services in accordance with the following standards. All
standards will be based on the most recent forecasts submitted by CompUSA
in accordance with Section 3.4.
7.1.1 CONFIGURATIONS: On a daily basis, Ingram shall have (i) *
(the "Configuration Standard") of all Configurations (other than
Complex Builds), up to 120% of the forecasted amount, completed
and available for shipment on the next business day following
receipt of a Configuration order, and (ii) all remaining
Configurations (including all Complex Builds) completed and
available for shipment within three business days following
receipt of a Configuration order. During September, October,
November and December 1999, the Configuration Standard will be *
and *, respectively. The standards set forth in the preceding two
sentences shall only apply to "conforming" Configurations using
Standard Product and other Product in stock which are received
prior to noon local time at the configuration center. A
Configuration shall be deemed to be "conforming" if (i) it passes
technical review, which includes review of inventory issues,
technical issues, compatibility issues and pricing issues, or (ii)
Ingram does not notify CompUSA that the Configuration is
non-conforming, which notice shall describe why the order is
non-conforming, within two hours of Ingram's receipt of the
Configuration order (or, in the case of Complex Builds, within
four hours of Ingram's receipt of the Configuration order).
7.1.2 STANDARD PRODUCTS: On a daily basis, Ingram shall have * of
all orders for Standard Product (up to the forecasted amount and
not including Constrained Inventory) available for shipment on the
same day that the order is received if the order is received prior
to 5 p.m. local time at the shipping warehouse.
7.1.3 SHIPPING ACCURACY: On a daily basis, Ingram shall ship at
least * of all Product orders without shipping errors made by
Ingram. Shipping errors include but are not limited to shipments
incorrectly addressed or shipped to the wrong location, shipments
of the wrong quantity or type of Products, or other errors made by
Ingram relating to shipment.
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7.1.4 PERFORMANCE REPORT: By the 5th day of each Ingram fiscal
month, Ingram shall provide a written report to CompUSA of its
Configuration and Standard Product shipment activity during the
prior month in sufficient detail and with such information as may
be necessary for CompUSA to quantify Ingram's level of compliance
with its obligations under Sections 7.1.1 and 7.1.2. In the
report, Ingram shall provide separate statistics for Configuration
and Standard Product shipment activities for Customers with SLA's
containing financial penalties by which Ingram has agreed to be
bound pursuant to Section 7.2.2 ("SLA Penalty Customers"). The
report shall also show the calculation of a "Performance Rate",
which shall be the monthly aggregate percentage of performance by
Ingram of the standards contained in Sections 7.1.1 and 7.1.2 for
all Customers other than SLA Penalty Customers.
7.1.5 PERFORMANCE REQUIREMENT: If the Performance Rate for any
month is at least * but less than *, the Purchase Requirement (as
defined in Section 3.1) will be reduced by five (5) percentage
points for the following month (e.g., from * to *). If the
Performance Rate for any month is at below *, the Purchase
Requirement will be reduced by ten (10) percentage points for the
following month. If the Performance Rate for any month is * or
above for any month when the Purchase Requirement is less than *,
the Purchase Requirement will be increased by ten (10) percentage
points for the following month, up to a maximum Purchase
Requirement of *.
7.2 SERVICE LEVEL AGREEMENTS:
7.2.1 CompUSA has provided Ingram copies of existing SLA's with
certain Customers as summarized on Exhibit 7.2.1. Ingram has
reviewed the performance obligations and warranties set forth in
Exhibit 7.2.1 and agrees to perform in accordance with those
requirements, even if such requirements are more restrictive than
the general standards set forth in Section 7.1. Ingram shall not
be bound by the financial penalties in the SLA agreements listed
on Exhibit 7.2.1; however, where Ingram has not agreed to be bound
by a financial penalty included in a customer agreement, and
Ingram fails to meet the SLA contained in such customer's
agreement, then CompUSA will be permitted to fulfill that contract
from sources other than Ingram and such purchases will not be
included in the calculation of the Purchase Requirement.
7.2.2 From time to time, CompUSA may without the prior approval
of Ingram, agree to additional SLA's so long as those SLA's are
equally or less restrictive than the General Performance Standards
set forth in Section 7.1 above. However, if a Customer requests
SLA's with performance standards more restrictive than those
stated in 7.1 above, CompUSA must present that request to Ingram
in writing. Ingram will have one business day to evaluate and
either accept or reject the SLA in writing, which rejection may be
accompanied by a description of the basis (including costs) on
which Ingram
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will agree to such SLA. If Ingram accepts the SLA, Ingram will at
the same time either accept or reject the financial penalties, if
any, included in the agreement; and if Ingram rejects the
financial penalties, the arrangement will be governed by the final
sentence of Section 7.2.1. If Ingram rejects the SLA, CompUSA may
service the Customer requesting the SLA from other sources, and
Products for such Customer not purchased from Ingram shall not be
included in the calculation of the Purchase Requirement.
7.3 CONSTRAINED INVENTORY: Ingram shall ensure that CompUSA
receives all items of Constrained Inventory which CompUSA is
entitled to receive by virtue of any manufacturer's allocation of
Constrained Inventory for or on behalf of CompUSA or any CompUSA
Customer. Ingram's inability to obtain Constrained Product shall
not be considered when determining Ingram's performance against
the performance standards stated in this Section 7, provided that
(i) Ingram shall use commercially reasonable efforts to locate and
procure such Constrained Product, and (ii) Ingram notifies CompUSA
of its inability to obtain such Constrained Product within 24
hours. CompUSA shall then have the right to procure such
Constrained Product from other sources and such purchases shall be
treated as purchases of Third Party Products hereunder.
7.4 AUTHORIZED REPRESENTATIVE: Each party shall designate an
individual within its organization to monitor and manage SLA
compliance. Either party may change the individual designated by
providing notice in accordance with Section 16.1.
8. MANAGEMENT AND SERVICE FEES.
8.1 MANAGEMENT FEE: In consideration for the Order Fulfillment,
Configuration, Goods Warehousing and Product Return Services, Ingram will
be paid a Management Fee calculated by multiplying the Total Purchases
during each of Ingram's fiscal months by * .
8.2 SERVICE FEES: In addition to the Management Fee, Ingram shall
invoice and CompUSA shall pay the following additional service fees and
the fees set forth on Schedules A and E (the "Service Fees"):
8.2.1 CONFIGURATIONS/ASSET TAGS: In the event the total number of
Configurations and Asset Tags exceeds * in an Ingram fiscal
month, CompUSA shall pay Ingram $ * for each additional
Configuration and $ * for each additional Asset Tag completed by
Ingram during that month after the total reaches *.
Configurations that have Asset Tags will be counted and charged as
Configurations only. Ingram will provide CompUSA with a monthly
report showing all Configurations and Asset Tags for the prior
month on a daily basis together with all associated Configuration
and Asset Tag fees.
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8.2.2 PRODUCT RETURNS: For each Product return in excess of the
limits set forth in Schedule F, CompUSA shall pay a fee of $ * per
unit.
8.2.3 THIRD PARTY PRODUCT PROCUREMENT FEE: For all 3P Product
Procurement Vendors other than those set forth on Exhibit 3.2,
CompUSA may request Ingram to establish a direct purchasing
relationship by Ingram with such 3P Product Procurement Vendor.
Ingram shall provide CompUSA with Ingram's response to any such
request within five (5) business days. If Ingram agrees to
establish a direct purchasing relationship with such 3P Product
Vendor, Ingram's response to CompUSA shall specify such agreement
and set forth the time within which such direct purchasing
relationship with Ingram will be established. If (i) Ingram fails
to provide a response within five (5) business days, (ii) declines
to establish a direct purchasing relationship with any 3P Product
Vendor or (iii) proposes a time frame for establishing such direct
purchasing relationship that is reasonably unacceptable to
CompUSA, CompUSA may continue to procure Product directly from
such 3P Product Procurement Vendor.
CompUSA shall pay Ingram a 3P Product Procurement Fee whenever
Ingram establishes a new purchasing relationship with a vendor of
3P Products. The fee for each new relationship will be $ * plus $
* per Product sku.
8.2.4 SHIP CONSOLIDATED FEES: CompUSA shall pay Ingram a Ship
Consolidated fee equal to $ * per Product unit which is processed
Ship Consolidated.
8.2.5 EXPORT SERVICE FEES: CompUSA shall pay Ingram and Export
Service fee equal to $ * per Product order.
8.3 MANAGEMENT FEE ADJUSTMENTS: The Management Fee has been determined
by Ingram based on the assumptions set forth in Exhibit 8.3 (the
"Assumptions"). The parties agree that in the event one or more of the
Assumptions above change materially, Ingram may propose prospective
revisions to the Management Fee to CompUSA. Such revisions may only be
proposed on each six-month anniversary of the Agreement and CompUSA shall
have a period of 30 days to review such proposed Management Fee
adjustment and to accept or reject such adjustment. In the event CompUSA
elects to reject any proposed Management Fee adjustment, and the parties
cannot agree on a mutually agreeable Management Fee within 30 days,
either party shall have the right to terminate the Agreement upon giving
the other party 180 days' prior written notice of its election to
terminate the Agreement.
9. PAYMENT AND CREDIT TERMS.
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9.1 GENERAL TERMS: All Product Purchases which are not subject to
flooring will be paid under net 30-day terms. The Management Fee will be
invoiced monthly and paid within fifteen (15) days from the date of
receipt of the invoice. All past due amounts shall accrue interest at an
annual interest rate equal to LIBOR plus six (6) additional percentage
points from the tenth day following the due date until paid. The Service
Fees will be invoiced monthly and paid within thirty (30) days from the
date of receipt of the invoice.
9.2 TIMELY PAYMENT:
9.2.1 In the event CompUSA fails to make timely payment of any
undisputed amount invoiced hereunder, and fails to cure same
within ten (10) business days after written notice of same, Ingram
shall have the right, in addition to any and all other rights and
remedies available to Ingram, at law or in equity, to revoke any
or all credit extended or to delay or cancel future deliveries of
Products or Services. Ingram shall not be required to reinstate
credit or deliveries regardless of future payment by CompUSA.
Ingram shall not exercise any remedy until the expiration of such
10-day cure period.
9.2.2 In the event Ingram fails to make timely payment of any
amount invoiced hereunder, and fails to cure same within ten (10)
business days after written notice of same, CompUSA shall have the
right, in addition to any and all other rights and remedies
available to the CompUSA, at law or in equity, to revoke any or
all credit extended. CompUSA shall not be required to reinstate
credit regardless of future payment by Ingram. CompUSA shall not
exercise any remedy until the expiration of such 10-day cure
period.
9.2.3 Disputed Items: If either party has a good faith dispute
with respect to an invoiced amount, such party will pay the
undisputed portion of the invoice and notify the other party of
the disputed amount no later than the date on which the invoiced
amount was due. For purposes of this Section, the deduction of any
amount from payment of any invoice shall be deemed notice of a
potential dispute provided the debit memo sets forth the reason
for the deduction. The parties will use their best efforts to
attempt to resolve any such disputes within 30 days thereafter.
The nonpayment of any such item which is in dispute shall not be
treated as a failure to pay for the purposes of Sections 9.2.1 and
9.2.2; provided that, in the event that it is determined that a
disputed amount is legitimate, such amount shall be paid within
five days of the date such dispute is resolved.
9.3 INSOLVENCY: Any obligation of Ingram or CompUSA under this
Agreement to deliver Products or Services on credit terms to the other
party shall terminate without notice if the other party files a voluntary
petition under a bankruptcy statute, or makes an assignment for the
benefit of creditors, or if an involuntary petition under a
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bankruptcy statute is filed against such other party and not dismissed
within 90 days, or if a receiver or trustee is appointed to take
possession of the assets of the other party.
9.4 FAIR PRICING: Ingram represents to CompUSA that it believes that
the combination of the prices and terms for the Products and Services
being offered to CompUSA pursuant to this Agreement, when considered in
the aggregate, are at least as favorable as those offered by Ingram to
any other customer of Ingram with a business model similar to CompUSA and
which purchases products and services from Ingram in volumes similar to
CompUSA (hereafter, a "similar customer"). On a quarterly basis during
the term of this Agreement, Ingram and CompUSA will meet to review
current market prices and terms for the Products and Services being
offered by Ingram to CompUSA pursuant to this Agreement. At such
meetings, the parties will discuss in good faith amendments to such
prices and terms, if necessary, in order to render the prices and terms
for the Products and Services provided by Ingram to CompUSA, when
considered in the aggregate, to be at least as favorable as those then
being received by other similar customers of Ingram. Nothing herein shall
require Ingram to disclose the prices, terms or conditions on which it
sells products or provides services to specific customers.
9.5 WAIVER OF LIENS: Ingram hereby waives any warehouseman's,
inventory or other liens that it may have with respect to any
merchandise, equipment or other property belonging to CompUSA that is in
the possession of Ingram.
10. TERM AND TERMINATION.
10.1 TERM: This Agreement will commence on the date set forth below and
will continue for a period of five years, unless earlier terminated
earlier in accordance with this Section 10.
10.2 TERMINATION FOR CAUSE: Either party may terminate this Agreement
upon the material breach by the other party if the breaching party fails
to cure such breach within sixty (60) days after receiving written notice
specifying the breach and indicating the notifying party's intent to
terminate if such breach is not cured, other than for breaches under
Section 9.2.1 or 9.2.2.
10.3 TERMINATION WITHOUT CAUSE: CompUSA may terminate this Agreement
without cause 90 days after notifying Ingram that it is terminating the
Agreement, and Ingram may terminate this Agreement without cause 180 days
after notifying CompUSA that it is terminating the Agreement, provided
that neither party shall have the right to issue a notice of termination
under this section during the first nine (9) months of the Term of this
Agreement.
10.4 EFFECT OF TERMINATION:
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10.4.1 Upon termination, CompUSA will take all necessary steps to
have the Goods removed from Ingram's facility within 30 days after
the date of termination. Ingram will continue to safeguard all
Goods during the 30 day period and applicable fees will continue
to accrue. In the event CompUSA fails to have Goods removed,
Ingram may take steps to remove the Goods and recover all
associated costs as provided by law.
10.4.2 Termination of this Agreement will not affect the rights or
obligations of either party which accrued prior to the effective
time of termination. Except as otherwise stated in this Agreement,
no termination shall affect any of the nonbreaching party's other
rights and remedies available under this Agreement, at law or in
equity, nor be treated as an election of remedies by the
nonbreaching party.
10.4.3 The following sections shall survive any termination of
this Agreement: Section 10.4 and all of Sections 11 through 16.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 Both parties agree that neither party nor its designated personnel
shall disclose to third parties, or use for any purpose other than to
facilitate performance of this Agreement (including without limitation
soliciting or making sales to the customers of the other), any
confidential information, proprietary information and/or trade secrets of
the other, or any of its vendors, customers or agents ("Confidential
Information"), which has not been previously disclosed to the other by
outside third parties who were not bound to maintain its confidentiality,
or which is not in the public domain, without the other's prior written
permission. All Confidential Information will remain the property of the
respective owners. The parties grant to each other a nontransferable and
nonexclusive right to use Confidential Information, solely in the
performance of this Agreement. Confidential Information shall include, by
way of example and not of limitation, all things, ideas, models, devices,
plans, specifications, procedures, products, materials, processes,
computer firmware, computer programs, customer-specific images,
customer-specific loads, or customer-specific proprietary software,
business and marketing plans, price lists, customer lists, tooling and
equipment which are trade secrets or which include proprietary know-how
or information. Confidential Information shall include not only trade
secrets and proprietary know-how developed as a result of the performance
of the services by Ingram for CompUSA under this Agreement, but also
trade secrets, proprietary know-how and information obtained by Ingram
from third parties (including vendors and Customers) under a confidential
relationship and the identities of and related information pertaining to
CompUSA's Customers.
11.2 The foregoing obligation not to disclose Confidential Information
shall not apply with respect to a party's Confidential Information that
the other party (a) is advised by counsel is required to be disclosed by
any governmental agency or pursuant
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to any law, code or regulation, provided the disclosing party notifies
the other party in writing as soon as it becomes aware of the disclosure
requirement so as to afford the other party every opportunity to take
whatever steps it deems necessary to protect the confidentiality of the
information or (b) must disclose in order to fulfill obligations to
financial partner.
11.3 As necessary to fulfill obligations to financial partners, CompUSA
may disclose the terms this Agreement.
11.4 In the event that either party determines that it must file this
Agreement as an exhibit to any registration statement or report it files
with the U.S. Securities and Exchange Commission (the "SEC"), that party
will: (i) request confidential treatment for the filing; (ii) permit the
other party to review and approve the portions of this Agreement for
which confidential treatment is requested at least 72 hours prior to the
filing; and (iii) permit the other party to participate in any
discussions with the SEC with respect to such request.
11.5 Each party will keep this Agreement and its terms confidential,
and will make no press release or public disclosure, either written or
oral, regarding the transactions contemplated by this Agreement without
the prior written consent of the other party hereto, which consent will
not be unreasonably withheld; provided that the foregoing will not
prohibit any disclosure that is required by law or the rules of any stock
exchange or other entity where a party's securities are traded.
12. RIGHT TO AUDIT.
12.1 Ingram will maintain written and/or electronic records
substantiating the basis for Ingram Cost, Fees and any other charges
billed or credited to CompUSA and any other transactions under this
Agreement. CompUSA shall have the right to have an independent audit firm
perform an audit of the records and related financial books and records,
as well as records of Ingram performance, during the term of this
Agreement and for a period of two years following the termination of this
Agreement.
12.2 CompUSA will maintain written and/or electronic records
substantiating the basis for any charges billed or credited to Ingram and
any other transactions under this Agreement. Ingram shall have the right
to have an independent audit firm perform an audit of the records and
related financial books and records, during the term of this Agreement
and for a period of two years following the termination of this
Agreement.
12.3 All audits permitted under Sections 12.1 and 12.2 shall be
conducted during normal business hours upon not less than five days'
notice to the party being audited. The party being audited shall have the
right to have its representative present during the audit process and
shall cooperate fully with the audit process. Such audits will be limited
to the party's records directly related to its performance under this
Agreement.
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All audits will be conducted in a manner which does not unreasonably
disrupt the audited party's normal business operations.
12.4 If an audit discloses any overcharges or misstatement of costs or
sales, then payment will be adjusted to be in accordance with the terms
of this Agreement and the net amount determined to be overcharged or
undercharged will be promptly paid or credited. The cost (fees and
expenses) of the auditors will be borne by the party requesting the
audit, provided that if the audit results in a net adjustment in excess
of 3% of the amounts that were the subject of the audit, the party being
audited shall bear the costs of the auditors and all other costs of the
audit.
13. WARRANTIES.
13.1 SERVICE WARRANTY: All Services performed by Ingram will be done in
a professional, good and workmanlike manner and in accordance with
industry accepted practices.
13.2 PRODUCT WARRANTY: Product warranties, if any, are provided by the
vendor of the Products. Neither Ingram nor CompUSA makes any warranties
whatsoever regarding the Products or Goods. In the event that it is
determined that Ingram or CompUSA is responsible for a warranty relating
to Products or Goods, that party's sole obligation (and the other party's
sole remedy) in the event of breach of any warranty relating to Products
or Goods shall be the repair or replacement of defective Products or
Goods. UNLESS OTHERWISE STATED HEREIN, NEITHER INGRAM NOR COMPUSA MAKES
ANY OTHER WARRANTY REGARDING THE PRODUCTS OR GOODS, EITHER EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
13.3 Each party hereby warrants and represents that: (a) it has the
full and unrestricted right, power and authority to enter into this
Agreement and to perform its obligations in accordance with the terms of
this Agreement; and (b) its performance hereunder does not and will not
violate any (i) applicable law, rule or regulation or (ii) agreement,
obligation or understanding (whether oral or written) to which it is a
party.
13.4 SYSTEMS AVAILABILITY: Ingram hereby warrants and represents that
it shall take all reasonable steps required to maintain the availability
of its systems that are required to support this Agreement, including
without limitation EDI, Ingram Micro.com, IMPulse and Speedsource. Ingram
shall use its best efforts to remedy any system failure within eight
hours of any systems failure.
13.5 DISASTER RECOVERY: Ingram shall deliver a copy of its disaster
recovery policy to CompUSA within 10 days after execution of this
Agreement and warrants that it shall maintain a disaster recovery policy
in effect during the term of this Agreement.
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13.6 SURREPTITIOUS CODES: Ingram warrants that its actions under this
Agreement will not introduce into the Products manufactured by others and
any medium manufactured by others by which they are delivered to Ingram,
any virus or any other contaminant, or disabling devices including, but
not limited to, codes, commands or instructions that may have the effect
or be used to access, alter, delete, damage or disable the Products.
13.7 Y2K: Each of CompUSA and Ingram hereby represent and warrant to
the other that its business operations and services provided under or
related to performance of this Agreement will not be interrupted by any
problems in its internal systems resulting from the Year 2000 date change
or any other date recognition issues during the year 2000.
13.8 INDEMNIFICATION: Each of CompUSA and Ingram shall indemnify,
defend and hold the other harmless from and against any losses, costs,
expenses, claims, judgments and other damages arising from or related to
a breach of a representation or warranty made in this Section 13.
14. INTELLECTUAL PROPERTY.
14.1 OWNERSHIP OF MARKS: Each party recognizes the other party's
ownership and title to certain trademarks, service marks and trade names,
whether or not registered federally or in any state(s), together with the
goodwill attached thereto, and agrees that any goodwill that accrues
because of the use of such marks and names will vest in and become the
property of the owner of each such mark(s) and name(s). Neither party
will, at any time during the term of this Agreement or at any time
thereafter, do or suffer to be done any act or thing that could in any
way impair the rights of the other party in and to such mark(s) and
name(s), and particularly will not represent that it has any title or
right of ownership in the other party's mark(s) and name(s).
14.2 PATENTS: No licenses, express or implied, under any patents are
granted by either party to the other party hereunder.
14.3 NOTIFICATION OF BREACH: Each party shall notify the other party
promptly of any known or suspected breach of the other party's
proprietary rights that comes to its attention.
14.4 LIABILITY DISCLAIMER: NEITHER INGRAM NOR COMPUSA SHALL BE LIABLE
FOR AND SHALL HAVE NO DUTY TO DEFEND, INDEMNIFY, OR HOLD HARMLESS THE
OTHER PARTY OR ITS CUSTOMERS FROM AND AGAINST ANY OR ALL CLAIMS MADE
AGAINST OR DAMAGES AND COSTS INCURRED BY THE OTHER PARTY AND ITS
CUSTOMERS ARISING FROM THE INFRINGEMENT OF ANY PATENTS OR TRADEMARKS OR
THE VIOLATION OF COPYRIGHTS BY PRODUCTS OR GOODS.
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NOTWITHSTANDING ANY OTHER TERMS OR CONDITIONS TO THE CONTRARY, IN THE
EVENT THAT ITS DETERMINED THAT INGRAM OR COMPUSA IS LIABLE FOR ANY
INFRINGEMENT OR VIOLATION OF ANY PATENT, TRADEMARK OR COPYRIGHT BY
PRODUCTS OR GOODS, SUCH PARTY'S LIABILITY UNDER THIS SECTION SHALL NOT
EXCEED THE PURCHASE PRICES OF THE INFRINGING PRODUCT OR GOOD.
15. LIMIT OF LIABILITY.
15.1 NEITHER INGRAM NOR COMPUSA SHALL BE LIABLE TO THE OTHER, THE
OTHER'S CUSTOMERS, OR ANY OTHER PARTY FOR ANY LOSS, DAMAGE, OR INJURY
WHICH RESULTS FROM THE USE OR APPLICATION BY THE OTHER PARTY, A CUSTOMER,
OR ANY OTHER PARTY OF PRODUCTS DELIVERED TO THE OTHER PARTY OR A CUSTOMER
UNLESS THE LOSS OR DAMAGE RESULTS DIRECTLY FROM THE INTENTIONALLY
TORTIOUS OR FRADULENT ACTS OR OMISSIONS OF INGRAM OR COMPUSA, AS THE CASE
MAY BE. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY FOR DAMAGE,
DEATH OR INJURY FOR ANY PRODUCTS USED FOR AVIATION, MEDICAL, LIFESAVING,
LIFE SUSTAINING OR NUCLEAR APPLICATIONS.
15.2 IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY HERETO
FOR ANY INCIDENTAL, SPECIAL, INDIRECT, PUNITIVE AND/OR CONSEQUENTIAL
DAMAGES, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, ARISING FROM OR RELATED TO THE PERFORMANCE OF OR ANY FAILURE TO
PERFORM ANY OF SUCH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. THE
FOREGOING LIMITATION OF LIABILITY SHALL NOT APPLY TO LIMIT DAMAGE
RECOVERY WHICH ARISES FROM OR IS RELATED TO A PARTY'S GROSS NEGLIGENCE IN
THE PERFORMANCE OF OR THE FAILURE TO PERFORM SUCH PARTY'S OBLIGATIONS
HEREUNDER. THE FOREGOING LIMITATION ON LIABILITY ALSO SHALL NOT SERVE TO
LIMIT ANY PARTY'S RECOVERY FOR DIRECT DAMAGES FOR BREACH OF THIS
AGREEMENT OR ANY REMEDY SPECIFICALLY SET FORTH HEREIN.
15.3 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL
DAMAGES OR DAMAGES OF ANY KIND OR NATURE ALLEGED TO HAVE RESULTED FROM
ANY BREACH OF A PRODUCT'S WARRANTY.
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16. GENERAL.
16.1 NOTICES: Any notice or communication hereunder or in any agreement
entered into in connection with the transactions contemplated hereby must
be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in
person. Such notice will be deemed received on the date on which it is
hand-delivered or on the third business day following the date on which
it is so mailed. For purposes of notice, the addresses of the parties
will be:
IF TO COMPUSA:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: President
WITH A COPY TO:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: Senior Vice President - General Counsel
IF TO INGRAM:
Ingram Micro Inc.
1600 East St. Andrew Place
Santa Ana, CA 92705
ATTN: President, North America
Facsimile Number: (714) 566-0784
WITH A COPY TO:
Ingram Micro Inc.
1600 East St. Andrew Place
Santa Ana, CA 92705
ATTN: General Counsel
Facsimile Number: (714) 566-9370
Any party may change its address for notice by written notice given to
the other parties in accordance with this Section.
16.2 GOVERNING LAW AND ACTIONS: This Agreement will be governed by and
construed in accordance with the substantive laws (but not the rules
governing conflicts of laws) of the State of Texas.
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16.3 TAXES: CompUSA will bear all applicable federal, state, municipal,
and other government taxes on the Product and Services, excluding any
state or federal income tax liability of Ingram. Exemption or resale
certificates, valid in the place of delivery, must be presented to Ingram
prior to shipment if they are to be honored.
16.4 IMPROPER PAYMENTS: With respect to any transaction arising from
this Agreement, the parties agree not to make any illegal offer or make,
or commit to the making of, a transfer of anything of value (in the form
of compensation, gift, contribution or otherwise) to any employee,
representative, person or organization in any way connected with the
other party or any customer of the other party. Nothing in this Section
18.08 is intended to prevent ordinary and reasonable business
entertainment or gifts not of substantial value, customary in local
business relationships and not violative of law as applied in the
relevant jurisdiction.
16.5 COSTS, EXPENSES AND LEGAL FEES: In the event of any dispute or
litigation concerning any controversy or claim between the parties hereto
arising out of or relating to this Agreement or any other agreements
contemplated hereby, or the breach hereof or thereof, either party may
request that, in addition to determining the respective rights and
obligations of the parties, the finder of fact determine which party is
the "prevailing party" and the prevailing party will be entitled to
recover from the other party its reasonable expenses, attorneys' fees and
costs incurred in connection with the investigation, prosecution and
defense thereof or the enforcement or collection of any judgment or award
rendered therein.
16.6 COUNTERPARTS: This Agreement may be executed in any number of
original counterparts, each of which when executed and delivered will be
deemed to be an original and which when taken together will constitute
but one and the same instrument.
16.7 RELATIONSHIP OF THE PARTIES/INDEPENDENT CONTRACTOR: This Agreement
is not intended to create, and shall not be construed to create; a
relationship of principal and agent, master and servant, employer and
employee, joint venture, partnership, nor any other relationship other
than that of independent contracting parties.
16.8 INCORPORATION OF ALL SCHEDULES AND EXHIBITS: Each and every
Schedule and Exhibit referred to hereinabove initialed by the parties and
attached hereto is hereby incorporated by reference as if set forth
herein in full.
16.9 SERVICE OF PROCESS: Service of any and all process that may be
served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth
in Section 16.1 and service thus made will be taken and held to be valid
personal service upon such party by any party hereto on whose behalf such
service is made.
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16.10 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between the parties regarding the Products, Goods and Services, and, will
cancel, terminate, and supersede any and all previous agreements,
proposals, representations, or other statements, whether oral or written,
including without limitation the Letter of Intent entered into by Ingram
and CompUSA dated June 23, 1999. The terms of this Agreement will
supersede the terms of any invoice, purchase order, or other form issued
by either party. Any modifications of this Agreement must be in writing
and signed by an authorized representative of each party.
16.11 AMENDMENT; WAIVER: This Agreement may not be added to, modified,
superseded or otherwise altered except by a written instrument signed by
all the parties hereto. The waiver by a party hereto of any default
hereunder will not be deemed to be a waiver of subsequent defaults of the
same or different kind. The failure of any party to act will not in and
of itself be construed as a waiver.
16.12 FORCE MAJEURE: If any party fails to perform its obligations
because of strikes, lockouts, labor disputes, embargoes, acts of God,
inability to obtain labor or materials, governmental restrictions,
governmental regulations, governmental controls, judicial orders, enemy
or hostile governmental action, civil commotion, fire or other casualty,
or other causes beyond the reasonable control of the party obligated to
perform, then that party's performance shall be excused for a period
equal to the period of such cause for failure to perform as long as the
party who fails to perform gives the other party notice within ten (10)
days after the event causing the failure.
16.13 BINDING EFFECT/ASSIGNMENT: This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, and their
respective representatives, successors and permitted assigns. This
Agreement may be assigned by Ingram to its subsidiaries or to any
successor (by merger or otherwise) to all or substantially all of its
assets or to CompUSA; provided, however, that no such assignment shall
relieve Ingram of its obligations hereunder. This Agreement may be
assigned by CompUSA to any of its subsidiaries or to any successor (by
merger or otherwise) to all or substantially all of its assets; provided,
however, that no such assignment shall relieve CompUSA of its obligations
hereunder. This Agreement will not be deemed to confer any rights or
remedies upon any person not a party hereto.
16.14 SEVERABILITY: If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision will be fully severable
and this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part hereof; and the
remaining provisions hereof will remain in full force and effect and will
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 will be added automatically as part of
this Agreement a provision as similar in its terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid
and enforceable.
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16.15 CAPTIONS: The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
16.16 NUMBER: When the context requires, the number of all words
includes the singular and plural.
16.17 REFERENCE TO AGREEMENT: Use of the words "herein," "hereof,"
"hereto" and the like in this Agreement refer to this Agreement as a
whole and not to any particular Article, Section or provision of this
Agreement, unless otherwise noted.
16.18 CURRENCY: Unless otherwise stated herein, all prices and fees are
calculated in and must be paid in U.S. dollars.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to sign this Agreement to be effective as of the date first set forth
above.
CompUSA: CompUSA Inc. Ingram: Ingram Micro Inc.
By: /s/ ANTHONY A. WEISS By: /s/ PHILIP D. ELLETT
--------------------- ----------------------------
Name: Anthony A. Weiss Name: Philip D. Ellett
----------------- ---------------------------
(PRINT NAME) (PRINT NAME)
Title: Executive Vice President - Title: Executive Vice President
Business Solutions --------------------------
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LIST OF SCHEDULES AND EXHIBIT
SCHEDULES
SCHEDULE A ORDER FULFILLMENT
SCHEDULE B CONFIGURATION SERVICES
SCHEDULE C SHIP CONSOLIDATED SERVICES
SCHEDULE D [RESERVED]
SCHEDULE E GOODS WAREHOUSING
SCHEDULE F PRODUCT RETURNS SERVICES
SCHECULE G EXPORT SERVICES
EXHIBITS
EXHIBIT 3.2 THIRD PARTY PRODUCT VENDOR
EXHIBIT 3.3 STANDARD PRODUCTS
EXHIBIT 7.2.1 SUMMARY OF CUSTOMER SLA'S
EXHIBIT 8.3 ASSUMPTIONS
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SCHEDULE A
ORDER FULFILLMENT SERVICES
1. SCOPE: This Schedule describes the pick, pack and ship services (Order
Fulfillment) for Products and Goods that Ingram will provide to CompUSA.
2. RESERVE INVENTORY - Upon CompUSA's written request, Ingram will reserve
Product inventory for CompUSA's exclusive use. The reserve period shall
begin on the date of the notice on the date the inventory is received by
Ingram, whichever is later, and shall end on the date of shipment or the
date CompUSA provides written notice to Ingram to remove inventory from the
reserve, whichever is earlier.
Reserve Inventory Fees:
*
3. GENERAL DESCRIPTIONS OF ORDER FULFILLMENT SERVICES:
- Utilize Ingram's warehouse network
- Serial number capture
- Order ship complete - The process of shipping Products or 3P Product
from multiple warehouses on the same day to arrive within a small span
of time of each other.
- Personalized Delivery - The packing slip and shipping label for every
order has CompUSA's name, address and logo. CompUSA can elect to have
the packing slip address be the "bill to", "ship to" or a customized
address so that Ingram is not visible to the Customer. In addition
CompUSA may add a static or dynamic message and the CompUSA or
Customer P.O. number on the packing slip. The shipping label may also
be customized as indicated above except the shipping address must be
an Ingram warehouse so refused shipments can be properly returned.
Additional fields such as: mark for name, mark for phone numbers,
Delivery Order number and contract number may be added upon request.
- - Branch transfers as required
4. FEES:
Included in Management Fee, except for Reserve Inventory Fees.
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SCHEDULE B
CONFIGURATION SERVICES
1. SCOPE OF SERVICES: Ingram will provide technical review, integration, ISO
management, quality management, image management, customer infrastructure
management, data center management and test services ("Configuration services")
for Ingram Product, 3P Product and Goods upon receipt of a purchase order from
CompUSA.
2. CONFIGURATION SERVICES:
A. Ingram will integrate the Products, 3P Products and Goods according to
CompUSA's written instructions. Ingram will functionally test Configurations to
ensure that the integration of components has been performed correctly and the
solution meets the functionality and compatibility specifications expected from
such integration.
B. Ingram will use its best efforts to meet the SLAs for Configurations
in Schedule H. Ingram will not be responsible for schedule slippage or related
expenses, including but not limited to, overtime labor and freight associated
with expediting the production or delivery of Configurations containing Goods
supplied by CompUSA or supplied by a third party arranged by CompUSA, if
scheduled delivery of Configurations are delayed due to unavailability, late
delivery or inoperative Goods provided by CompUSA or a third party arranged by
CompUSA. Ingram will provide CompUSA with as much advance notice as is
practicable of potential schedule slippage or additional expenses; provided
however, that no reimbursement shall be made for any expenses that were not
approved in writing by CompUSA before being incurred by Ingram.
C. Prior to returning defective Configurations to Ingram, CompUSA will
contact a designated Ingram Customer Service Representative who will provide the
CompUSA RMA number which must accompany all Goods/Product returned to Ingram.
RMA numbers will be included with the shipment documentation and all returns
should be shipped to (ADDRESS TO BE PROVIDED BY INGRAM ACCOUNT MANAGER). Ingram
reserves the right to refuse any shipment of Configurations if CompUSA has not
provided the designated RMA number with the shipment documentation.
All defective Configurations returned to Ingram by CompUSA will be reviewed by
Ingram prior to any credit for such returns being issued. Ingram will not issue
credit for Configurations that have been modified including, but not limited to,
the exchange of Goods/Product within the Configuration with other Goods/Product
not shipped in the original Configuration. Ingram will provide notification to
CompUSA of modification of Configurations within one (1) business day of receipt
of such Configurations.
Configurations returned to Ingram at the address indicated above for repair or
correction will be repaired, corrected and shipped at Ingram's expense within
two (2) business days of receipt of
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such Configurations at Ingram. Ingram will only pay the freight for
Configurations returned if the defect was due to Ingram error.
Ingram will not accept Stock Balance returns for Configurations.
Ingram will notify CompUSA within two business days of the return to Ingram of
Configurations that have been refused in shipment or result from the
cancellation of an order. CompUSA will within one business day of such
notification attempt to restore the order and reship the Configuration.
Configurations that are not reshipped will be depopulated. Credit will be issued
to CompUSA for the amount of the original invoices less freight and a
depopulation fee and the value of any Goods/Product that cannot be used as new
for a future CompUSA purchase order.
D. Ingram warrants that it will perform the requested Configuration
Services in a good, workmanlike manner in accordance with the Configuration
Instructions mutually agreed to between Ingram and CompUSA at the time the
services are performed. All copies of software reproduced by Ingram for
inclusion in any Configuration shall be true and complete copies of such
software and shall include all copyright and trademark notices. The warranty
period for Configuration Services shall be sixty (60) days from the date of
invoice of the Configurations ("Configuration Warranty Period"). If, within
fifteen (15) business days of receipt of a Configuration, CompUSA or its
Customers, in its sole discretion, determines that a Configuration does not
perform in accordance with the Configuration order, then Ingram, at its own
expense, shall make all adjustments, repairs and replacements necessary to cause
the Configuration to perform in accordance with the Configuration order. In the
event Ingram is unable to perform such adjustments, repairs and replacements
necessary to cause the Configuration to perform in accordance with the
Configuration order, CompUSA shall be entitled to perform such adjustments,
repairs and replacements necessary to cause the Configuration to perform in
accordance with the Configuration order, or to return the Configuration for a
full refund. In either case, CompUSA is to receive a full refund of any charges
paid by CompUSA to Ingram for the related Configuration Services.
E. COMPUSA IS RESPONSIBLE FOR ANY ADDITIONAL WARRANTIES OR DISCLAIMERS
WHICH IT MAY WISH TO MAKE TO ITS CUSTOMERS WITH RESPECT TO THE GOODS OR
CONFIGURATIONS DELIVERED HEREUNDER.
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SCHEDULE C
SHIP CONSOLIDATED SERVICES
1. In cases where all Products on a sales order are not located at one
distribution center, CompUSA may direct Ingram to consolidate all of the
Products into a single shipment. Ingram will branch transfer the Products
to the Ingram facility designated by the Ingram account manager and hold
them at that location until all the Products can be consolidated into a
single shipment.
2. If all Products on a sales order are available at one of Ingram's
distribution centers in the United States, Ingram will pick, pack and ship
the order for that distribution center without charging a Ship Consolidated
fee.
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SCHEDULE D
[RESERVED]
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SCHEDULE E
GOODS WAREHOUSING
1. SCOPE. Ingram will warehouse Goods in its facilities. Upon receipt of a
purchase order, Ingram will pick, pack and ship the requested Goods as per
the instructions on the purchase order. Ownership of the Goods shall remain
at all times with CompUSA's Customer.
2. GOODS WAREHOUSING SERVICES
A. Ingram requires written notice (e.g., a written purchase order) from
CompUSA advising Ingram as to the type, quantity, place of delivery, and
estimated time of arrival of Goods that are to be warehoused. In addition,
notification via electronic mail or electronic data interchange is
permissible.
B. Ingram will provide the amount of warehouse space as the parties may
mutually agree for storage of Goods.
C. Ingram will receive Goods and provide notification and SKU reporting
as mutually agreed upon by the parties.
D. CompUSA will have the right, upon 2 hours' notice, to audit Goods
inventory held by Ingram during normal business hours.
E. Ingram will be responsible for all shrinkage to the Goods while in its
possession based on a physical inventory taken on a six-month basis. Ingram
will only be responsible to the extent of the value of the landed
replacement cost of the Goods. Ingram's inventory record as shown in
IMPulse will be the controlling inventory report. Should any Goods be found
in excess of the inventory on record, both parties agree to consult one
another to reconcile any discrepancies.
3. FEES: $5.00 per unit incurred at the time of shipment.
4. LIABILITY AND LIMITATION OF DAMAGES
A. In the event of loss, injury or damage to the Goods while in Ingram's
possession, CompUSA will determine which Goods require replacement, and
Ingram will replace the Goods lost or damaged. If such Goods cannot be
replaced, Ingram will pay the replacement cost for such Goods. CompUSA will
allow Ingram to examine invoices, during normal business hours, for such
Goods upon request by Ingram. Notwithstanding any other provision to the
contrary in this Agreement, Ingram's maximum liability for loss, injury or
damage to Goods will not exceed the actual replacement cost of the Goods
and will not exceed $1,000,000 during any 12-month period.
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SCHEDULE F
PRODUCT RETURN SERVICES
PRODUCT RETURNS:
1. GENERAL: All returns must be accompanied by a valid CompUSA Return Material
Authorization ("RMA") number. Each return must be packaged separately for
each RMA and contain only Product specified on that RMA, All RMA's are
valid for thirty (30) days from that date of issuance.
2. Subject to paragraphs 3 through 6 below, and Ingram's ability to return
Product to the manufacturer or publisher of the Products, Ingram shall
issue to CompUSA an RMA for Products purchased from Ingram for replacement
or credit against future purchases by CompUSA. Credit for returns is
calculated at the last purchase price or the current price, whichever is
lower.
3. In the event CompUSA requests an RMA for credit on Products, Ingram will
make commercially reasonable efforts to return the identified Products to
the Vendor for credit.
4. After the Effective Date, the parties will negotiate in good faith to
mutually further define disposition strategies and parameters associated
with liquidation, disposition and auction services with the goal of
completing definitive procedures within thirty (30) days of the Effective
Date. In any event, all liquidation, disposition and auction activities of
Ingram pursuant to this Agreement should be conducted in a commercially
reasonable manner and Ingram shall use commercially reasonable efforts to
maximize the price obtainable for CompUSA in connection with any such
liquidation, disposition or auction activities. CompUSA shall have the
right to audit Ingram's liquidation, disposition and/or auction procedures
and processes and any reasonable changes to such procedures and processes
requested by CompUSA shall be implemented by Ingram to the extent
commercially practicable.
5. PRODUCT RETURN LIMITATIONS: If the cumulative total of Product returns,
defective and otherwise, exceed 5% of the total Ingram Cost of all Product
purchases during the preceding ninety (90) day period, then Ingram shall
accept Product in excess of the foregoing 5% threshold, subject to the
following:
(a) CompUSA shall pay Ingram $ * for each Product unit returned, and
(b) CompUSA shall be entitled to receive only the actual amount
realized by Ingram (whether from the Vendor or otherwise) at the time
of disposition of the returned Product.
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6. RIGHT TO AUDIT/INSPECT: During normal business hours, CompUSA shall have
the right to inspect the RMA process at Ingram on two (2) hours' notice and
the right to audit the RMA process at Ingram on seventy-two (72) hours'
notice.
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SCHEDULE G
EXPORT SERVICES
Ingram agrees to provide CompUSA with the export handling services ("Export
Services") described in Section 1 of this Schedule for any shipment of Products
or Goods outside of the fifty United States and the District of Columbia. Ingram
and CompUSA agree that the Export Services shall be subject to the terms and
conditions stated in this Schedule.
1. INGRAM'S RESPONSIBILITIES
Ingram shall provide the following services in accordance with Ingram's standard
export practice:
1.1 Prepare all required export and shipping documentation, including, but not
limited to, the Shippers' Export Declaration ("SED"), commercial invoices,
certificates of origin (excluding NAFTA), Destination Control Statements,
and packing lists.
1.2 Arrange for transportation of the Products or Goods to the destination
designated by CompUSA (or its customer), or deliver the Products or Goods
to the carrier designated by CompUSA (or its customer).
1.3 In conjunction with preparing the export documentation, including the SED,
Ingram shall use the Export Classification Control Number ("ECCN") and the
licensing authorization (E.G., License, License Exception, or NLR) for each
Product or Good as provided by CompUSA. As promptly as practicable after
the Effective Date, CompUSA shall provide to Ingram the ECCN and licensing
authorization currently used by CompUSA. In the event CompUSA does not
provide Ingram with the ECCN or licensing authority for a particular
Product or Good, Ingram shall consult with CompUSA to determine the
applicable ECCN and licensing authority prior to exporting the Product from
the United States.
1.4 Perform independent screening of each consignee against the Table of Denial
Orders, list of Specially Designated Nationals and Blocked Persons, EAR
Entities List, and any other applicable list of prohibited persons or
destinations.
1.5 Designate the same Harmonized Tariff Schedule ("HTS") number for each
Product or Good which Ingram assigns to the Product/Good when it exports
the Product/Good from the United States itself.
1.6 Maintain all export, shipping and related documents for a period of five
(5) years in accordance with U.S. law, and make such documents available to
CompUSA upon its request.
1.7 Forward the bill of lading and other shipping documents to CompUSA or such
persons or entities designated by CompUSA.
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1.8 Facilitate and cooperate with any inspections, including for insurance or
pre-shipment certification.
2. COMPUSA'S RESPONSIBILITIES
With respect to each Product or Goods order, CompUSA shall:
2.1 Enter orders with complete information and details of the shipment required
(including whether Ingram should arrange transportation to the overseas
customer or deliver the Products and Goods to a domestic carrier).
2.2 Provide Ingram with the correct ECCN classification and licensing authority
of each Product or Good to be exported by Ingram, or provide Ingram with
adequate information to consult with CompUSA in order to make this
determination.
2.3 Take appropriate steps to determine that the export of Products and Goods
are permissible under U.S. export laws and regulations (including the
Export Administration Regulations and the regulations of the Office of
Foreign Assets Control).
2.4 CompUSA shall be identified on all documents as the "Exporter of Record".
2.5 Establish CompUSA's Customer pricing and delivery terms and communicate
these to Ingram in a timely manner.
2.6 Bear all costs and risk of loss for Products or Goods sold by Ingram to
CompUSA, including, but not limited to, freight, freight forwarder fees,
in-transit insurance, and doc-ument preparation fees.
2.7 Review all Customer orders in accordance with Title 15 of the Code of
Federal Regulations for Table of Denials, Denied Parties Listings, and
Specially Blocked Nationals and deny acceptance of orders placed by parties
identified in those lists.
2.8 Confirm any required preshipment inspections required by the destination
country's government.
3. LIMITED POWER OF ATTORNEY
COMPUSA hereby appoints Ingram as its limited agent for the purpose of
arranging for the shipment and delivery of Products or Goods to CompUSA's
Customers. COMPUSA grants Ingram a Power of Attorney to create and execute
all the documentation needed to export the Products or Goods purchased by
COMPUSA for resale and export to its Customers, in the form shown in
Attachment A.
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4. SALE AND SHIPMENT
4.1 All Product orders shall be sold by Ingram to CompUSA ExWorks, Ingram's
dock, as defined by Incoterms 1990. At such time, CompUSA will take title
to the Products or Goods and bear all risk of loss.
4.2 At the request of CompUSA, Ingram shall arrange for inland and overseas
transportation and/or insurance pursuant to the delivery terms between
CompUSA and its customers. Ingram shall invoice CompUSA (or its customer)
for the actual cost of such transportation and insurance.
5. FEES & PAYMENT TERMS
5.1 Ingram will charge a handling fee of $ * for each order (E.G., each
customer transaction).
5.2 Any costs incurred for the cancellation of orders or delays in the shipment
of orders caused by or at the direction of CompUSA will be invoiced to
CompUSA at the actual cost. All payments will be due and payable net ten
(10) days from invoice date.
6. INDEMNIFICATION
6.1 INGRAM SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS COMPUSA FROM AND AGAINST
ANY CLAIMS, DEMANDS, LIABILITIES OR EXPENSES (INCLUDING ATTORNEY'S FEES AND
COSTS) RESULTING FROM THE NEGLIGENT ACT, ERROR OR OMISSION OF INGRAM IN THE
PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.
6.2 COMPUSA SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS INGRAM FROM AND AGAINST
ANY CLAIMS, DEMANDS, LIABILITIES OR EXPENSES (INCLUDING ATTORNEY'S FEES AND
COSTS) RESULTING FROM THE NEGLIGENT ACT, ERROR OR OMISSION OF COMPUSA IN
THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.
7. DISCLAIMER OF WARRANTIES
INGRAM MAKES NO WARRANTY OR REPRESENTATION, EXPRESSED OR IMPLIED, THAT ITS
CLASSIFICATION OF ANY PRODUCT CONFORMS TO THE APPLICABLE LAWS AND
REGULATIONS. INGRAM MAKES NO WARRANTY OR REPRESENTATION THAT THE SCREENING
OF CONSIGNEES UNDER SECTION 1.4 WILL BE WITHOUT ERROR.
34
<PAGE>
INGRAM DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR
A PARTICULAR PURPOSE.
8. AUDITS AND ACCOUNT RECONCILIATION.
For export compliance, Ingram and CompUSA each reserve the right to audit
the other company's business process as part of Ingram's and CompUSA's
Due Diligence effort as required by the EAR (Export Administration
Regulations). Ingram and CompUSA shall mutually resolve any and all
existing discrepancies between the respective books and records between
the two parties.
35
<PAGE>
SCHEDULE G
ATTACHMENT A
POWER OF ATTORNEY
EXPORT FORWARDING AGENT
Know all men by these presents, That _____________________________
(Name of Exporter), the Exporter organized and doing business under the laws of
the State or Country of ______________________________ and having an office and
place of business at _____________________________ (Address of Exporter) hereby
authorizes Ingram Micro Inc., the Forwarding Agent, at 1600 East St. Andrew
Place, Santa Ana, California 92705, to act for and on its behalf as a true and
lawful agent and attorney of the Exporter for and in the name, place, and stead
of the Exporter, from this date, in the United States either in writing,
electronically, or by other authorized means to:
Act as Forwarding Agent for Export Control, Census Reporting, and
Customs purposes. Make, endorse, or sign any Shipper's Export Declaration or
other documents or to perform any act which may be required by law or regulation
in connection with the exportation or transportation of any merchandise shipped
or consigned by or to the Exporter and to receive or ship any merchandise on
behalf of the Exporter.
The Exporter hereby certifies that all statements and information
contained in the documentation provided to the Forwarding Agent relating to
exportation are true and correct. Furthermore, the Exporter understands that
civil and criminal penalties may be imposed for making false or fraudulent
statements or for the violation of any United States laws or regulations on
exportation.
36
<PAGE>
This power of attorney is to remain in full force and effect until
revocation in writing is duly given by the Exporter and received by the
Forwarding Agent.
In witness whereof, _________________________ (Full Name of Exporter/Exporting
Company) caused these presents to be sealed and signed:
Witness:
---------------------------
Signature:
-------------------------
Capacity:
--------------------------
Date:
------------------------------
37
<PAGE>
EXHIBIT 3.2
THIRD PARTY PRODUCT VENDOR
Previously provided.
38
<PAGE>
EXHIBIT 3.3
STANDARD PRODUCTS
Previously provided.
39
<PAGE>
EXHIBIT 7.2.1
SUMMARY OF CUSTOMER SLA'S
CompUSA has existing SLA's with certain customers as set forth below:
*
40
<PAGE>
EXHIBIT 8.3
ASSUMPTIONS
(a) The three-month average LIBOR at the end of each of Ingram's fiscal
quarters shall not exceed the three-month average LIBOR on June 9, 1999.
(b) During the term of the Agreement, CompUSA shall be in compliance with
Section 3.1 of the Agreement.
(c) Beginning eight weeks after the Effective Date, at least * of the product
purchases will be capable of being subsidized through vendor-sponsored flooring
programs.
41
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF COMPUSA INC.
1. CompUSA Stores L.P., a Texas limited partnership.
2. CompTeam Inc., a Delaware corporation.
3. CompUSA Management Company, a Delaware business trust.
4. CompUSA Holdings I Inc., a Delaware corporation.
5. CompUSA Holdings II Inc., a Delaware corporation.
6. CompUSA Holdings Company, a Delaware business trust.
7. CompUSA Net.com Inc., a Delaware corporation.
8. CompUSA PC Inc., a Delaware corporation.
9. CompUSA GP Holdings Company, a Delaware business trust.
10. CompUSA PC Operating Company, a Delaware business trust.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 No. 33-86314 pertaining to the CompSavings Plan for Employees of
CompUSA Inc., Form S-8 No. 33-99280 pertaining to the CompUSA Inc. Deferred
Compensation Plan, Forms S-8 No. 33-45339, No. 33-72718, No. 33-99282, and No.
333-18033 pertaining to the Long-Term Incentive Plan, and Form S-8 No. 333-06235
pertaining to the PCs Compleat, Inc. 1991 Stock Option Plan, of our report dated
August 20, 1999, with respect to the consolidated financial statements and
schedule of CompUSA Inc. included in this Form 10-K for the fiscal year ended
June 26, 1999.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
September 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED
JUNE 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JUN-26-1999
<CASH> 173,350
<SECURITIES> 0
<RECEIVABLES> 219,277
<ALLOWANCES> (4,317)
<INVENTORY> 667,514
<CURRENT-ASSETS> 1,103,619
<PP&E> 425,965
<DEPRECIATION> (198,852)
<TOTAL-ASSETS> 1,465,848
<CURRENT-LIABILITIES> 953,559
<BONDS> 0
0
0
<COMMON> 941
<OTHER-SE> 375,179
<TOTAL-LIABILITY-AND-EQUITY> 1,465,848
<SALES> 6,321,391
<TOTAL-REVENUES> 6,321,391
<CGS> 5,518,330
<TOTAL-COSTS> 5,518,330
<OTHER-EXPENSES> 857,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,906
<INCOME-PRETAX> (73,196)
<INCOME-TAX> (27,449)
<INCOME-CONTINUING> (45,747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,747)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
