8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report
Pursuant To Section 13 Or 15(d) Of
The Securities Exchange Act Of 1934

Date of Report (Date of earliest event reported):
September 30, 2003

GOOD GUYS, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Delaware	0-14134	94-2366177
(State or other	(Commission File	(IRS Employer
jurisdiction of	Number)	Identification No.)
incorporation)

1600 Harbor Bay Parkway, Suite 200, Alameda, California 94502
(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): 510/747-6000

TABLE OF CONTENTS

	Item 5. Other Events
	Item 7. Financial Statements and Exhibits
	Item 12. Results of Operations and Financial Condition
SIGNATURE
Exhibit Index
Exhibit 2.1
Exhibit 10.34
Exhibit 10.35
Exhibit 10.36
Exhibit 10.37
Exhibit 10.38
Exhibit 99.1
Exhibit 99.2

     Item 5. Other Events.

     On September 29, 2003, Good Guys, Inc. (the “Company”) announced that it had entered into an Agreement and Plan of Merger, dated as of September 29, 2003 (the “Merger Agreement”), by and among CompUSA Inc. (“CompUSA”), Gladiator Acquisition Corp., a wholly owned subsidiary of CompUSA (“GAC”), and the Company. Under the terms of the Merger Agreement, the Company will become a wholly owned subsidiary of CompUSA through the merger of GAC with and into the Company (the “Merger”) and each share of common stock of the Company will be converted into the right to receive $2.05 in cash per share. The Merger is subject to various conditions set forth in the Merger Agreement, including obtaining regulatory approvals and the approval of the holders of at least the majority of the outstanding shares of common stock of the Company. A copy of the Merger Agreement and a copy of the press release are attached hereto as Exhibits 2.1 and 99.1, respectively.

     In connection with the transaction, CompUSA has also invested $5,000,000 in the Company through a two-year unsecured subordinated convertible promissory note issued by the Company’s subsidiary, Good Guys California, Inc., convertible into the Company’s common stock at a conversion price of $2.05 per share (the “Note”). The Company has entered into a Registration Rights Agreement with CompUSA with respect to the common stock of the Company issuable upon conversion of the Note. Copies of the Note and the Registration Rights Agreement are attached hereto as Exhibits 10.34 and 10.35, respectively.

     In connection with the Merger Agreement and the Note, the Company’s wholly owned subsidiary, Good Guys California, Inc., has amended its credit facility with Bank of America and General Electric Capital Corporation, and Bank of America and General Electric Capital Corporation have entered into an Intercreditor and Subordination Agreement with CompUSA and the Company. Copies of the Fifth Amendment to Loan and Security Agreement and the Intercreditor and Subordination Agreement are attached hereto as Exhibits 10.37 and 10.38, respectively.

     Item 7. Financial Statements and Exhibits.

     (c)  Exhibits.

2.1	Agreement and Plan of Merger, dated as of September 29, 2003, among CompUSA Inc., Gladiator Acquisition Corporation and Good Guys, Inc.
10.34	Unsecured Subordinated Convertible Promissory Note, issued September 29, 2003 by the Company and Good Guys California, Inc. to CompUSA Inc.
10.35	Registration Rights Agreement, dated as of September 29, 2003, by and among CompUSA and Good Guys, Inc.

10.36	Fourth Amendment to Loan and Security Agreement, dated as of July 8, 2003, by and among Good Guys California, Inc., Bank of America and General Electric Capital Corporation.
10.37	Fifth Amendment to Loan and Security Agreement, dated as of September 29, 2003, by and among Good Guys California, Inc., Bank of America and General Electric Capital Corporation.
10.38	Intercreditor and Subordination Agreement, dated as of September 29, 2003, by and among CompUSA, Bank of America, General Electric Capital Corporation, Good Guys, Inc. and Good Guys California, Inc.
99.1	Press Release Dated, September 29, 2003.
99.2	Press Release Dated, September 29, 2003.

     Item 12. Results of Operations and Financial Condition.

     On September 29, 2003, Good Guys, Inc. issued a press release announcing its financial results for the quarter ended August 31, 2003. A copy of the press release is furnished as Exhibit 99.2 to this report and is incorporated herein by reference.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

GOOD GUYS, INC. (Registrant)
By:  /s/ David A. Carter
	Name:	David A. Carter
	Title:	Chief Financial Officer

Dated: September 30, 2003

2

Exhibit Index

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of September 29, 2003, among CompUSA Inc., Gladiator Acquisition Corporation and Good Guys, Inc.
10.34	Unsecured Subordinated Convertible Promissory Note, issued September 29, 2003 by the Company and Good Guys California, Inc. to CompUSA Inc.
10.35	Registration Rights Agreement, dated as of September 29, 2003, by and among CompUSA and Good Guys, Inc.
10.36	Fourth Amendment to Loan and Security Agreement, dated as of July 8, 2003, by and among Good Guys California, Inc., Bank of America and General Electric Capital Corporation.
10.37	Fifth Amendment to Loan and Security Agreement, dated as of September 29, 2003, by and among Good Guys California, Inc., Bank of America and General Electric Capital Corporation.
10.38	Intercreditor and Subordination Agreement, dated as of September 29, 2003, by and among CompUSA, Bank of America, General Electric Capital Corporation, Good Guys, Inc. and Good Guys California, Inc.
99.1	Press Release, dated September 29, 2003
99.2	Press Release, dated September 29, 2003

3 EX-2.1 3 f93367exv2w1.txt EXHIBIT 2.1 EXHIBIT 2.1 ================================================================================ GOOD GUYS, INC., COMPUSA INC. and GLADIATOR ACQUISITION CORP. ================================== AGREEMENT AND PLAN OF MERGER ================================== Dated as of September 29, 2003 ================================================================================ TABLE OF CONTENTS

Page No. -------- ARTICLE I. THE MERGER........................................................................ 1 SECTION 1.1. The Merger........................................................................ 1 SECTION 1.2. Closing........................................................................... 1 SECTION 1.3. Effective Time.................................................................... 2 SECTION 1.4. Effect of the Merger.............................................................. 2 SECTION 1.5. Subsequent Actions................................................................ 2 SECTION 1.6. Certificate of Incorporation; By-Laws; Directors and Officers..................... 2 ARTICLE II. CONVERSION OF SECURITIES.......................................................... 3 SECTION 2.1. Conversion of Capital Stock....................................................... 3 SECTION 2.2. Exchange of Certificates.......................................................... 4 SECTION 2.3. Stock Plans....................................................................... 6 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB....................... 7 SECTION 3.1. Corporate Organization............................................................ 7 SECTION 3.2. Authority Relative to this Agreement.............................................. 7 SECTION 3.3. No Conflict; Required Filings and Consents........................................ 8 SECTION 3.4. Financing Arrangements............................................................ 8 SECTION 3.5. No Prior Activities............................................................... 8 SECTION 3.6. Litigation........................................................................ 9 SECTION 3.7. Brokers........................................................................... 9 SECTION 3.8. Information Supplied.............................................................. 9 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 9 SECTION 4.1. Organization and Qualification; Subsidiaries...................................... 9 SECTION 4.2. Capitalization.................................................................... 10 SECTION 4.3. Authority Relative to this Agreement.............................................. 12 SECTION 4.4. No Conflict; Required Filings and Consents........................................ 12 SECTION 4.5. SEC Filings; Financial Statements................................................. 13 SECTION 4.6. Absence of Certain Changes or Events.............................................. 13 SECTION 4.7. Litigation........................................................................ 15 SECTION 4.8. Employee Benefit Plans............................................................ 15 SECTION 4.9. Properties........................................................................ 17 SECTION 4.10. Intellectual Property............................................................. 18 SECTION 4.11. Insurance......................................................................... 20 SECTION 4.12. Environmental..................................................................... 20 SECTION 4.13. Material Contracts................................................................ 22 SECTION 4.14. Conduct of Business............................................................... 23 SECTION 4.15. Compliance with Law............................................................... 24

(i) SECTION 4.16. Taxes............................................................................. 25 SECTION 4.17. Labor Relations................................................................... 27 SECTION 4.18. Transactions with Affiliates...................................................... 27 SECTION 4.19. Brokers........................................................................... 27 SECTION 4.20. Control Share Acquisition......................................................... 27 SECTION 4.21. Vote Required..................................................................... 27 SECTION 4.22. Investment Company................................................................ 28 SECTION 4.23. Information Supplied.............................................................. 28 SECTION 4.24. WARN.............................................................................. 28 SECTION 4.25. Suppliers......................................................................... 28 SECTION 4.26. Bank Accounts..................................................................... 28 SECTION 4.27. Board Action...................................................................... 29 SECTION 4.28. Opinion of Financial Advisor...................................................... 29 SECTION 4.29. Disclosure........................................................................ 29 ARTICLE V. CONDUCT OF BUSINESS PENDING THE MERGER............................................ 29 SECTION 5.1. Conduct of Business by the Company Pending the Merger............................. 29 SECTION 5.2. No Solicitation................................................................... 32 ARTICLE VI. ADDITIONAL AGREEMENTS............................................................. 34 SECTION 6.1. Proxy Statement................................................................... 34 SECTION 6.2. Meeting of Stockholders of the Company............................................ 35 SECTION 6.3. Compliance with Law............................................................... 35 SECTION 6.4. Notification of Certain Matters................................................... 35 SECTION 6.5. Access to Information............................................................. 36 SECTION 6.6. Public Announcements.............................................................. 36 SECTION 6.7. Reasonable Best Efforts; Cooperation.............................................. 36 SECTION 6.8. Agreement to Defend and Indemnify................................................. 36 SECTION 6.9. Employee Benefits................................................................. 37 SECTION 6.10. State Takeover Laws............................................................... 38 SECTION 6.11. SEC Reports....................................................................... 38 SECTION 6.12. Delisting......................................................................... 38 SECTION 6.13. Resignations...................................................................... 38 SECTION 6.14. Communications to Employees....................................................... 38 SECTION 6.15. Transfer Taxes.................................................................... 38 SECTION 6.16. Voting of Company Common Stock.................................................... 38 ARTICLE VII. CONDITIONS OF MERGER.............................................................. 39 SECTION 7.1. Conditions for Each Party's Obligations to Effect the Merger...................... 39 SECTION 7.2. Additional Conditions to Obligation of the Company to Effect the Merger........... 39 SECTION 7.3. Additional Conditions to Obligations of Parent and Merger Sub to Effect the Merger 40 (ii) ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER................................................. 41 SECTION 8.1. Termination....................................................................... 41 SECTION 8.2. Effect of Termination............................................................. 42 ARTICLE IX. GENERAL PROVISIONS................................................................ 43 SECTION 9.1. Non-Survival of Representations, Warranties and Agreements........................ 43 SECTION 9.2. Notices........................................................................... 43 SECTION 9.3. Expenses.......................................................................... 44 SECTION 9.4. Certain Definitions............................................................... 44 SECTION 9.5. Headings.......................................................................... 46 SECTION 9.6. Severability...................................................................... 46 SECTION 9.7. Entire Agreement; No Third-Party Beneficiaries.................................... 46 SECTION 9.8. Assignment........................................................................ 46 SECTION 9.9. Governing Law..................................................................... 46 SECTION 9.10. Amendment......................................................................... 46 SECTION 9.11. Waiver............................................................................ 46 SECTION 9.12. Counterparts...................................................................... 46 (iii) AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of September 29, 2003 (this "Agreement"), among Good Guys, Inc., a Delaware corporation (the "Company"), CompUSA Inc., a Delaware corporation ("Parent"), and Gladiator Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent ("Merger Sub"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company (the "Board of Directors") and the Boards of Directors of Parent and Merger Sub have each determined that it is advisable and in the best interests of their respective stockholders for Merger Sub to merge with and into the Company (the "Merger") in accordance with the General Corporation Law of the State of Delaware (as in effect from time to time, "Delaware Law") and upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors and the Boards of Directors of Parent and Merger Sub have approved the Merger; and WHEREAS, Parent and Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company, Parent and Merger Sub hereby agree as follows: ARTICLE I. THE MERGER SECTION 1.1. The Merger. At the Effective Time (as defined in Section 1.3) and subject to and upon the terms and conditions of this Agreement and Delaware Law, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger hereinafter sometimes is referred to as the "Surviving Corporation." SECTION 1.2. Closing. The closing of the Merger (the "Closing") shall take place at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, NY 10019 at 10:00 am on the second business day following the satisfaction (or, to the extent permitted by law, waiver by all parties) of the conditions set forth in Section 7.1, or, if on such day any condition set forth in Section 7.2 or 7.3 has not been satisfied (or, to the extent permitted by law, waived by the party entitled to the benefits thereof), as soon as practicable after all the conditions set forth in Article VII have been satisfied (other than those conditions that by their nature are to be satisfied at the Closing), but subject to the fulfillment or, to the extent permitted by law, waiver of those conditions by the parties entitled to the benefits thereof, or at such other place, time and date as shall be agreed in writing among Parent, Merger Sub and the Company. 1 The date on which the Closing occurs is referred to in this Agreement as the "Closing Date." For purposes of this Agreement, "business day" shall mean any day except a Saturday, a Sunday or any other day on which commercial banks are required or authorized to close in New York, New York. SECTION 1.3. Effective Time. Prior to the Closing, the parties shall prepare, and on the Closing Date the parties shall file, a certificate of merger or other appropriate documents (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law. The Merger shall become effective at such time as the Certificate of Merger is filed with such Secretary of State, or at such later time as Parent, Merger Sub and the Company shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being the "Effective Time"). SECTION 1.4. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 1.5. Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either the Company or Merger Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement. SECTION 1.6. Certificate of Incorporation; By-Laws; Directors and Officers. (a) Unless otherwise determined by Merger Sub before the Effective Time, at the Effective Time the Restated Certificate of Incorporation of the Company, as amended (the "Restated Certificate"), as in effect immediately before the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation. (b) The By-Laws of Merger Sub, as in effect immediately before the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-Laws. 2 (c) The directors of Merger Sub immediately before the Effective Time will be the initial directors of the Surviving Corporation, and, except as Merger Sub may otherwise notify the Company in writing prior to the Effective Time, the officers of the Company immediately before the Effective Time will be the initial officers of the Surviving Corporation, in each case until their respective successors are elected or appointed and qualified or until their death, resignation or removal in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation. If, at the Effective Time, a vacancy shall exist on the Board of Directors or in any office of the Surviving Corporation, such vacancy may thereafter be filled in the manner provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-Laws. ARTICLE II. CONVERSION OF SECURITIES SECTION 2.1. Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the stockholders of any of the foregoing, the shares of stock of the constituent corporations shall be converted as follows: (a) Common Stock of Merger Sub. The shares of common stock, par value $.01 per share, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into the number of shares of fully paid and nonassessable shares of common stock, par value $.01 per share, of the Surviving Corporation equal to the number of shares of Company Common Stock (as defined below) outstanding immediately prior to the Effective Time. (b) Cancellation of Treasury Stock and Merger Sub-Owned Company Common Stock. Each issued and outstanding share of common stock, par value $.001 per share, of the Company (the "Company Common Stock") that is owned by Merger Sub or any subsidiary of Merger Sub or held in the treasury of the Company (collectively, the "Excluded Shares") shall automatically be canceled and retired and shall cease to exist, and no cash, Company Common Stock or other consideration shall be delivered or deliverable in exchange therefor. (c) Conversion or Retention of Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time other than Excluded Shares or Dissenting Shares (as defined in Section 2.1(d)) shall be converted into the right to receive $2.05 in cash following the Merger (the "Merger Consideration"). (d) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and that are held by a holder who has validly demanded payment of the fair value for such holder's shares as determined in accordance with Section 262 of Delaware Law ("Dissenting Shares") shall not be converted into or be exchangeable for the right to receive the Merger Consideration (but instead shall be converted into the right to receive payment from the Surviving Corporation with respect to such Dissenting Shares in accordance with Delaware 3 Law), unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder's right under Delaware Law. If any such holder of Company Common Stock shall have failed to perfect or shall have effectively withdrawn or lost such right, each share of Company Common Stock of such holder shall be treated, at the Company's sole discretion, as a share of Company Common Stock that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with Section 2.1(c). The Company shall give prompt notice to Merger Sub of any demands received by the Company for appraisal of shares of Company Common Stock, and Merger Sub shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Merger Sub, make any payment with respect to, or settle or offer to settle, any such demands. (e) Cancellation and Retirement of Company Common Stock. As of the Effective Time, all shares of Company Common Stock (other than Dissenting Shares and any shares owned by Parent or any subsidiary of Parent other than Merger Sub) issued and outstanding immediately prior to the Effective Time, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock (a "Certificate") shall, to the extent such Certificate represents such shares, cease to have any rights with respect thereto, except, in all cases, the right to receive the Merger Consideration. The right of any holder of any share of Company Common Stock to receive the Merger Consideration shall be subject to and reduced by the amount of any withholding that is required under applicable tax law. SECTION 2.2. Exchange of Certificates. (a) Exchange Agent. Prior to the mailing of the Proxy Statement (as defined in Section 3.8), Merger Sub shall appoint a bank or trust company to act as exchange agent (the "Exchange Agent") for the payment of the Merger Consideration. Immediately after the Effective Time, Parent shall deposit or cause the Surviving Corporation to deposit with the Exchange Agent, for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article II, the Merger Consideration (such cash consideration being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable instructions of the Surviving Corporation, make payments of the Merger Consideration out of the Exchange Fund. The Exchange Fund shall not be used for any other purpose. Any and all interest earned on the Exchange Fund shall be paid to Parent. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates that immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass to the Exchange Agent, only upon delivery of the Certificates to the Exchange Agent, and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other 4 documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash payable in respect of the shares of Company Common Stock theretofore represented by such Certificate pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender, the Merger Consideration as contemplated by this Section 2.2. No interest shall be paid or accrue on any cash payable upon surrender of any Certificate. (c) No Further Ownership Rights in Company Common Stock Exchanged For Cash. The Merger Consideration paid upon the surrender for exchange of Certificates representing shares of Company Common Stock in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock exchanged for cash theretofore represented by such Certificates. (d) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of the Certificates for six months after the Effective Time shall be delivered to the Surviving Corporation and any holders of shares of Company Common Stock prior to the Merger who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and only as general creditors thereof for payment of the Merger Consideration. (e) No Liability. None of Parent, Merger Sub, the Surviving Corporation, the Company or the Exchange Agent, or any employee, officer, director, agent or affiliate thereof, shall be liable to any Person in respect of any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate has not been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which the Merger Consideration would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 3.3(b))), any such cash in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (f) Investment of Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by the Surviving Corporation, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent. To the extent that there are losses with respect to such investments, or the Exchange Fund diminishes for other reasons below the level required to make prompt payments of the Merger Consideration as contemplated hereby, Parent shall promptly replace or restore the portion of the Exchange Fund lost through investments or other events so as to ensure that the Exchange Fund is, at all times, maintained at a level sufficient to make such payments. 5 (g) Withholding Rights. The Surviving Corporation or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as the Surviving Corporation or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended and the treasury regulations promulgated thereunder (the "Code"), or any provision of state, local or foreign Tax law. To the extent that amounts are so deducted and withheld by the Surviving Corporation or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation or the Exchange Agent. (h) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may require as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable in respect thereof, pursuant to this Agreement. SECTION 2.3. Stock Plans. (a) Post-November 8, 2000 Options. The Company shall take all actions necessary to provide that, at the Effective Time, (i) each then outstanding option to purchase shares of Company Common Stock granted on or after November 8, 2000 under any of the Company's stock option plans referred to in Section 4.2 hereof, each as amended (the "Option Plans") and the option for 1,000,000 shares of Company Common Stock granted to Kenneth R. Weller on August 15, 2000 (collectively, the "Post-November 2000 Options"), whether or not then exercisable or vested, shall be cancelled and (ii) the Company shall provide the notice prescribed by the Company's 1994 Stock Incentive Plan to each holder of Post-November 2000 Options. (b) Pre-November 8, 2000 Options. The Company shall use its reasonable best efforts to provide that, at the Effective Time, each then outstanding option to purchase shares of Company Common Stock granted prior to November 8, 2000 under any of the Company's Option Plans (collectively, the "Pre-November 2000 Options" and together with the Post-November 2000 Options, the "Options"), whether or not then exercisable or vested, shall be cancelled in accordance with applicable law and in a manner reasonably acceptable to Parent and the Company. The Company represents that as of the date hereof, there are 484,376 Pre-November 2000 Options outstanding and which are held of record by 197 Persons. In connection with the cancellation of the Pre-November 2000 Options, the Company shall not provide consideration to the holders thereof an amount in cash in excess of $100,000 in the aggregate. (c) Warrants and Other Rights. The Company acknowledges and agrees that any and all other outstanding options (other than the Options), stock warrants and stock rights, other than the shares of Company Common Stock issuable upon conversion of the Note (as defined below) (collectively, "Warrants and Other Rights") granted pursuant to any option 6 agreement, option plan, warrant agreement or otherwise (collectively, the "Warrant Agreements"), whether or not then exercisable or vested, shall upon consummation of the Merger, pursuant to the terms of such Warrants Agreements, automatically and without the action of any Person, be converted into the right to receive upon exercise of the rights under the Warrants Agreements, the Merger Consideration for which such Warrant Agreement could have been exercised immediately prior to the Effective Time (such amount being herein referred to as the "Warrant Price"). Parent agrees to cause the Surviving Corporation to pay the Warrant Price, if any, upon surrender by a holder of a Warrant Agreement. (d) Except as provided herein or as otherwise agreed to by the parties and to the extent permitted by the Option Plans, (i) the Company shall cause the Option Plans to terminate as of the Effective Time and shall provide for the payment of any benefit due under such Option Plans in cash; (ii) the Company shall cause the provisions in any other plan, program or arrangement that currently provides or previously provided for the issuance or grant by the Company of any interest in respect of the capital stock of the Company, or for payments based on the value of the capital stock of the Company (each such other plan being referred to as an "Other Stock Plan"), to terminate as of the Effective Time and shall provide for the payment of any benefit due under such Other Stock Plans in cash; and (iii) the Company shall take all action necessary to (A) ensure that following the Effective Time no holder of Post-November 2000 Options or Warrants and Other Rights nor any participant in the Option Plans (other than holders of Pre-November 2000 Options that do not relinquish their options) or in any Other Stock Plan shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof, and (B) terminate all such option plans. The Parent shall assure that the Surviving Corporation has the funds necessary to meet its obligations under this Section 2.3(d). (e) Prior to the Effective Time, the Board of Directors shall take all commercially reasonable action to terminate the Company's Employee Stock Purchase Plan and to return all cash accumulated in each participant's account to such participants. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company as follows: SECTION 3.1. Corporate Organization. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Merger Sub is a wholly owned subsidiary of Parent. SECTION 3.2. Authority Relative to this Agreement. Parent and Merger Sub have the necessary corporate power and authority to enter into this Agreement and to carry out their obligations hereunder. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes a legal, valid and binding obligation of each such corporation, enforceable against 7 each of them in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer, moratorium or other laws relating to or affecting creditors' rights generally and by general principles of equity. SECTION 3.3. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub will not, (i) conflict with or violate any law, regulation, court order, judgment or decree applicable to Parent or Merger Sub or by which any of their property is bound or affected, (ii) violate or conflict with either the Certificate of Incorporation or By-Laws or other organizational documents of either Parent or Merger Sub, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in, or give rise to any rights of termination, cancellation or acceleration of any obligations or any loss of any material benefit under, or result in the creation of a Lien (as defined in Section 4.2(b)) on any of the property or assets of Parent or Merger Sub pursuant to, any contract, instrument, permit, license or franchise to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any of their respective properties is bound or affected, except for, in the case of clause (i), conflicts, violations, breaches or defaults which would not be reasonably likely to (x) impair, in any material respect, the ability of either Parent or Merger Sub to perform their respective obligations under this Agreement or (y) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement. (b) Except for (i) applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if applicable, (iii) the filing and recordation of appropriate merger documents as required by Delaware Law, and (iv) filings as may be required by any applicable "blue sky" laws and/or the rules of the National Association of Securities Dealers, Inc., neither Parent nor Merger Sub is required to submit any notice, report or other filing with any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity") in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. Except as set forth in Schedule 3.3, no waiver, consent, approval or authorization of any Governmental Entity is required to be obtained or made by either Parent or Merger Sub in connection with its execution, delivery or performance of this Agreement. SECTION 3.4. Financing Arrangements. Parent has or, on or prior to the Closing Date, will have sufficient cash to pay the Merger Consideration. SECTION 3.5. No Prior Activities. Except for obligations or liabilities incurred in connection with its incorporation or organization or the negotiation and consummation of this Agreement and the transactions contemplated hereby (including any financing), Merger Sub has not incurred any obligations or liabilities, and has not engaged in any business or activities of any type or kind whatsoever, or entered into any agreements or arrangements with any Person or entity. 8 SECTION 3.6. Litigation. There are no claims, actions, suits, proceedings (including, without limitation, condemnation or arbitration proceedings) or investigations pending or, to the knowledge of Parent or Merger Sub, threatened against or involving Parent or Merger Sub, or any properties or rights of Parent or Merger Sub, by or before any Governmental Entity or arbitrator which, either individually or in the aggregate, are reasonably likely to be materially adverse to the ability of Parent and/or Merger Sub to consummate any transactions contemplated by this Agreement or to perform their respective obligations under this Agreement (a "Purchaser Material Adverse Effect"). SECTION 3.7. Brokers. Except as to J.P. Morgan Securities, Inc., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Merger Sub. SECTION 3.8. Information Supplied. None of the information supplied by Parent or Merger Sub or their respective officers, directors, representatives, agents or employees (the "Purchaser Information") for inclusion in the proxy statement to be filed with the Securities and Exchange Commission (the "SEC") in connection with the Merger (the "Proxy Statement"), will, on the date the Proxy Statement is first mailed to the Company's stockholders or at the time of the meeting of stockholders to be held in connection with the Merger (the "Special Meeting"), contain any statement which, at such time and in light of the circumstances under which it will be made, will be false or misleading with respect to any material fact, or will omit to state any material fact necessary in order to make the statements therein not false or misleading. If at any time prior to the date of the Special Meeting, any event with respect to Parent and/or Merger Sub, or with respect to information supplied by Parent and/or Merger Sub specifically for inclusion in the Proxy Statement, shall occur which is required to be described in an amendment of, or supplement to, the Proxy Statement, such event shall be so described by Parent and/or Merger Sub and provided to the Company. All documents that Parent and/or Merger Sub is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form, in all material respects, with the provisions of the Exchange Act, and each such document required to be filed with any Governmental Entity (other than the SEC) will comply in all material respects with the provisions of applicable law as to the information required to be contained therein. Notwithstanding the foregoing, each of Parent and Merger Sub makes no representation or warranty with respect to the information supplied or to be supplied by the Company or any affiliate (other than Parent or Merger Sub to the extent Parent and/or Merger Sub is determined to be an affiliate of the Company) thereof for inclusion or incorporation by reference in the Proxy Statement. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub as follows: SECTION 4.1. Organization and Qualification; Subsidiaries. (a) Each of the Company and its Subsidiaries (defined below) is a corporation duly organized, validly existing 9 and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority and any necessary governmental authority and approvals to own, operate or lease the properties that it purports to own, operate or lease and to carry on its business as it is now being conducted, and is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification or licensing necessary, except for such failure which, when taken together with all other such failures, would not be reasonably likely to have a Material Adverse Effect. The Company has heretofore made available to Parent and Merger Sub accurate and complete copies of the Certificate of Incorporation and Bylaws (or similar governing documents) as currently in effect of the Company and its Subsidiaries. For purposes of this Agreement, "Material Adverse Effect" means any change in or effect on the business of the Company or any of the Subsidiaries (other than losses incurred during the period commencing on March 1, 2003 and ending on August 31, 2003 in the amount of approximately $15.3 million) that is or is reasonably likely to be materially adverse to (x) the business, operations, properties (including intangible properties and leased, owned or managed properties), condition (financial or otherwise), assets, liabilities or regulatory status of the Company and the Subsidiaries, taken as a whole, other than changes or effects resulting from conditions in the United States or foreign economies or securities markets in general or resulting from conditions in the industry in which the Company and the Subsidiaries operate in general, except to the extent that the Company or the Subsidiaries are disproportionately affected thereby or (y) the ability of the Company to consummate any transactions contemplated by this Agreement or to perform its obligations under this Agreement. (b) A true and complete list of all of the Subsidiaries, together with the jurisdiction of incorporation or organization of each Subsidiary, the jurisdictions in which each Subsidiary is licensed or qualified to do business and the percentage of each Subsidiary's outstanding capital stock or other equity interests owned by the Company or another Subsidiary, is set forth in Schedule 4.1 hereto. (c) For purposes of this Agreement, "Subsidiary" means any corporation or other legal entity of which the Company (either alone or through or together with any other Subsidiary) (i) owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity, or (ii) in the case of partnerships, serves as a general partner, or (iii) in the case of a limited liability company, serves as managing member or owns a majority of the equity interests, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof. SECTION 4.2. Capitalization. (a) The authorized capital stock of the Company consists of: (i) 40,000,000 shares of Company Common Stock and (ii) 2,000,000 shares of preferred stock, $.01 par value per share, of the Company (the "Company Preferred Stock"). As of the date hereof, (A) 27,267,690 shares of Company Common Stock were issued and outstanding, all of which were duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights, (B) no shares of Company Preferred Stock were issued and outstanding, (C) 33,250 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding Options under the Company's 1985 Stock Option Plan, (D) 2,612,450 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding 10 Options under the Company's 1994 Stock Incentive Plan, (E) 1,000,000 shares were reserved for issuance upon exercise of an outstanding option granted to Kenneth R. Weller, (F) 1,815,500 shares of Company Common Stock were reserved for issuance upon the exercise of currently outstanding Warrants and Other Rights and (G) 2,439,025 shares of Company Common Stock are reserved for issuance upon conversion of the Note (as defined below). Except as set forth in Schedule 4.2(a) or in this Section 4.2(a): (x) there are no other options, calls, warrants or rights, agreements, arrangements or commitments of any character obligating the Company or any of its Subsidiaries to issue, deliver or sell any shares of capital stock of or other equity interests in the Company or any of the Subsidiaries; (y) there are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote; and (z) there are no stockholders' agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting, registration or disposition of any shares of the capital stock of the Company (including any such agreements or understandings that may limit in any way the solicitation of proxies by or on behalf of the Company from, or the casting of votes by, the stockholders of the Company with respect to the Merger) or granting to any person or group of persons the right to elect, or to designate or nominate for election, a director to the Board of Directors. Except as set forth in Schedule 4.2(a), there are no programs in place or outstanding contractual obligations of the Company or any of the Subsidiaries (1) to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or (2) to vote or to dispose of any shares of the capital stock of any of the Subsidiaries. Schedule 4.2(a) contains a true, accurate and complete list, as of the date hereof, of the name of each Option and Warrant and Other Rights holder, the number of outstanding Options and Warrant and Other Rights held by such holder, the grant or purchase date thereof, the number of shares of Company Common Stock such holder is entitled to receive upon exercise thereof and the corresponding exercise price. (b) All the outstanding capital stock of each of the Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights and, except as set forth in Schedule 4.1, is owned by the Company or a Subsidiary free and clear of any liens, security interests, pledges, agreements, claims, charges or encumbrances of any nature whatsoever (collectively "Liens"). There are no existing options, calls, warrants or similar rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock or other equity interests or securities of any Subsidiary. Except for the Subsidiaries and its interest in goodguys.com, Inc., the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in any other corporation, partnership, joint venture or other business association or entity. Neither the Company nor any Subsidiary is under any current or prospective obligation to make a capital contribution or investment in or loan to, or to assume any liability or obligation of, any corporation, partnership, joint venture or business association or entity. 11 SECTION 4.3. Authority Relative to this Agreement. The Company has the necessary corporate power and authority to enter into this Agreement and the other Transaction Documents (as defined below) and, subject to obtaining any necessary stockholder approval of the Merger, to carry out its obligations hereunder and thereunder. The execution and delivery each Transaction Document by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval of the Merger by the Company's stockholders in accordance with Delaware Law. Each Transaction Document has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer, moratorium or other laws relating to or affecting creditors' rights generally and by general principles of equity. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock entitled to vote approving this Agreement is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated hereby. SECTION 4.4. No Conflict; Required Filings and Consents. (a) Except as set forth in Schedule 4.4(a) hereto, the execution and delivery of (w) this Agreement, (x) the unsecured subordinated convertible promissory note, dated the date hereof, in the aggregate principal amount of $5,000,000.00 issued to Parent (the "Note"), (y) the Intercreditor and Subordination Agreement, dated as of the date hereof, by and among Bank of America, N.A. as Agent, the Company, Good Guys California, Inc., and Parent (the "Intercreditor Agreement") and (z) the registration rights agreement, dated the date hereof, between Parent and the Company (the "Registration Rights Agreement" and together with this Agreement, the Intercreditor Agreement and the Note, the "Transaction Documents") by the Company does not, and the performance of such agreements by the Company will not, (i) conflict with or violate any law, regulation, court order, judgment or decree applicable to the Company or any of the Subsidiaries or by which its or any of their property is bound or affected, (ii) violate or conflict with the Certificate of Incorporation or By-Laws or equivalent organizational documents of the Company or any Subsidiary, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in any, or give rise to any rights of termination, cancellation or acceleration of any obligations or any loss of any material benefit under, or result in the creation of a Lien on any of the properties or assets (whether owned, leased or managed) of the Company or any of the Subsidiaries pursuant to, any agreement, contract, instrument, permit, license or franchise to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries or its or any of their property (whether owned, leased or managed) is bound or affected, except for, in the case of clause (i), conflicts, violations, breaches or defaults which, individually or in the aggregate, would not be reasonably likely to (x) have a Material Adverse Effect, (y) impair, in any material respect, the ability of the Company to perform its obligations under this Agreement or (z) prevent or materially delay the consummation of the transactions contemplated by this Agreement. (b) Except for (i) applicable requirements, if any, of the Exchange Act, (ii) the pre-merger notification requirements of the HSR Act, if applicable, (iii) the filing and 12 recordation of appropriate merger or other documents as required by Delaware Law, (iv) filings as may be required by any "blue sky" laws of various states and/or the rules of the National Association of Securities Dealers, Inc., and (v) as set forth in Schedule 4.4(b) hereto, the Company and each of the Subsidiaries are not required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. No waiver, consent, approval or authorization of any Governmental Entity is required to be obtained or made by the Company in connection with its execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. SECTION 4.5. SEC Filings; Financial Statements. (a) The Company has timely filed all forms, reports and documents (including all exhibits thereto) required to be filed with the SEC since December 31, 1999 (collectively, the "SEC Reports"). The SEC Reports (i) were prepared in accordance with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Subsidiaries is required to file any statements or reports with the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act. The Company has heretofore furnished or made available to Merger Sub a complete and correct copy of any amendments or modifications to SEC Reports which have not yet been filed with the SEC pursuant to the Securities Act or the Exchange Act. (b) The consolidated financial statements contained in the SEC Reports were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly presented in all material respects the consolidated financial position of the Company and the Subsidiaries as at the respective dates thereof and the consolidated results of operations and changes in financial position of the Company and the Subsidiaries for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments (which in the aggregate were not material in amount). (c) Except as disclosed in any SEC Report filed prior to the date of this Agreement, and except for liabilities and obligations incurred in the ordinary course of business consistent with past practice since the date of the most recent consolidated balance sheet included in the SEC Reports filed and publicly available prior to the date of this Agreement, the Company and the Subsidiaries have no liabilities or obligations of any nature (whether accrued, absolute, fixed, contingent or otherwise). SECTION 4.6. Absence of Certain Changes or Events. Except as expressly permitted by this Agreement, as disclosed in any SEC Report filed prior to the date of this Agreement, or as set forth in Schedule 4.6 hereto, since February 28, 2003, the business of the Company and the Subsidiaries has been conducted in the ordinary course consistent with past practice and there has not been: 13 (a) any Material Adverse Effect; (b) any damage, destruction or loss (whether or not covered by insurance) with respect to any of the assets of the Company or any of the Subsidiaries having a Material Adverse Effect; (c) any redemption or other acquisition of Company Common Stock by the Company or any of the Subsidiaries or any declaration or payment of any dividend or other distribution in cash, stock or property with respect to Company Common Stock, except for purchases heretofore made pursuant to the terms of the Company's employee benefit plans; (d) any change by the Company in accounting methods, principles or practices; (e) any revaluation by the Company of any asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), other than in the ordinary course of business consistent with past practice; (f) any entry by the Company or any Subsidiary into any commitment or transaction material to the Company and the Subsidiaries taken as a whole, other than commitments or transactions entered into in the ordinary course of business consistent with past practice; (g) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards or restricted stock awards) stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any directors, officers or key employees of the Company or any Subsidiary, except in the ordinary course of business consistent with past practice; (h) any entry by the Company or any Subsidiary into any employment, consulting, severance, termination or indemnification agreement with any director, officer or key employee of the Company or any Subsidiary; (i) (i) any settlement or compromise by the Company or any Subsidiary of any claim, litigation or other legal proceeding, other than in the ordinary course of business consistent with past practice in an amount involving more than $50,000 or (ii) any payment, discharge or satisfaction by the Company or any Subsidiary of any other claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than (A) in the ordinary course of business and consistent with past practice or (B) with respect to any other such claims, liabilities or obligations reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of the Company; or (j) any agreement, in writing or otherwise, by the Company or any Subsidiary to take any of the actions described in this Section 4.6, except as expressly contemplated by this Agreement. 14 SECTION 4.7. Litigation. Schedule 4.7 sets forth all litigation matters in which the Company and/or the Subsidiaries are involved as a party. There are no claims, actions, suits, proceedings (including, without limitation, condemnation or arbitration proceedings) or investigations pending or, to the knowledge of the Company, threatened against or involving the Company or any of the Subsidiaries, or any properties or rights of the Company or any of the Subsidiaries, by or before any Governmental Entity or arbitrator which, either individually or in the aggregate, are reasonably likely to have a Material Adverse Effect. Neither the Company nor any Subsidiaries nor any of their property is subject to any outstanding order, writ, judgment, injunction or decree. SECTION 4.8. Employee Benefit Plans. (a) (i) Schedule 4.8(a)(i) sets forth a list of all "employee benefit plans", as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all other employee benefit or executive compensation arrangements, perquisite programs or payroll practices, including, without limitation, any such arrangements or payroll practices providing severance pay, sick leave, vacation pay, salary continuation for disability, retirement benefits, deferred compensation, bonus pay, incentive pay, stock options (including those held by directors, employees, and consultants), hospitalization insurance, medical insurance, life insurance, scholarships or tuition reimbursements, that are maintained by the Company, any Subsidiary or any entity within the same "controlled group" as the Company or Subsidiary, within the meaning of Section 4001(a)(14) of ERISA (a "Company ERISA Affiliate") or to which the Company, any Subsidiary or Company ERISA Affiliate is obligated to contribute thereunder for current or former employees of the Company, any Subsidiary or Company ERISA Affiliate (the "Company Employee Benefit Plans"). (ii) Schedule 4.8(a)(ii) sets forth, with respect to each Option that is outstanding under the Option Plans as of the date hereof, the name of the holder of such Option, the number of shares of Company Common Stock subject to such Option, the date or grant of such Option and the exercise price per share of such Option. (b) None of the Company Employee Benefit Plans is a "multiemployer plan", as defined in Section 4001(a)(3) of ERISA (the "Company Multiemployer Plan"). Neither the Company, any Subsidiary nor any Company ERISA Affiliate has withdrawn in a complete or partial withdrawal from any Company Multiemployer Plan, nor has any of them incurred any liability due to the termination or reorganization of a Company Multiemployer Plan. (c) None of the Company Employee Benefit Plans is a "single employer plan", as defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of ERISA. Neither the Company, any Subsidiary nor any Company ERISA Affiliate has incurred any outstanding liability under Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to a trustee appointed under Section 4042 of ERISA. Neither the Company, any Subsidiary nor any Company ERISA Affiliate has engaged in any transaction described in Section 4069 of ERISA. Neither the Company nor any Subsidiary maintains, or is required, either currently or in the future, to provide medical benefits to employees, former employees or retirees after their termination of employment, other than pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985. 15 (d) Each Company Employee Benefit Plan that is intended to qualify under Section 401 of the Code, and each trust maintained pursuant thereto, has been determined to be exempt from federal income taxation under Section 501 of the Code by the IRS, and, to the Company's knowledge, nothing has occurred with respect to the operation of any such Company Employee Benefit Plan that would cause the loss of such qualification or exemption or the imposition of any material liability, penalty or tax under ERISA or the Code. (e) All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Company Employee Benefit Plans to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof. (f) There has been no material violation of ERISA or the Code with respect to the filing of applicable reports, documents and notices regarding the Company Employee Benefit Plans with the Secretary of Labor or the Secretary of the Treasury or the furnishing of required reports, documents or notices to the participants or beneficiaries of the Company Employee Benefit Plans. (g) None of the Company, the Subsidiaries, the officers of the Company or any of the Subsidiaries or the Company Employee Benefits Plans which are subject to ERISA, any trusts created thereunder or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary responsibility that could subject the Company, any of the Subsidiaries or any officer of the Company or any of the Subsidiaries to any material tax or penalty on prohibited transactions imposed by such Section 4975 or to any material liability under Section 502(i) or (1) of ERISA. (h) Except as set forth in Schedule 4.8(h), neither the Company nor any of the Subsidiaries is a party to any contract, agreement or other arrangement which could result in the payment of amounts that could be nondeductible by reason of Section 162(m) or Section 280G of the Code. (i) True, correct and complete copies of the following documents, with respect to each of the Company Benefit Plans, have been delivered or made available to Parent by the Company: (i) all Company Employee Benefit Plans and related trust documents, and amendments thereto; (ii) the most recent Forms 5500 and (iii) summary plan descriptions. (j) There are no pending actions, claims or lawsuits which have been asserted, instituted or, to the Company's knowledge, threatened, against the Company Employee Benefit Plans, the assets of any of the trusts under such plans or the plan sponsor or the plan administrator, or against any fiduciary of the Company Employee Benefit Plans with respect to the operation of such plans (other than routine benefit claims). (k) All Company Employee Benefit Plans subject to ERISA or the Code have been maintained and administered, in all material respects, in accordance with their terms and with all provisions of ERISA and the Code, respectively, (including rules and regulations 16 thereunder) and other applicable federal and state laws and regulations and all employees required to be included as participants by the terms of such plans have been properly included. SECTION 4.9. Properties. (a) The Company and each of the Subsidiaries has good and marketable title to, or a valid leasehold interest in, all its properties and assets, free and clear of all Liens, except (i) Liens for current taxes not yet due and payable, (ii) Liens securing debt under that certain Loan and Security Agreement, dated as of September 30, 1999, by and among Bank of America, N.A. and General Electric Capital Corporation (as Lenders), Bank of America, N.A. (as Administrative Agent), General Electric Capital Corporation (as Documentation Agent) and Good Guys California, Inc. (as Borrower), as amended, (iii) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons and (iv) Liens against equipment leased by the Company, as lessee, under any operating lease, including Liens evidenced by protective UCC filings in favor of lessors of such equipment. All tangible personal property, fixtures and equipment which comprise the assets of the Company and the Subsidiaries, or are otherwise used in connection with its respective businesses, are in a good state of repair (ordinary wear and tear excepted) and operating condition. All improvements on the Leased Real Property (as defined below) are in good operating condition and repair, have all necessary access rights and utilities and generally are adequate and suitable in all material respects for the present and continued use, operation and maintenance thereof as now used, operated or maintained. Neither the Company nor any Subsidiary has any knowledge of or received written notice from any utility company, municipality or other entity of the discontinuation of sewer, water, electric, gas, telephone or other utilities or services presently provided or available to any Leased Real Property. (b) Schedule 4.9(b) sets forth a true and complete list and description of each lease or sublease relating to Leased Real Property from which the Company or any Subsidiary currently operates (collectively, the "Company Material Leases"). Such description includes (i) the street address and current use of each Leased Real Property, (ii) the name of the landlord (and sublandlord, if applicable) and the entity which holds the tenant (and subtenant, if applicable) interest under each Company Material Lease, (iii) the identity of any guarantor of the Company's or any Subsidiary's obligations under any Company Material Lease, (iv) the approximate square footage of each Leased Real Property, (v) the aggregate annual rent (including base rent, and if applicable, percentage and additional rent) under each Company Material Lease (vi) the length of the term and any options to renew provided for in each Company Material Lease and (vii) any provisions with respect to early termination of a Company Material Lease. (c) Neither the Company nor any Subsidiary owns any real property. (d) There are no violations of any law, ordinance or regulation (including, without limitation, any building, planning or zoning law, ordinance or regulation) relating to any of the real property or interests in real property leased or subleased by the Company or any Subsidiary, as lessee or lessor (the "Leased Real Property"), except for those violations which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. 17 (e) The Company has, or has caused to be, delivered to Parent true and complete copies of the Company Material Leases and any and all material ancillary documents pertaining thereto (including, but not limited to, all amendments, subordination, non-disturbance and attornment agreements, operating agreements, restrictive covenant agreements and notices to exercise renewal options). With respect to each of the Company Material Leases, (i) such lease or sublease is legal, valid, binding, enforceable and in full force and effect, (ii) except as otherwise set forth in Schedule 4.9(e), (x) such lease or sublease will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of such transactions without the prior consent of any other party constitute a breach or default under such Company Material Lease or otherwise give the other party thereto a right to terminate such Company Material Lease and (y) there are no material controversies, claims, disputes or disagreements existing between the parties to such Company Material Lease and (iii) neither the Company nor any Subsidiary knows of, or has given or received notice of, any violation or default thereunder (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default thereunder). (f) All improvements on real property constructed by or on behalf of the Company or any Subsidiary, to the knowledge of the Company, were constructed in compliance with applicable laws, ordinances and regulations (including, but not limited to, any building or zoning laws, ordinances and regulations) affecting such Leased Real Property. SECTION 4.10. Intellectual Property. (a) The Company and the Subsidiaries own all right, title and interest in and to, or have a valid and enforceable license to use all the Intellectual Property (defined below) used by them in connection with their respective businesses, which represents all Intellectual Property rights necessary or desirable to the conduct of their business as now conducted. After the Closing, Merger Sub will own all right, title and interest in and to, or have a valid and enforceable license to use, the Intellectual Property. The Company and the Subsidiaries are in compliance with all contractual obligations relating to the protection of such Intellectual Property as they use pursuant to license or other agreement. To the knowledge of the Company, there are no conflicts with or infringements of any Intellectual Property by any third party. To the knowledge of the Company, the conduct of the Company's and the Subsidiaries' business as currently conducted does not conflict with or infringe or will conflict with or infringe any intellectual property or proprietary rights of any third party and none of the Intellectual Property infringes upon or unlawfully or wrongfully uses or incorporates any intellectual property or proprietary rights of any third party. There is no claim, suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries: (i) alleging any such conflict or infringement with any third party's intellectual property or proprietary rights; or (ii) challenging the Company's or any of the Subsidiaries' ownership or use of, or the validity or enforceability of any Intellectual Property. (b) Schedule 4.10(b) sets forth a complete and current list of patents, copyrights, domain names, trademarks and common law rights pertaining to the Intellectual Property ("Listed Intellectual Property") and a summary description of each such item, the owner 18 of record, date of application or issuance and relevant jurisdiction as to each. Except as described in Schedule 4.10(b), all Listed Intellectual Property is owned by the Company or the Subsidiaries free and clear of security interests, liens, encumbrances or claims of any nature. All Listed Intellectual Property is valid, subsisting, unexpired, in proper form and enforceable and all renewal fees and other maintenance fees that have fallen due on or prior to the effective date of this Agreement have been paid. Except as listed in Schedule 4.10(b), no Listed Intellectual Property is the subject of any proceeding before any governmental, registration or other authority in any jurisdiction, including any office action or other form of preliminary or final refusal of registration. (c) Schedule 4.10(c) sets forth a complete list of all agreements relating to Intellectual Property owned by the Company or any of the Subsidiaries or to Intellectual Property licensed to the Company or any of the Subsidiaries. Except as set forth on Schedule 4.10(c), neither the Company nor any of the Subsidiaries, are under any obligation to pay royalties or other payments in connection with any agreement relating to the Intellectual Property, nor are they restricted from assigning their rights respecting any Intellectual Property nor will the Company or any of the Subsidiaries, otherwise be, as a result of the execution and delivery of this Agreement or the performance of Company's obligations under this Agreement, in breach of any agreement, contract or license relating to the intellectual property or proprietary rights of any other person or entity. (d) Except as set forth in Schedule 4.10(d), no present or former employee, officer or director of the Company or any of the Subsidiaries, or any agent, consultant, outside contractor or subcontractor of the Company or any of the Subsidiaries, holds any right, title or interest, directly or indirectly, in whole or in part, in or to any Intellectual Property. Except as set forth in Schedule 4.10(d), neither the Company nor any of the Subsidiaries have sold, licensed, leased or otherwise transferred or granted any interest or rights in or to any portion of the Intellectual Property. (e) To the Company's knowledge: (i) none of the Intellectual Property has been used, disclosed or appropriated to the detriment of the Company or any of the Subsidiaries for the benefit of any other person or entity other than the Company or any of the Subsidiaries; and (ii) no officer, director, employee, independent contractor or agent of the Company or any of the Subsidiaries has misappropriated any trade secrets or other confidential information of any other person or entity in the course of the performance of his or her duties as an officer, director, employee, independent contractor or agent of the Company or any of the Subsidiaries; and (iii) the Company and the Subsidiaries have taken all actions necessary or advisable to protect the Intellectual Property. (f) Any Intellectual Property that was created by employees of the Company or any of the Subsidiaries was made in the regular course of such employees' employment or service relationships with the Company or any of the Subsidiaries using the Company's or any of the Subsidiaries' facilities and resources and, as such, constitute "works made for hire" within the meaning of Section 101 of the Copyright Act of 1976 (or are owned by such employees' employer pursuant to an equivalent legal doctrine in applicable jurisdictions). Each such employee who has created, contributed to or participated in the conception and development of the Intellectual Property or any employee who in the regular course of his employment may 19 create Intellectual Property and all consultants, contractors, subcontractors or any other person or entity performing work on behalf of the Company or any of the Subsidiaries who have created, contributed to or participated in the conception and development of Intellectual Property, have signed an assignment or been a party to a similar agreement with the Company or any of the Subsidiaries that has accorded the Company or any of the Subsidiaries full, effective and exclusive ownership or, in the alternate, transferring and assigning to the Company or any of the Subsidiaries all right, title and interest in and to such Intellectual Property including copyright, patent and other intellectual property rights therein. (g) For purposes of this Agreement, "Intellectual Property" shall mean (i) trademarks and service marks, logos, trade dress, product configurations, trade names and other indications of origin, applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (ii) patentable inventions, inventions (whether or not patentable), discoveries, improvements, ideas, know-how, formula methodology, processes, technology, software (including password protected interpretive code or source code, object code, source files, development documentation, programming tools, drawings, specifications and technical data) and all applications or patents in any jurisdiction pertaining to the foregoing, including re-issues, divisions, continuations, continuations-in-part, renewals or extensions; (iii) trade secrets, customer lists and supplier lists, including confidential information and the right in any jurisdiction to limit the use or disclosure thereof; (iv) copyrights in writings, designs, software, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto; (v) database rights; (vi) Internet Web sites, Web pages, domain names and applications and registrations pertaining thereto and all intellectual property used in connection with or contained in all versions of such Web sites; (vii) rights under all agreements and licenses relating to the foregoing; (viii) books and records pertaining to the foregoing; and (ix) claims or causes of action arising out of or related to past, present or future infringement or misappropriation of the foregoing. SECTION 4.11. Insurance. Schedule 4.11 sets forth a true and complete list of all insurance policies carried by, or covering the Company and the Subsidiaries with respect to their businesses, assets and properties and with respect to which records are maintained at the Company's principal executive offices, together with, in respect of each such policy, the name of the insurer, the policy number, the type of policy, the amount of coverage and the deductible. True and complete copies of each such policy have previously been provided to Parent. All such policies are in full force and effect, and no notice of cancellation has been given with respect to any such policy. All premiums due on such policies have been paid in a timely manner and the Company and the Subsidiaries have complied in all material respects with the terms and provisions of such policies. SECTION 4.12. Environmental. Except as set forth in Schedule 4.12: (a) The Company and the Subsidiaries are and have been in compliance with all applicable Environmental Laws defined below, have obtained all Environmental Permits (defined below) and are and have been in compliance with their requirements, and have resolved all past non-compliance with Environmental Laws and Environmental Permits without any 20 pending, on-going or future obligation, cost or liability, except where the failure to do so would not be reasonably likely to have, individually or the aggregate, a Material Adverse Effect. (b) Neither the Company nor any of the Subsidiaries has (i) generated, stored, placed, held, located, released, transported or disposed of any Hazardous Substances (defined below) on, under, from or at any of the Company's or any of the Subsidiaries' properties (whether presently or formerly owned, leased or managed) or any other properties, (ii) any knowledge or reason to know of the presence or threat of release of any Hazardous Substances on, under or at any of the Company's or any of the Subsidiaries' properties or any other property but arising from the Company's or any of the Subsidiaries' current or former properties or operations, or (iii) received any written notice (A) of any violation of or liability under any Environmental Laws, (B) of the institution or pendency of any suit, action, claim, proceeding or investigation by any Governmental Entity or any third party in connection with any such violation or liability, (C) requiring the response to or remediation of Hazardous Substances at or arising from any of the Company's or any of the Subsidiaries' current or former properties or operations or any other properties, (D) alleging noncompliance by the Company or any of the Subsidiaries with the terms of any Environmental Permit in any manner reasonably likely to require material expenditures or to result in material liability or (E) demanding payment for response to or remediation of Hazardous Substances at or arising from any of the Company's or any of the Subsidiaries' current or former properties or operations or any other properties; (c) No Environmental Law imposes any obligation upon the Company or the Subsidiaries arising out of or as a condition to any transaction contemplated by this Agreement, including any requirement to modify or to transfer any permit or license, any requirement to file any notice or other submission with any Governmental Entity, the placement of any notice, acknowledgment or covenant in any land records, or the modification of or provision of notice under any agreement, consent order or consent decree. No Lien has been placed upon any of the Company's or the Subsidiaries' properties (whether owned, leased or managed) under any Environmental Law; (d) The Company and the Subsidiaries have provided Parent with copies of any environmental assessment or audit report (including all records maintained for required environmental compliance) or other similar studies or analyses in the possession of the Company or the Subsidiaries relating to any real property currently or formerly owned, leased, managed or occupied by the Company or the Subsidiaries. (e) As used in this Agreement, the following terms have the meanings set forth below: (i) "Environmental Law" means any local, state or federal law, (including the common law), regulation or ordinance now or hereafter in effect and as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the environment, health or safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Substances. 21 (ii) "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any applicable Environmental Law. (iii) "Hazardous Substances" means any chemicals, materials or substances that are potentially harmful to human health and the environment or otherwise regulated as toxic or hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law, including without limitation, petroleum, petroleum products, cathode ray tubes, asbestos and asbestos-containing materials, and mold. SECTION 4.13. Material Contracts. (a) Except as set forth in the SEC Reports filed prior to the date of this Agreement or in Schedule 4.13, neither the Company nor any of the Subsidiaries is a party to or bound by: (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the Securities Act and the Exchange Act); (ii) any contract or agreement for the purchase or lease (as lessee) of materials or personal property from any supplier or for the furnishing of services to the Company or any Subsidiary that involves or is likely to involve future monthly payments by the Company or any of the Subsidiaries of $50,000 or more; (iii) any contract or agreement for the sale, license or lease (as lessor) by the Company or any Subsidiary of services, materials, products, supplies or other assets, owned or leased by the Company or the Subsidiaries, that involves or is likely to involve future monthly payments to the Company or any of the Subsidiaries of $50,000 or more; (iv) any contract, agreement or instrument relating to or evidencing indebtedness for borrowed money of the Company or any Subsidiary in excess of an aggregate of $50,000; (v) any contract, agreement or understanding with goodguys.com, Inc. or its stockholders; (vi) any non-competition agreement or any other agreement or obligation which purports to limit in any respect the manner in which, or the localities in which, the business of the Company or the Subsidiaries may be conducted; (vii) any agreement with any present or former affiliates of the Company; (viii) any partnership, joint venture, strategic alliance or cooperation agreement (or any agreement similar to any of the foregoing); (ix) any voting or other agreement governing how any shares of Company Common Stock shall be voted; 22 (x) any agreement with any stockholders of the Company; or (xi) any contract or other agreement which would prohibit or materially delay the consummation of the Merger or any of the transactions contemplated by this Agreement. The foregoing contracts and agreements to which the Company or any Subsidiary are parties or are bound are collectively referred to herein as "Company Material Contracts." (b) Each Company Material Contract is valid and binding on the Company (or, to the extent a Subsidiary is a party, such Subsidiary) and is in full force and effect, and the Company and each Subsidiary have performed all obligations required to be performed by them to date under each Company Material Contract, except where such noncompliance, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Except as set forth on Schedule 4.13(b)(i), the Company has, or has caused to be, delivered to Parent or its counsel true and complete copies of the Company Material Contracts requested by same and any and all ancillary documents pertaining thereto (including, but not limited to, all amendments and waivers). Except as otherwise set forth in Schedule 4.13(b)(ii), each Company Material Contract will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of such transactions constitute a breach or default under such Company Material Contract or otherwise give the contracting party a right to terminate such Company Material Contract. Except as set forth in Schedule 4.13(b)(ii), neither the Company nor any Subsidiary knows of, or has given or received notice of, any violation or default under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Company Material Contract. (c) Except as disclosed in the SEC Reports filed prior to the date of this Agreement or in Schedule 4.13(c) or as expressly provided for in this Agreement, neither the Company nor any of the Subsidiaries is a party to any oral or written (i) employment or consulting agreement that cannot be terminated on thirty days' or less notice, (ii) agreement with any officer or other key employee of the Company or any of the Subsidiaries the benefits of which are contingent or vest, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or any the Subsidiaries of the nature contemplated by this Agreement, (iii) agreement with respect to any officer or other key employee of the Company or any of the Subsidiaries providing any term of employment or compensation guarantee or (iv) stock or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of such transactions. SECTION 4.14. Conduct of Business. (a) Except as set forth in Schedule 4.14(a), the business and operations of the Company and the Subsidiaries are not being conducted in default or violation of any term, condition or provision of (i) their respective Certificates of Incorporation or By-Laws or similar 23 organizational documents, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease or other instrument or agreement of any kind to which the Company or any of the Subsidiaries is now a party or by which the Company or any of the Subsidiaries or any of their respective properties or assets may be bound, except, with respect to the foregoing clause (ii), defaults or violations that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. Except as set forth in Schedule 4.14(a), to the Company's knowledge, no other party to any Company Material Contract is in default or violation in respect thereof, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default or violation. (b) Schedule 4.14(b) sets forth a true and complete list of all licenses, permits, franchises, authorizations and approvals issued or granted to the Company or its Subsidiaries by any Governmental Authority (the "Licenses and Permits"), and all pending applications therefor. Such list contains a summary description of each such item and, where applicable, specifies the date issued, granted or applied for, the expiration date and the current status thereof. Each License and Permit has been duly obtained, is valid and in full force and effect, and is not subject to any pending or, to the Company's knowledge, threatened administrative or judicial proceeding to revoke, cancel, suspend or declare such License and Permit invalid in any respect. To the Company's knowledge, the Licenses and Permits are sufficient and adequate in all material respects to permit the continued lawful conduct of the Company's and Subsidiaries' businesses in the manner now conducted and as proposed to be conducted, and none of the operations of the Company or Subsidiaries are being conducted in a manner that violates in any material respect any of the terms or conditions under which any License and Permit was granted. Except as set forth in Schedule 4.14(b), no such License and Permit will be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. (c) The contracts, agreements and understandings set forth on Schedule 4.14(c) have been terminated or expired by their terms, without any further liability to the Company or the Subsidiaries. SECTION 4.15. Compliance with Law. Except as set forth in Schedule 4.15, the operations of the Company and the Subsidiaries have been conducted in compliance in all material respects with all applicable laws, regulations, orders and other requirements of all Governmental Authorities having jurisdiction over the Company and the Subsidiaries and their respective assets, properties and operations. Except as set forth in Schedule 4.15, neither the Company nor any Subsidiary has received notice of any violation of any such law, regulation, order or other legal requirement, and is not in default with respect to any order, writ, judgment, award, injunction or decree of any Governmental Authority. The Company has no knowledge of any proposed change in any such laws, rules or regulations (other than laws of general applicability) that would materially and adversely affect the transactions contemplated by this Agreement or would be reasonably likely to have a Material Adverse Effect. To the Company's knowledge, neither the Company nor any Subsidiary, nor any director, officer, agent, employee or other Person associated with or acting on behalf of the Company or any Subsidiary has: used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any 24 provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. SECTION 4.16. Taxes. (a) Except as set forth in Schedule 4.16: (i) All Tax Returns (as defined below) required to be filed by or on behalf of the Company or any Subsidiary or any affiliated, combined or unitary group of which the Company or any Subsidiary is or was a member have been duly and timely filed (giving effect to all timely obtained extensions) with the appropriate taxing authorities and were, in all material respects, true, complete and correct. (ii) The Company and each Subsidiary have paid or will have paid to the appropriate taxing authority on its behalf, within the time and in the manner prescribed by law, all material Taxes (as defined below) for which it is liable, whether or not shown as being due on any Tax Returns. (iii) The Company and each Subsidiary have established on its books and records adequate reserves in accordance with GAAP for the payment of all Taxes for which it is liable that are not yet due and payable, and with respect to any such Taxes that have been proposed, assessed or asserted against them. (iv) The Company and each Subsidiary have complied in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes for which it is liable (including, without limitation, withholding of such Taxes pursuant to sections 1441 and 1442 of the Code or similar provisions under any state, local or foreign laws) and has, within the time and in the manner prescribed by law, withheld and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over under all applicable domestic and foreign laws. (v) Neither the Company nor any Subsidiary has requested any extension of time within which to file any Tax Return in respect of any taxable year, which Tax Return has not since been filed. (vi) There are no outstanding waivers or comparable consents that have been given by the Company or any Subsidiary or with respect to any Tax Return of the Company or any Subsidiary regarding the application of any statute of limitations with respect to any Taxes or Tax Returns of the Company or any such Subsidiary. (vii) No United States federal, state, local or foreign audits, investigations, other administrative proceedings or court proceedings are presently pending against the Company or any Subsidiary with regard to any Taxes or Tax Returns of the Company or any Subsidiary and no notification has been received by the Company or any Subsidiary that such an audit, investigation or other proceeding is pending or threatened. 25 (viii) Other than in the ordinary course of business consistent with its past practices, neither the Company nor any Subsidiary has granted any power of attorney or similar document that is currently in force with respect to any matter relating to Taxes. (ix) No property of the Company or any Subsidiary is property that the Company, the Subsidiary or any party to this transaction is or will be required to treat as being owned by another person pursuant to the provisions of section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect prior to the enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of section 168 of the Code. (x) The Company and each Subsidiary are members of an affiliated group of corporations within the meaning of section 1504(a) of the Code of which the Company is the common parent and such affiliated group files a consolidated return with respect to United States federal income taxes. (xi) Neither the Company nor any Subsidiary has liability for the Taxes of any person (other than members of the affiliated group described in Section 4.16(a)(x))) under Treasury Regulations section 1.1502-6 (or a similar or corresponding provision of state, local, or foreign law). (xii) There are no Liens for Taxes upon the assets or properties of the Company or any Subsidiary except for statutory Liens for Taxes not yet due. (xiii) Neither the Company or any Subsidiary is a party to, is bound by or has an obligation under any Tax sharing agreement, Tax indemnification agreement, Tax allocation agreement or similar contract or arrangement (including any agreement, contract or arrangement providing for the sharing or ceding of credits or losses) or has a potential liability or obligation to any person as a result of or pursuant to any such agreement, contract, arrangement or commitment. (xiv) No jurisdiction where the Company or any Subsidiary has not filed a Tax Return has made a claim that the Company or such Subsidiary is required to file a Tax Return in such jurisdiction. (xv) The Company and each Subsidiary have previously delivered or made available to Parent complete and accurate copies of all income Tax Returns filed with any taxing authority filed by or on behalf of the Company or any Subsidiary for taxable years 1999 through 2003. (b) For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, goods and services, capital, transfer, franchise, profits, license, withholding, payroll, employment, employer health, excise, severance, stamp, occupation, real or personal property, social security, estimated, recording, gift, value assessed, windfall profits or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, whether computed on a separate, consolidated, unitary, combined or other basis, together with any interest, fines, penalties, additions to tax or other additional amounts imposed 26 by any taxing authority (domestic or foreign). For purposes of this Agreement, "Tax Return" shall mean any return, declaration, report, estimate, information or other document (including any documents, statements or schedules attached thereto and any amendments thereof) required to be filed with any federal, state, local or foreign tax authority with respect to Taxes. SECTION 4.17. Labor Relations. Except as set forth in the SEC Reports or Schedule 4.17, (i) each of the Company and the Subsidiaries is, and has at all times been, in material compliance with all applicable laws, rules, regulations and orders respecting employment and employment practices, terms and conditions of employment, wages, hours or work and occupational safety and health, and is not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law; (ii) there is no labor grievance, arbitration, strike, slowdown, stoppage or lockout pending, or, to the knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries; (iii) neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any union or other labor organization or is engaged in any labor negotiations with any labor union; (iv) there are no proceedings pending between the Company and any of the Subsidiaries or any of their respective employees before any federal or state agency; and (v) to the knowledge of the Company, there are no activities or proceedings of any labor union to organize any non-union employees of the Company or any of the Subsidiaries. SECTION 4.18. Transactions with Affiliates. Except as disclosed in Schedule 4.18, no present or former affiliate of the Company has, or since December 31, 2002 has had, (i) any interest in any property (whether real, personal or mixed and whether tangible or intangible) used in or pertaining to any of the businesses of the Company or any of the Subsidiaries, (ii) has had business dealings or a material financial interest in any transaction with the Company or any of the Subsidiaries (other than compensation and benefits received in the ordinary course of business as an employee or director of the Company or any of the Subsidiaries) or (iii) an equity interest or any other financial or profit interest in any Person that has had business dealings or a material financial interest in any transaction with the Company or any of the Subsidiaries. SECTION 4.19. Brokers. No broker, finder or investment banker (other than Jefferies & Company, Inc.) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company. The Company has heretofore furnished to Parent true and complete copies of all agreements and other arrangements between the Company and Jefferies & Company, Inc. SECTION 4.20. Control Share Acquisition. No state takeover statute or similar statute or regulation, including, without limitation, Section 203 of the Delaware Law and any statute adopted by the State of California (which statutes and regulations are herein after collectively referred to as "Takeover Laws"), or other comparable takeover provision of the Certificate of Incorporation or By-Laws of the Company applies or purports to apply to the Merger or this Agreement, or any of the transactions contemplated by this Agreement. SECTION 4.21. Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock is the only vote of the holders of any class 27 or series of the Company's capital stock which may be necessary to approve this Agreement and the transactions contemplated hereby, including the Merger. SECTION 4.22. Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.23. Information Supplied. None of the information to be supplied by the Company specifically for inclusion or incorporation by reference in the Proxy Statement will, on the date it is first mailed to the holders of the Company Common Stock or on the date of the Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, at such time and in light of the circumstances under which they are made, not misleading. If at any time prior to the date of the Special Meeting, any event with respect to the Company, or with respect to information supplied by the Company specifically for inclusion in the Proxy Statement, shall occur which is required to be described in an amendment or supplement to the Proxy Statement, such event shall be so described by the Company. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein, to the extent relating to the Company or other information supplied by the Company for inclusion therein, will comply as to form, in all material respects, with the provisions of the Exchange Act, and each such document required to be filed with any Governmental Entity other than the SEC will comply in all material respects with the provisions of applicable law as to the information required to be contained therein. Notwithstanding the foregoing, but subject to the definition of "Material Adverse Effect", the Company makes no representation or warranty with respect to the information supplied or to be supplied by Parent, Merger Sub or their respective affiliates (other than the Company to the extent the Company is determined to be an affiliate of Parent and/or Merger Sub) for inclusion or incorporation by reference in the Proxy Statement. SECTION 4.24. WARN. Within the past twelve months: (i) neither the Company nor any of its Subsidiaries has effectuated a "plant closing" or a "mass layoff" (as such terms are defined in the Worker Adjustment and Retraining Notification Act (the "WARN Act")); (ii) the Company has not been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state, local or foreign law or regulation; and (iii) none of the Company's or any of its Subsidiaries' employees has suffered an "employment loss" (as defined in the WARN Act) during the 90 day period prior to the date of this Agreement. SECTION 4.25. Suppliers. No supplier of the Company or any Subsidiary whose failure to continue to be a supplier of the Company or any Subsidiary would reasonably be likely to result in, individually or in the aggregate, a Material Adverse Effect has indicated to the Company or any of its Subsidiaries that it will stop, or materially decrease the rate of, supplying products or services to the Company or any of its Subsidiaries. SECTION 4.26. Bank Accounts. Schedule 4.26 sets forth a complete list of the names and locations of each bank or other financial institution at which the Company or any of its Subsidiaries has an account (giving the account numbers) or safe deposit box and the names of all Persons authorized to draw thereon or have access thereto, and the names of all Persons, if 28 any, holding powers of attorney or comparable delegation of authority from the Company or its Subsidiaries and a summary statement thereof. SECTION 4.27. Board Action. The Board of Directors, at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (i) approving and declaring advisable this Agreement and the other Transaction Documents, the Merger and the transactions contemplated hereby and thereby; (ii) declaring that it is in the best interests of the Company's stockholders that the Company enter into the Transaction Documents and consummate the Merger on the terms and subject to the conditions set forth in this Agreement; (iii) approving the Transaction Documents, the Merger and the transactions contemplated hereby and thereby for purposes of Section 203 of Delaware Law, (iv) directing that this Agreement be submitted to a vote at a meeting of the Company's stockholders to be held as promptly as practicable; and (v) recommending that the holders of Company Common Stock adopt this Agreement, which resolutions have not been subsequently rescinded, modified or withdrawn in any way except as permitted by Section 5.2. Such resolutions are sufficient to render inapplicable to Merger Sub and Parent, this Agreement, the Merger and the transactions contemplated hereby the restrictions on "business combinations" contained in Section 203 of Delaware Law. SECTION 4.28. Opinion of Financial Advisor. Prior to or concurrently with the execution of this Agreement, Jefferies & Company, Inc. has rendered to the Board of Directors a written opinion, dated as of the date of this Agreement, to the effect that, subject to the assumptions and limitations set forth therein, the Merger Consideration to be received by the holders of the Company Common Stock pursuant to the Merger is fair to such holders, other than Parent, Merger Sub and their respective affiliates, from a financial point of view. A true and correct copy of such opinion will be delivered to Merger Sub, solely for information purposes, within one business day following receipt thereof by the Company. The Company has been authorized by Jefferies & Company, Inc. to permit the inclusion of such opinion in its entirety in the Proxy Statement. SECTION 4.29. Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the certificates delivered pursuant to Sections 7.3(a) and (b) hereof or in any Schedule furnished or to be furnished by the Company to Parent or Merger Sub pursuant to the provisions hereof, contains or will contain any untrue statement of material facts or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE V. CONDUCT OF BUSINESS PENDING THE MERGER SECTION 5.1. Conduct of Business by the Company Pending the Merger. The Company covenants and agrees that, from and after the date of this Agreement until the earlier of the termination of this Agreement in accordance with its terms and the Effective Time, except as expressly contemplated by this Agreement, the Company shall, and shall cause each of the Subsidiaries to (i) carry on its respective businesses in the ordinary course consistent with past 29 practice, (ii) use reasonable best efforts to preserve intact its current business organizations and keep available the services of its current officers and key employees, (iii) use reasonable best efforts to preserve its relationships with customers, suppliers, third party payors and other Persons with which it has business dealings, (iv) comply in all material respects with all laws and regulations applicable to it or any of its properties, assets or business and (v) maintain in full force and effect all Licenses and Permits necessary for such business. Without limiting the generality of the foregoing, except as (x) expressly contemplated by this Agreement or (y) set forth in Schedule 5.1, the Company shall not, and shall cause each of the Subsidiaries not to, directly or indirectly, without the prior written consent of Merger Sub: (a) amend its Certificate of Incorporation or By-Laws or similar organizational documents or change the number of directors constituting its entire board of directors; (b) (i)(A) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock or other equity interests, except that a wholly owned Subsidiary may declare and pay a dividend or make advances to its parent or the Company or (B) redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock or other securities; (ii) issue, sell, pledge, dispose of or encumber any (A) additional shares of its capital stock or other equity interests, (B) securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock or other equity interests, or (C) of its other securities, other than shares of Company Common Stock issued upon the exercise of Options or Warrants and Other Rights outstanding on the date hereof in accordance with the Option Plans or Warrant Agreements, as the case may be, as in effect on the date hereof; or (iii) split, combine or reclassify any of its outstanding capital stock or other equity interests; (c) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof (including entities which are Subsidiaries) or (B) any assets, including real estate, except (x) purchases of inventory, equipment and supplies in the ordinary course of business consistent with past practice and (y) other purchases in the ordinary course of business consistent with past practice in an amount not involving more than $50,000 in the aggregate; (d) authorize or make any capital expenditures in the aggregate in excess of $400,000; (e) except in the ordinary course of business, amend or terminate any Company Material Contract or Company Material Lease, or waive, release or assign any material rights or claims thereunder; (f) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any property or assets other than in the ordinary course of business and consistent with past practice; (g) (i) enter into any employment or severance agreement with or, except in accordance with the existing policies of the Company, grant any severance or termination pay to 30 any officer, director or key employee of the Company or any Subsidiary; or (ii) hire or agree to hire any new or additional key employees or officers; (h) except as required to comply with applicable law or as provided for in this Agreement or required by any option plan or any employment agreement set forth on Schedule 5.1(h), (A) adopt, enter into, terminate, amend or increase the amount or accelerate the payment or vesting of any benefit or award or amount payable under any Company Employee Benefit Plan or other arrangement for the current or future benefit or welfare of any director, officer or current or former employee, (B) increase in any manner the compensation or fringe benefits of, or pay any bonus to, any director, officer or, other than in the ordinary course of business consistent with past practice, employee, (C) pay any benefit not provided for under any Benefit Plan, (D) grant any awards under any bonus, incentive, performance or other compensation plan or arrangement or Company Employee Benefit Plan (including the grant of stock options, stock appreciation rights, stock based or stock related awards, performance units or restricted stock, or the removal of existing restrictions in any Company Employee Benefit Plans or agreements or awards made thereunder) or (E) take any action to fund or in any other way secure the payment of compensation or benefits under any employee plan, agreement, contract or arrangement or Company Employee Benefit Plan; (i) (i) incur or assume any long-term debt, or except in the ordinary course of business in amounts consistent with past practice, incur or assume any short-term indebtedness; (ii) incur or modify any material indebtedness or other liability; (iii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, except in the ordinary course of business and consistent with past practice; (iv) make any loans, advances or capital contributions to, or investments in, any other Person (other than to wholly owned Subsidiaries or customary loans or advances to employees in accordance with past practice); (v) settle any claims other than in the ordinary course of business, in accordance with past practice, and without admission of liability; or (vi) enter into any material commitment or transaction; (j) change any accounting method, including any accounting method with respect to Taxes, used by it unless required by GAAP; (k) other than in the ordinary course of business consistent with past practice, make any Tax election or settle or compromise any Tax liability; (l) (i) settle or compromise any claim, litigation or other legal proceeding, other than in the ordinary course of business consistent with past practice in an amount involving more than $250,000 in the aggregate or (ii) pay, discharge or satisfy any other claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of (A) any such other claims, liabilities or obligations, in the ordinary course of business and consistent with past practice, or (B) of any such other claims, liabilities or obligations reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of the Company; 31 (m) except in the ordinary course of business consistent with past practice, waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any Subsidiary is a party; (n) permit any insurance policy naming the Company or any Subsidiary as a beneficiary or a loss payable payee to be canceled or terminated without notice to Parent, except in the ordinary course of business and consistent with past practice or in connection with replacing such policy with a policy providing comparable coverage; (o) revalue any assets of the Company, except as required by GAAP; (p) enter into any new material line of business or enter into any contract that restrains, limits or impedes the Company's or any of its Subsidiaries' ability to compete with or conduct any business or line of business; (q) enter into any contract to allocate, share or otherwise indemnify for Taxes; (r) acquire, make (or commit to make) an investment in, or make a capital contribution to, any Person; (s) take or omit to take any action which would make any of the representations or warranties of the Company contained in this Agreement untrue and incorrect in any material respect as of the date when made if such action had then been taken or omitted, or would result in any of the conditions set forth in Article VII hereof not being satisfied; or (t) enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. SECTION 5.2. No Solicitation. (a) The Company shall not, nor shall it permit or authorize any of the Subsidiaries or any officer, director, employee, agent or representative (including accountants, attorneys and investment bankers) of the Company or any of the Subsidiaries (collectively, the "Company Representatives") to, (i) solicit or initiate, or encourage, directly or indirectly, any inquiries regarding or the submission of, any Takeover Proposal (as defined below), (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information or data with respect to, or take any other action to knowingly facilitate the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (iii) enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal; provided, however, that nothing contained in this Section 5.2 or any other provision hereof shall prohibit the Company or the Board of Directors from (A) taking and disclosing to the Company's stockholders a position with respect to a tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or (B) making such disclosure to the Company's stockholders as, in the good faith judgment of the Board of Directors, after receiving advice from outside counsel, is required under applicable law, provided that the Company may not, except as permitted by Section 5.2(b), withdraw or modify, or propose to withdraw or modify, its approval or recommendation of this Agreement or the transactions contemplated hereby, including the Merger, or approve or recommend, or propose to 32 approve or recommend any Takeover Proposal, or enter into any agreement with respect to any Takeover Proposal. Upon execution of this Agreement, the Company shall, and it shall cause the Company Representatives to, immediately cease any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Takeover Proposal. Notwithstanding the foregoing, prior to the Effective Time, the Company may furnish information concerning its business, properties or assets to any Person or group pursuant to confidentiality agreements with terms and conditions similar to the Confidentiality Agreement, dated August 23, 2002, as amended (the "Confidentiality Agreement"), between the Company and Parent (provided that such confidentiality agreements may not include any provision granting any such Person or group an exclusive right to negotiate with the Company), and may negotiate and participate in discussions and negotiations with such Person or group concerning a Takeover Proposal if: (x) such Person or group has submitted a Superior Proposal which is pending at the time the Company determines to take such action; and (y) the Board of Directors determines in good faith, based upon advice of outside counsel, that such action is required to discharge the Board of Director's fiduciary duties to the Company's stockholders under Delaware Law. The Company shall not release or permit the release of any Person from, or waive or permit the waiver of any provision of, any such confidentiality agreement or any other confidentiality, standstill or similar agreement to which the Company is a party or under which the Company has any rights. Without limiting the generality of the foregoing, the Company acknowledges and agrees that any breach by any Company Representative, or action taken by any Company Representative with the intent of circumventing, any of the provisions set forth in the preceding sentence shall be deemed to constitute a breach of this Section 5.2 by the Company (whether or not such Company Representative is purporting to act on behalf of the Company). The Company will promptly (and in any event within one (1) business day) notify Parent in writing, of the existence of any proposal, discussion, negotiation or inquiry received by the Company with respect to any Takeover Proposal, and the Company will promptly communicate to Parent the material terms and conditions of any proposal, discussion, negotiation or inquiry which it may receive. The Company will promptly provide to Parent any non-public information concerning the Company provided to any other Person which was not previously provided to Parent. The Company will keep Parent reasonably informed of the status and details of any such Takeover Proposal. As used in this Agreement, the following terms have the meanings set forth below: "Superior Proposal" means an unsolicited written proposal by a Third Party (defined below) to acquire, directly or indirectly, 25% or more of the shares of Company Common Stock then outstanding or all or substantially all of the assets of the Company, and (i) otherwise on terms which the Board of Directors determines in good faith to be more favorable to the Company's stockholders than the Merger (based in part on advice of the Company's independent financial advisor that the value of the consideration provided for in such proposal, taking into account the Termination Fee (as defined below), exceeds the value of the consideration provided for in the Merger), (ii) which is not subject to a financing contingency and (iii) which, in the good faith reasonable judgment of the Board of Directors of the Company, is reasonably likely to be consummated within a reasonable time. 33 "Takeover Proposal" means any inquiry, proposal or offer, whether in writing or otherwise, from a Third Party to acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of all or a material portion of the assets of the Company or any of its Subsidiaries or 20% or more of any class of equity securities of the Company or any of the Subsidiaries pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, sale of assets, tender offer, exchange offer or similar transaction with respect to either the Company or any of the Subsidiaries, including any single or multi-step transaction or series of related transactions, which is structured to permit such Third Party or another Third Party to acquire beneficial ownership of any material portion of the assets of, or 20% or more of the equity interest in either the Company or any of the Subsidiaries. "Third Party" means any Person or group other than Parent, Merger Sub or any affiliate thereof. (b) Except as set forth in this Section 5.2(b), neither the Board of Directors nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Merger Sub, the approval or recommendation by the Board of Directors or any such committee of this Agreement or the transactions contemplated hereby, including the Merger, (ii) approve or recommend, or propose to approve or recommend, any Takeover Proposal or (iii) enter into any agreement with respect to any Takeover Proposal. Notwithstanding the foregoing, prior to the Effective Time, the Board of Directors may withdraw or modify its approval or recommendation of this Agreement or the transactions contemplated hereby, including the Merger, approve or recommend a Superior Proposal, or enter into an agreement with respect to a Superior Proposal, in each case if (A) the Company shall have received a Superior Proposal which is pending at the time the Company determines to take such action, (B) the Board of Directors shall have determined in good faith, based upon advice of outside counsel, that such action is required to discharge the Board of Director's fiduciary duties to the Company's stockholders under Delaware Law, (C) at least three business days shall have passed following Parent's receipt of written notice from the Company advising Parent that the Board of Directors has received such a Superior Proposal which it intends to accept, specifying the material terms and conditions of such Superior Proposal, and Parent does not make an offer that the Board of Directors shall have concluded in its good faith judgment, after consultation with its financial advisors and outside counsel, is as favorable (taking into account the Termination Fee) to the Company stockholders as such Superior Proposal and (D) concurrently with taking such action the Company shall pay the Termination Fee as provided in Section 8.2(b) (whether or not this Agreement shall be terminated). ARTICLE VI. ADDITIONAL AGREEMENTS SECTION 6.1. Proxy Statement. As promptly as practicable after the date of this Agreement, the Company shall prepare the preliminary Proxy Statement and, after consultation with and review by Merger Sub, file the preliminary Proxy Statement with the SEC. The Company shall use its reasonable best efforts to (i) obtain and furnish the information required to be included by the SEC in the Proxy Statement and, after consultation with and review by Merger Sub, to respond promptly to any comments made by the SEC with respect to the Proxy 34 Statement; and (ii) promptly upon the earlier of (x) receiving notification that the SEC is not reviewing the preliminary Proxy Statement and (y) the conclusion of any SEC review of the preliminary Proxy Statement, cause a definitive Proxy Statement to be mailed to the Company's stockholders and, if necessary, after the definitive Proxy Statement shall have been so mailed, promptly circulate amended or supplemental proxy materials and, if required in connection therewith, resolicit proxies; provided, however, that no such amended or supplemental proxy materials will be mailed by the Company without consultation and review by Parent or Merger Sub. The Company will promptly notify Parent and Merger Sub of the receipt of comments of the SEC and of any request from the SEC for amendments or supplements to the preliminary Proxy Statement or definitive Proxy Statement or for additional information, and will promptly supply Parent and Merger Sub with copies of all written correspondence between the Company or Company Representatives, on the one hand, and the SEC or members of its staff, on the other hand, with respect to the preliminary Proxy Statement, the definitive Proxy Statement, the Merger or any of the other transactions contemplated by this Agreement. Parent and Merger Sub will cooperate with the Company in connection with the preparation of the Proxy Statement, including, but not limited to, furnishing to the Company any and all information regarding Parent and Merger Sub and their respective affiliates as may be required to be disclosed therein. The Proxy Statement shall contain the recommendation of the Board of Directors that the Company's stockholders approve this Agreement and the transactions contemplated hereby, provided that the Board of Directors may withdraw, modify or change its recommendation of the Merger and this Agreement if it does so in accordance with Section 5.2(b) hereof. SECTION 6.2. Meeting of Stockholders of the Company. As promptly as practicable after the date of this Agreement, the Company shall promptly take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and By-Laws to convene the Special Meeting, whether or not the Board of Directors or any committee thereof has withdrawn or modified, or proposes to withdraw or modify its approval or recommendation of this Agreement or the transactions contemplated hereby, including the Merger. The stockholder vote required for approval of the Merger will be no greater than that set forth in Delaware Law. Subject to the provisions of Section 5.2(b) hereof, the Company shall use its reasonable best efforts to solicit from stockholders of the Company proxies in favor of the Merger and shall take all other action necessary or, in the reasonable opinion of Merger Sub, advisable to secure any vote of stockholders required by Delaware Law to effect the Merger. SECTION 6.3. Compliance with Law. Each of the Company, Parent and Merger Sub will comply in all material respects with all applicable laws and with all applicable rules and regulations of any Governmental Entity in connection with its execution, delivery and performance of this Agreement and the transactions contemplated hereby. SECTION 6.4. Notification of Certain Matters. The Company shall give prompt notice to Parent of (i) the occurrence, or non-occurrence of any event whose occurrence, or non-occurrence would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any respect at any time from the date hereof to the Effective Time and (ii) any failure of the Company, or any of its officers, directors, employees or agents, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.4 shall not limit or otherwise affect the remedies available hereunder to Parent. 35 SECTION 6.5. Access to Information. From the date hereof to the Effective Time, the Company shall, and shall cause its Subsidiaries, officers, directors, employees, auditors and agents to, afford the officers, employees and agents of Parent and Merger Sub reasonable access at all reasonable times to its officers, employees, agents, properties (including, without limitation, for purposes of conducting environmental site assessments), offices and other facilities and to all books and records, and shall promptly furnish Parent and Merger Sub with (a) all financial, operating and other data and information as Parent or Merger Sub, through its officers, employees or agents, may reasonably request and (b) a copy of each report, schedule and other document filed or received by the Company or any of the Subsidiaries during such period pursuant to the requirements of applicable securities laws. SECTION 6.6. Public Announcements. So long as this Agreement is in effect, Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger and shall not issue, or permit their affiliates to issue, any such press release or make any such public statement before such consultation, except as may be required by law. SECTION 6.7. Reasonable Best Efforts; Cooperation. Upon the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable best efforts to obtain in a timely manner all necessary waivers, consents (including, without limitation, any consents relating to Company Material Leases) and approvals and to effect all necessary registrations and filings, and to use all reasonable best efforts to take, or cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, without limitation, (i) cooperating in responding to inquiries from, and making presentations to, regulatory authorities and (ii) defending against and responding to any action, suit, proceeding, or investigation, whether judicial or administrative, challenging or relating to this Agreement or the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed. Company shall use reasonable best efforts to obtain from each landlord or sublandlord (as the case may be) of Company or any Subsidiary under a Company Material Lease an estoppel certificate certifying that such Company Material Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), the dates to which the rent and other charges payable hereunder have been paid, and stating whether or not, to the knowledge of the signer of such certificate, the tenant or subtenant (as the case may be) thereunder is in default in the performance of any covenant, agreement or condition contained in such Company Material Lease and, if so, specifying each such default of which the signer may have knowledge. SECTION 6.8. Agreement to Defend and Indemnify. (a) From and after the Effective Time, Parent agrees to, and agrees to cause the Surviving Corporation to, honor any rights to indemnification or exculpation from liabilities in favor of the officers and directors of the Company and each of its Subsidiaries (collectively, the "Indemnified Parties") as provided in their respective certificates of incorporation or by-laws 36 (or comparable organizational documents) and the indemnification agreements set forth on Schedule 6.8(a), of the Company. Parent further agrees, for a period of five years after the Effective Time, that it will not, and will not permit the Surviving Corporation (or any successor entity owned or controlled by Parent), to amend, modify or repeal any provision of the certificates of incorporation or by-laws (or comparable organizational documents) of the Company or any of its Subsidiaries relating to the indemnification of officers, directors and/or employees. (b) For five years after the Effective Time, Parent shall, and shall cause the Surviving Corporation (or any successor entity owned or controlled by Parent) to, use reasonable best efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring at or prior to the Effective Time covering each such person currently covered by the Company's officers' and directors' liability insurance policy on terms reasonably comparable to those of such policy in effect on the date hereof, provided that in satisfying its obligation under this paragraph, Parent shall not be obligated to cause the Surviving Corporation (or any successor entity owned or controlled by Parent) to pay premiums in excess of 200% of the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed in writing to Parent, and if Parent or the Surviving Corporation is unable to obtain the insurance required by this paragraph, it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount. (c) Notwithstanding Section 9.7 hereof, this Section 6.8 is intended to be for the benefit of and to grant third-party rights to Indemnified Parties whether or not parties to this Agreement, and each of the Indemnified Parties shall be entitled to enforce the covenants contained herein. (d) If the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then and in each such case, proper provision shall be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 6.8. SECTION 6.9. Employee Benefits. For a period of six months following the Effective Time (the "Benefits Continuation Date"), Parent shall maintain, or cause to be maintained, each of the Company Employee Benefit Plans (other than stock based plans), provided that the Parent may substitute another plan or arrangement for any Company Employee Benefit Plan provided that such substituted plan or arrangement offers comparable benefits taken as a whole, provided, further, that in the event the costs of maintaining the Company Employee Benefit Plans increase prior to the Benefits Continuation Date, Parent may proportionately increase the fees it charges the Surviving Corporation's employees to participate in the Company Employee Benefit Plans. Notwithstanding the foregoing, Parent or the Surviving Corporation may amend or terminate any of the Company Employee Benefit Plans following the Benefits Continuation Date in accordance with their respective terms and applicable law. In addition, Parent shall, or shall cause the Surviving Corporation (or any successor entity owned or controlled by Parent) to, honor the agreements set forth on Schedule 6.9. 37 SECTION 6.10. State Takeover Laws. If any Takeover Law becomes or is deemed to become applicable to the Merger or this Agreement or any of the transactions contemplated by this Agreement, the Company shall promptly take all action necessary to render such Takeover Law inapplicable to all of the foregoing. SECTION 6.11. SEC Reports. From and after the date of this Agreement until the earlier of the termination of this Agreement or the Effective Time, the Company shall file on a timely basis all SEC Reports required to be filed by it with the SEC under the Exchange Act and the Securities Act, which SEC Reports shall comply in all material respects with the requirements of the Exchange Act and the Securities Act, each as applicable to such SEC Reports. SECTION 6.12. Delisting. Each of the parties hereto agrees to cooperate with the other party in taking, or causing to be taken, all actions necessary to (i) delist the Company Common Stock from the Nasdaq National Market and (ii) to terminate the registration of the Company Common Stock under the Exchange Act; provided that such delisting or termination shall not be effective until after the Effective Time. SECTION 6.13. Resignations. At or prior to the Effective Time, the Company shall obtain the resignations of each director of the Company and, if so requested by Merger Sub, of any officer of the Company and any director or officer of any Subsidiary of the Company. SECTION 6.14. Communications to Employees. Merger Sub and the Company will cooperate with each other with respect to, and endeavor in good faith to agree in advance upon the method and content of, all written or oral communications or disclosure to employees of the Company or any of the Subsidiaries with respect to the Merger and any other transactions contemplated by this Agreement. SECTION 6.15. Transfer Taxes. All stock transfer, real estate transfer, documentary, stamp, recording and other similar Taxes (including interest, penalties and additions to any such Taxes) ("Transfer Taxes") incurred in connection with the transactions contemplated by this Agreement shall be paid by either Merger Sub or the Surviving Corporation, and the Company shall cooperate with Merger Sub and Parent in preparing, executing and filing any Tax Returns with respect to such Transfer Taxes. SECTION 6.16. Voting of Company Common Stock. Parent and Merger Sub shall, and shall cause their respective affiliates to, vote any shares of Company Common Stock held by them in favor of the Merger and the adoption of this Agreement. SECTION 6.17. Note. Prior to or concurrently with the execution of this Agreement, Parent will make the investment to be evidenced by the Note. 38 ARTICLE VII. CONDITIONS OF MERGER SECTION 7.1. Conditions for Each Party's Obligations to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction on or prior to the Effective Time of the following conditions: (a) Stockholder Approval. The Merger and this Agreement shall have been approved and adopted by the requisite vote of the stockholders of the Company. (b) Injunction. No statute, rule, regulation, judgment, writ, decree, order or injunction shall have been promulgated, enacted, entered or enforced, and no other action shall have been taken, by any Governmental Entity that in any of the foregoing cases has the effect of making illegal or directly or indirectly restraining, prohibiting or restricting the consummation of the Merger. (c) HSR. Any waiting period applicable to the Merger under the HSR Act shall have expired or have been terminated. SECTION 7.2. Additional Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the additional following conditions, unless waived by the Company: (a) Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub shall have performed in all material respects their respective agreements contained in this Agreement required to be performed on or prior to the Effective Time and the Company shall have received certificates of the President or Chief Executive Officer or a Vice President of Parent and Merger Sub to that effect. (b) Representations and Warranties of Parent and Merger Sub. The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all respects when made and on and as of the Effective Time as if made on and as of such time (except for those representations and warranties of Parent and Merger Sub that are so qualified and relate to a particular date which representations and warranties shall be true and correct in all respects as of such date); provided, however, that this condition shall be deemed satisfied if the cumulative effect of all inaccuracies of Parent's and Merger Sub's representations and warranties (for this purpose disregarding any qualification or limitation as to knowledge, materiality or Purchaser Material Adverse Effect) would not be reasonably likely to have a Purchaser Material Adverse Effect. The Company shall have received certificates of the President or Chief Executive Officer or a Vice President of each of Parent and Merger Sub to the foregoing effects. (c) Purchaser Material Adverse Effect. Since the date hereof, there shall not have been any Purchaser Material Adverse Effect. 39 SECTION 7.3. Additional Conditions to Obligations of Parent and Merger Sub to Effect the Merger. The obligations of Parent and Merger Sub to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the additional following conditions, unless waived by Parent and Merger Sub: (a) Performance of Obligations of the Company. The Company shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Effective Time, and Parent and Merger Sub shall have received a certificate of the President or Chief Executive Officer or a Vice President of the Company to that effect. (b) Representations and Warranties of the Company. The representations and warranties of the Company contained in this Agreement shall be true and correct in all respects when made and on and as of the Effective Time as if made on and as of such time (except for those representations and warranties of the Company that are so qualified and relate to a particular date which representations and warranties shall be true and correct in all respects as of such date); provided, however, that this condition shall be deemed satisfied if the cumulative effect of all inaccuracies of the Company's representations and warranties (for this purpose disregarding any qualification or limitation as to knowledge, materiality or Material Adverse Effect) would not be reasonably likely to have a Material Adverse Effect. Parent and Merger Sub shall have received a certificate of the President or Chief Executive Officer or a Vice President of the Company to the foregoing effects. (c) Material Adverse Effect. Since the date hereof, there shall not have been any Material Adverse Effect. (d) Consents. The Company shall have obtained and provided to Parent and Merger Sub copies of evidence with respect thereto the consents of third parties listed on Schedule 7.3(d), the terms of which consents shall be reasonably satisfactory to Parent and Merger Sub. (e) Pre-November 2000 Options. Not less than seventy-five percent (75%) of the Pre-November 2000 Options shall have been terminated, without any further liability to the Company or the Subsidiaries. (f) Approvals. All notices, applications, approvals, consents, and waivers ("Approvals") required to be furnished to or obtained from any Governmental Entity necessary in order for the Company to conduct its business following the consummation of the transactions contemplated by this Agreement in all material respects in the manner as such business, taken as a whole, was conducted prior to the Effective Time shall have been obtained or furnished and any applicable waiting period or periods shall have expired (or, if there be no time limit for waiver or objection, a notice of no-objection or equivalent with respect thereto shall have been received by the Company). 40 ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER SECTION 8.1. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after approval of matters presented in connection with the Merger by the stockholders of the Company: (a) By the mutual written consent of the Board of Directors of Parent, Merger Sub and the Company; or (b) By Parent, Merger Sub or the Company if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree or ruling or other action each party hereto shall use its reasonable best efforts to have vacated or reversed), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; or (c) By Parent, Merger Sub or the Company, if the stockholders of the Company fail to approve the Merger upon the taking of a vote at a duly held meeting of the stockholders or at any adjournment thereof; or (d) By Parent or Merger Sub if, without any material breach by Merger Sub or Parent of their respective obligations under this Agreement, the Merger shall not have been consummated on or before March 15, 2004 (the "Termination Date"). (e) By the Company if, without any material breach by the Company of its obligations under this Agreement, the Merger shall not have been consummated on or before the Termination Date. (f) By the Company: (i) if the Company has approved a Superior Proposal in accordance with Section 5.2(b), provided the Company has complied with all provisions thereof, including the notice provisions therein; or (ii) if Parent or Merger Sub shall have breached its representations, warranties, covenants or other agreements contained in this Agreement and the cumulative effect of all inaccuracies of the Parent's and Merger Sub's representations and warranties (for this purpose disregarding any qualification or limitation as to knowledge, materiality or Purchaser Material Adverse Effect) would be reasonably likely to have a Purchaser Material Adverse Effect and which breach or failure to perform is incapable of being cured or has not been cured by ten business days following written notice thereof to Parent from the Company. (g) By Parent or Merger Sub: 41 (i) if the Board of Directors shall have withdrawn, or modified or changed in a manner adverse to Parent or Merger Sub, its approval or recommendation of this Agreement or the Merger, or shall have approved a Takeover Proposal, or if the Company shall have entered into an agreement to effect a Takeover Proposal; or (ii) if (A) a tender or exchange offer relating to securities of the Company shall have been commenced (other than pursuant to Section 2.3(b) hereof) and the Board of Directors shall not have recommended that the Company's stockholders reject such tender or exchange offer within ten business days after the commencement thereof or (B) the Board of Directors shall have waived Section 203 of Delaware Law with respect to any Person other than Parent, Merger Sub or their affiliates or any group of which any them is a member; or (iii) if the Company, or any of the Company Representatives, shall take any actions in breach of Section 5.2(a) hereof; or (iv) if the Company shall have breached its representations, warranties, covenants or other agreements contained in this Agreement and if the cumulative effect of all inaccuracies of the Company's representations and warranties (for this purpose disregarding any qualification or limitation as to knowledge, materiality or Material Adverse Effect) would be reasonably likely to have a Material Adverse Effect and which breach or failure to perform is incapable of being cured or has not been cured within ten business days following written notice thereof to the Company from Merger Sub. SECTION 8.2. Effect of Termination. (a) In the event of termination of this Agreement by either the Company, Parent or Merger Sub as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Merger Sub or the Company, other than the provisions of this Article VIII and as provided in Section 6.8 and Section 9.1 and except that nothing herein shall relieve any party for breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) If (x) Parent or Merger Sub terminates this Agreement pursuant to Section 8.1(g)(i), 8.1(g)(ii) or 8.1(g)(iii) or (y) the Company terminates this Agreement pursuant to Section 8.1(f)(i), then in each case, the Company shall pay, or cause to be paid to Parent, at the time of termination, an amount equal to One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the "Termination Fee"). (c) If (x) Parent, Merger Sub or the Company terminates this Agreement pursuant to Section 8.1(c), 8.1(d), 8.1(e) or 8.1(g)(iv), in each case after the Company's receipt of a Takeover Proposal, and (y) within twelve (12) months after such termination, the Company enters into an agreement with respect to a Takeover Proposal, then the Company shall pay the Termination Fee concurrently with entering into any such agreement. (d) If (x) Parent, Merger Sub or the Company terminates this Agreement pursuant to Section 8.1(c), 8.1(d), 8.1(e) or 8.1(g)(iv) and the Company has not received a Takeover Proposal at the time of termination and (y) within nine (9) months after such 42 termination, the Company enters into an agreement with respect to a Takeover Proposal, then the Company shall not pay the Termination Fee but shall pay Parent Nine Hundred Thousand Dollars ($900,000), for expenses incurred in connection with the drafting, negotiation and execution of this Agreement and the other Transaction Documents, concurrently with entering into any such agreement. ARTICLE IX. GENERAL PROVISIONS SECTION 9.1. Non-Survival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or the termination of this Agreement pursuant to Section 8.1, as the case may be, except as provided in Section 8.2 and except that the agreements set forth in Article II, Section 6.8 and Section 6.9 shall survive the Effective Time in accordance with their express terms and those set forth in Article VIII and Section 9.3 shall survive termination indefinitely. SECTION 9.2. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made (i) as of the date delivered or sent by facsimile if delivered personally or by facsimile, and (ii) on the third business day after deposit in the U.S. mail, if mailed by registered or certified mail (postage prepaid, return receipt requested), in each case to the parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (a) if to Parent or Merger Sub: Grupo Sansborns, S.A. de C.V. c/o Grupo Finan Inbursa Paseo de Las Palmas 736 Mexico Col. Lomas de Chapultepec Attention: Eduardo Valdes Acra Javier Cervantes Facsimile: 011-525-520-5326 011-525-540-7492 With a copy to: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 Attention: Thomas M. Cerabino, Esq. Facsimile: (212) 728-8111 43 (b) if to the Company: Good Guys, Inc. 1600 Harbor Bay Parkway Alameda, CA 94502 Attention: Chief Executive Officer Facsimile: (510) 747-6291 With copies to: Howard, Rice, Nemerovski, Canady, Falk & Rabkin 3 Embarcadero Center, 7th Floor San Francisco, CA 94111-4065 Attention: Richard W. Canady Facsimile: (415) 217-5910 SECTION 9.3. Expenses. Except as set forth in Section 8.2(b), all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs and expenses. SECTION 9.4. Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of a Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned Person; (b) "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; and (c) "knowledge" means the knowledge of any officer or director of the party making the representation and warranty. (d) "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization or other entity. (e) The following terms shall have the meanings ascribed to them in the respective section of the Agreement: "Agreement" - See the Preamble "Benefits Continuation Date" - See Section 6.9 "Board of Directors" - See the Recitals "Certificate of Merger" - See Section 1.3 "Certificate" - See Section 2.1(e) "Closing" - See Section 1.2 "Closing Date" - See Section 1.2 "Code" - See Section 2.2(g) "Company" - See the Preamble "Company Common Stock" - See Section 2.1(b) 44 "Company Employee Benefit Plans" - See Section 4.8(a) "Company ERISA Affiliate" - See Section 4.8(a) "Company Material Contracts" - See Section 4.13(a) "Company Material Leases" - See Section 4.9(b) "Company Multiemployer Plan" - See Section 4.8(b) "Company Preferred Stock" - See Section 4.2(a) "Company Representatives" - See Section 5.2(a) "Confidentiality Agreement" - See Section 5.2(a) "Delaware Law" - See the Recitals "Dissenting Shares" - See Section 2.1(d) "Effective Time" - See Section 1.3 "Environmental Law" - See Section 4.12(e) "Environmental Permit" - See Section 4.12(e) " ERISA" - See Section 4.8(a) "Exchange Act" - See Section 3.3(b) "Exchange Agent" - See Section 2.2(a) "Exchange Fund" - See Section 2.2(a) "Excluded Shares" - See Section 2.1(b) "GAAP" - See Section 4.5(b) "Governmental Entity" - See Section 3.3(b) "Hazardous Substances" - See Section 4.12(e) "HSR Act" - See Section 3.3(b) "Indemnified Parties" - See Section 6.8(a) "Intellectual Property" - See Section 4.10(g) "Intercreditor Agreement" - See Section 4.4(a) "Leased Real Property" - See Section 4.9(d) "Licenses and Permits" - See Section 4.14(b) "Liens" - See Section 4.2(b) "Listed Intellectual Property" - See Section 4.10(b) "Material Adverse Effect" - See Section 4.1(a) "Merger" - See the Recitals "Merger Consideration" - See Section 2.1(b) "Merger Sub" - See the Preamble "Merger Sub Common Stock" - See 2.1(a) "Note" - See Section 4.4(a) "Option Plans" - See Section 2.3(a) "Option Price" - See Section 2.3(a) "Options" - See Section 2.3(b) "Other Stock Plan" - See Section 2.3(d) "Parent" - See the Preamble "Post-November 2000 Options" - See Section 2.3(a) "Pre-November 2000 Options" - See Section 2.3(b) "Proxy Statement" - See Section 3.8 "Purchaser Information" - See Section 3.7 "Purchaser Material Adverse Effect" See Section 3.6 "Registration Rights Agreement" - See Section 4.4(a) "Restated Certificate" - See Section 1.6 "SEC" - See Section 3.8 "SEC Reports" - See Section 4.5(a) "Securities Act" - See Section 4.5(a) "Special Meeting" - See Section 3.8 "Subsidiary" - See Section 4.1(c) "Superior Proposal" - See Section 5.2(a) "Surviving Corporation" - See Section 1.1 "Takeover Laws" - See Section 4.20 "Takeover Proposal" - See Section 5.2(a) "Tax Return" -Section 4.16(b) "Taxes" - See Section 4.16(b) "Termination Date" - See Section 8.1(d) "Termination Fee" - See Section 8.2(b) "Third Party" - See Section 5.2 "Transaction Documents" - See Section 4.4(a) "Transfer Taxes" - See Section 6.14 45 "WARN Act" - See Section 4.24 "Warrant Agreements" - See Section 2.3(c) "Warrants and Other Rights" - See Section 2.3(c) "Warrant Price" - See Section 2.3(c) SECTION 9.5. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.6. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. SECTION 9.7. Entire Agreement; No Third-Party Beneficiaries. This Agreement and the Confidentiality Agreement constitute the entire agreement and supersede any and all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder, except as otherwise provided herein. SECTION 9.8. Assignment. This Agreement shall not be assigned by operation of law or otherwise, except that Parent and Merger Sub may assign all or any of their rights hereunder to any affiliate of Parent provided that no such assignment shall relieve the assigning party of its obligations hereunder. SECTION 9.9. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed entirely within that State. SECTION 9.10. Amendment. This Agreement may be amended by the parties hereto by action taken by Parent and Merger Sub, and by action taken by or on behalf of the Board of Directors at any time before the Effective Time; provided, however, that, after approval of the Merger by the stockholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each share of Company Common Stock will be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 9.11. Waiver. At any time before the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties of the other parties hereto contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other parties hereto with any of their agreements or conditions contained 46 herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only as against such party and only if set forth in an instrument in writing signed by such party. The failure of any party hereto to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. SECTION 9.12. Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile), and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 47 IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. GOOD GUYS, INC. By: /s/ Kenneth R. Weller ----------------------------------------- Name: Kenneth R. Weller Title: Chairman & Chief Executive Officer COMPUSA INC. By: /s/ Javier Larraza ----------------------------------------- Name: Javier Larraza Title: Executive Vice President/ Chief Financial Officer GLADIATOR ACQUISITION CORP. By: /s/ Javier Larraza ----------------------------------------- Name: Javier Larraza Title: President US Commercial Corp. De C.V. hereby unconditionally agrees to cause Parent and Merger Sub to pay the Merger Consideration on or after the Closing in accordance with the terms of this Agreement. US COMMERCIAL CORP. DE C.V. By: /s/ Eduardo Valdes ----------------------------------------- Name: Eduardo Valdes Title: Attorney In Fact [Signature Page to Merger Agreement] EX-10.34 4 f93367exv10w34.txt EXHIBIT 10.34 EXHIBIT 10.34 THE SECURITIES REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT OR SUCH LAWS AND, IF REQUESTED BY MAKER, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAKER THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE ACT OR SUCH LAWS. ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE TERMS OF, THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 29, 2003, AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG BANK OF AMERICA, N.A., AS AGENT, GOOD GUYS CALIFORNIA, INC., GOOD GUYS, INC., AND COMPUSA, INC. UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE $5,000,000.00 September 29, 2003 FOR VALUE RECEIVED, Good Guys California, Inc., a California corporation (the "Maker"), hereby unconditionally promises to pay to the order of CompUSA Inc. (the "Holder" or the "Lender"), or its permitted assigns, the original aggregate principal sum of Five Million Dollars ($5,000,000.00), together with interest on the unpaid principal balance of this Note outstanding at a rate per annum equal to three percent (3%) (computed on the basis of the actual number of days elapsed in a 360-day year) per annum and continuing on the outstanding principal until this Note is exchanged or paid in full. All payments of principal and interest by the Maker under this Note shall be made in cash in immediately available funds on the Maturity Date (as defined below). So long as any Event of Default (as defined below) or any Shareholder Event (as defined below) shall be continuing, (i) every amount due and owing under this Note shall bear interest at an annual rate of five percent (5%) (the "Default Interest Rate") and (ii) any accrued but unpaid interest on this Note shall be payable on demand and shall accrue until the obligation of the Maker with respect to the payment of such interest has been discharged (whether before or after judgment). In no event shall any interest charged, collected or reserved under this Note exceed the maximum rate then permitted by applicable law and if any such payment is paid by the Maker, then such excess sum shall be credited by the Holder as a payment of principal. 1. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated: "Common Stock" shall mean the common stock, par value $.001 per share, of Parent. "Conversion Date" shall have the meaning ascribed to such term in Section 3(b) "Conversion Price" shall mean $2.05 per share (subject to adjustment in the event of any stock dividend, stock split, stock distribution or combination or similar event with respect to such stock after the date of this Note). "Default Interest Rate" shall have the meaning ascribed to such term in the second paragraph herein. "Event of Default" shall have the meaning ascribed to such term in Section 6(a) herein. "Holder" shall have the meaning ascribed to such term in the first paragraph herein. "Issue Date" shall mean September 29, 2003. "Lender" shall have the meaning ascribed to such term in the first paragraph herein. "Maker" shall have the meaning ascribed to such term in the first paragraph herein. "Maturity Date" shall mean September 29, 2005 or, if the Lender elects in its sole and absolute discretion by written notice to the Maker given not later than thirty (30) days prior to September 29, 2005, the date specified by Lender but not later than the third anniversary of the Issue Date. "Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of September 29, 2003 and as amended, between Parent and the other parties named therein. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Note" shall have the meaning ascribed to such term in Section 2 herein. "Obligations" shall mean all debts, liabilities, and obligations for monetary amounts (whether or not such amounts are liquidated or determinable) owing by the Maker to Lender and arising under this Note. This term includes, without limitation, all interest, charges, expenses, attorneys fees and any other sum chargeable to the Maker under this Note. "Parent" shall mean Good Guys, Inc., a Delaware corporation. "Securities" shall mean this Note and the shares of Common Stock issuable upon conversion of this Note. - 2 - "Shareholder Event" shall have the meaning ascribed to such term in Section 6(a)(v) herein. 2. Merger Agreement. This Unsecured Subordinated Convertible Promissory Note (this "Note") is the unsecured subordinated convertible promissory note of the Maker referred to in the Merger Agreement. This Note is transferable and assignable to any person to whom such transfer is permissible under applicable law; provided, however, that any transfer of this Note must be accompanied by the surrender of this Note to Maker together with any necessary transfer documents. The Maker agrees to issue from time to time replacement Notes in the form hereof to facilitate such transfers and assignments. In addition, after delivery of an indemnity in form and substance satisfactory to the Maker, the Maker also agrees to issue a replacement Note if the Note is lost, stolen, mutilated or destroyed. 3. Conversion. (a) Optional Conversion. The Lender may convert the outstanding principal amount (or any portion thereof) and accrued but unpaid interest (or any portion thereof) on this Note into shares of Common Stock at any time, and from time to time, at the Conversion Price. The number of shares of Common Stock issuable upon conversion of this Note shall be determined by dividing the principal amount of this Note (or any portion thereof) and accrued but unpaid interest (or any portion thereof) surrendered for conversion by the Conversion Price. (b) Mechanics. To convert this Note, the Lender shall surrender this Note, duly endorsed, at the principal offices of the Maker or any transfer agent of the Maker. The date upon which the Lender surrenders the Note to the Maker is the "Conversion Date." At its expense, as soon as practicable after the Conversion Date, Parent shall deliver to the Lender a certificate for the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares. The person in whose name the Common Stock certificate is registered shall be deemed to be a stockholder of record on the Conversion Date. In furtherance of the foregoing, Parent and Maker acknowledge that any delay in or failure to deliver such certificates to the person in whose name the Common Stock certificate is registered following the Conversion Date shall not affect the right of such person to be treated for all purposes, in respect of the number of whole shares of Common Stock issuable upon such conversion, as the record holder of such number of shares of Common Stock on the Conversion Date. In the event this Note is to be converted in part, the Maker shall execute and deliver to the Lender, a new Note equal in principal amount to the unconverted portion of the Note surrendered. Parent agrees to reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of this Note into shares of Common Stock. All shares of Common Stock delivered upon conversion of this Note shall be newly issued shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim. (c) Fractional Shares. Parent shall not be required to issue fractional shares of Common Stock upon conversion of this Note. In lieu thereof, Maker will pay an amount of cash equal to current market value of the fractional shares. - 3 - 4. Payments. The Maker shall have no right to prepay all or any portion of this Note prior to the Maturity Date. All payments by the Maker under this Note shall be made without set-off, defense or counterclaim and be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. The principal balance and all accrued but unpaid interest on this Note shall be paid in full on the Maturity Date. 5. No Waiver by Lender. The Lender's failure, at any time or times, to require strict performance by the Maker of any provision of this Note shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance herewith. Any suspension or waiver by the Lender of an Event of Default shall not suspend, waive or affect any other Event of Default under this Note whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of the Maker contained in this Note and no Event of Default of the Maker under this Note shall be deemed to have been suspended by Lender, unless such suspension or waiver is by an instrument in writing signed by Lender and directed to Maker specifying such suspension or waiver. 6. Event of Default. (a) The occurrence of any one or more of the following events (regardless of the reason therefore) shall constitute an "Event of Default" hereunder: (i) upon the failure to pay within three (3) business days of the date when due the principal balance, any accrued interest or any other amount payable hereunder; (ii) if the Maker shall have breached in any material respect any of its representations or warranties contained in the Merger Agreement and such breach shall not have been cured within twenty (20) days after the Maker's receipt from the Holder of written notice that the specified possible breach is to be remedied or if the failure cannot be cured within ten (10) days after the Maker's attempts in such twenty (20)-day period, and the failure may be cured within a reasonable time, then the Maker shall have an additional period of not more than ten (10) days to attempt to cure the breach; (iii) if the Maker shall have breached in any material respect any of its representations, warranties, covenants or other agreement (other than the one referred to in Section 6(a)(i) herein) contained in any other Section of this Note and such breach shall not have been cured within twenty (20) days after the Maker's receipt from the Holder of written notice that the specified possible breach is to be remedied or if the failure cannot be cured within ten (10) days after the Maker's attempts in such twenty (20)-day period, and the failure may be cured within a reasonable time, then the Maker shall have an additional period of not more than ten (10) days to attempt to cure the breach; (iv) (A) if the Maker (1) commences any voluntary proceeding under any provision of Title 11 of the United States Code, as now or hereafter amended, or commences any other proceeding, under any law, now or hereafter in force, relating to bankruptcy, insolvency, reorganization, liquidation, or otherwise to the relief of debtors or the readjustment of - 4 - indebtedness, (2) makes any assignment for the benefit of creditors or a composition or similar arrangement with such creditors, or (3) appoints a receiver, trustee or similar judicial officer or agent to take charge of or liquidate any of its property or assets or upon the commencement against the Maker of any involuntary proceeding of the kind described in this paragraph; or (B) if any involuntary proceeding under any provision of Title 11 of the United States Code, as now or hereafter amended, or any other proceeding, under any law, now or hereafter in force, relating to bankruptcy, insolvency, reorganization, liquidation, or otherwise to the relief of debtors or the readjustment of indebtedness is commenced against the Maker and not dismissed within thirty (30) days; (v) if (A) the stockholders of Parent fail to approve the Merger upon the taking of a vote at a duly held meeting of the stockholders or any adjournment thereof or (B) the Merger Agreement otherwise terminates as a result of the failure to receive such stockholder approval (each, a "Shareholder Event") and ninety (90) days has elapsed since the occurrence of any such Shareholder Event; and (vi) upon the acceleration of any other indebtedness of the Maker for borrowed money that has an outstanding principal amount in excess of $1,000,000. (b) If any Event of Default specified in Section 6(a) shall have occurred and be continuing, the Lender may, by notice to the Maker, declare all Obligations to forthwith be due and payable, whereupon all such Obligations shall become and be due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Maker; provided, however, that upon the occurrence of an Event of Default specified in Section 6(a)(iv), such Obligations shall become due and payable without presentment, demand, protest, declaration, notice or demand by Lender. 7. Subordination. The indebtedness evidenced by this Note is hereby expressly subordinated in right of payment to other indebtedness of Maker as provided in that certain Intercreditor and Subordination Agreement, dated as of September 29, 2003, as the same may be amended, modified or supplemented from time to time, by and among Bank Of America, N.A., as Agent, Maker, Parent, and Lender. 8. Holder Representations and Warranties. Holder represents and warrants to the Maker as follows: (a) Purchase Entirely for Own Account Etc. Holder is acquiring the Securities for its own account, and not with a view to, or for sale in connection with, any distribution of the Securities in violation of the Securities Act of 1933, as amended (the "Securities Act"). Except as contemplated by this Note, Holder has no present agreement, undertaking, arrangement, obligation or commitment providing for the disposition of the Securities. Holder, if it is a legal entity, has not been organized, reorganized or recapitalized specifically for the purpose of investing in the Securities. (b) Investor Status; Etc. Holder certifies and represents to Maker that at the time Holders acquires any of the Securities, Holder will be an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. Holder's financial condition is - 5 - such that it is able to bear the risk of holding the Securities for an indefinite period of time and the risk of loss of its entire investment. Holder has been afforded the opportunity to ask questions of and receive answers from the management of Maker concerning this investment and has sufficient knowledge and experience in investing in companies similar to Maker in terms of Maker's stage of development so as to be able to evaluate the risks and merits of its investment in Maker. 9. Additional Remedies Upon Default. Subject to Section 7 hereof, notwithstanding anything to the contrary contained herein, upon an Event of Default hereunder, and during the continuation thereof, the Holder may exercise any other right, power or remedy as may be provided herein or as may be provided at law or in equity. 10. Registration Rights. The shares of Common Stock issuable upon conversion of this Note shall have registration rights as provided in the Registration Rights Agreement, dated the date hereof, between the Parent and the Lender. 11. Amendment. None of the terms or provisions of this Note may be excluded, modified or amended except by a written instrument duly executed by the Holder and the Maker expressly referring to this Note and setting forth the provision so excluded, modified or amended. 12. Usury Savings Clause. Maker and Lender intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is Maker's and Lender's express intention that Maker not be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 12 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the principal balance of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note. 13. Costs. If action is instituted to collect on this Note, the Maker promises to pay all costs and expenses, including reasonable attorney's fees, incurred in connection with such action. 14. Governing Law. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to conflicts of law principles thereof. 15. Notices. All notices hereunder shall be given in writing and shall be deemed delivered when received by the other party hereto at the address set forth in the Purchase Agreement or at such other address as may be specified by such party from time to time in accordance with the Merger Agreement. 16. Waiver. Except as otherwise provided for in this Note, the Maker hereby expressly waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other formality. The Maker acknowledges that it has been advised by counsel of its choice with respect to this Note and the transactions evidenced by this Note. - 6 - This Note shall be binding upon the successors or assigns of the Maker and Parent and shall inure to the benefit of the successors and assigns of the Holder. GOOD GUYS CALIFORNIA, INC. By: /s/ Kenneth R. Weller ------------------------------------ Name: Kenneth R. Weller Title: Chairman & CEO GOOD GUYS, INC. By: /s/ Kenneth R. Weller ------------------------------------ Name: Kenneth R. Weller Title: Chairman & CEO [Note Signature Page] EX-10.35 5 f93367exv10w35.txt EXHIBIT 10.35 EXHIBIT 10.35 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT") is made as of September 29, 2003, by and between CompUSA Inc. ("the LENDER") and Good Guys, Inc., a Delaware corporation (the "COMPANY"). R E C I T A L S : WHEREAS, the Company's wholly owned subsidiary Good Guys California, Inc., a California corporation, proposes to issue and sell to the Lender $5,000,000 aggregate principal amount of its 3% Unsecured Subordinated Convertible Promissory Notes (the "NOTE"); WHEREAS, the Note will be convertible into shares of common stock, par value $.001 per share, of the Company (the "COMMON STOCK") at the conversion price set forth in the Note; and WHEREAS, as an inducement to the Lender to purchase the Note, the Company agrees with the Lender, for the benefit of the Lender and its permitted assigns (each an "ADDITIONAL HOLDER", and together with the Lender, the "HOLDERS"), as follows: 1. Shelf Registration. (a) The Company shall, at its cost, prepare and, as promptly as practicable after a Triggering Event (as defined below) (but in no event no more than 30 days after a Triggering Event), file with the Securities and Exchange Commission (the "COMMISSION") and thereafter use its reasonable efforts to cause to be declared effective as soon as practicable a registration statement on Form S-3 (the "SHELF REGISTRATION STATEMENT") relating to the offer and sale of the Registrable Securities (defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act of 1933, as amended (the "SECURITIES ACT") (hereinafter, the "SHELF REGISTRATION"); provided, however, that no Additional Holder shall be entitled to have the shares of Common Stock issuable upon conversion of the Note (the "REGISTRABLE SECURITIES") held by it covered by such Shelf Registration Statement unless such Additional Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Additional Holder. (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein (the "PROSPECTUS") to be lawfully delivered by the Holders of the Registrable Securities, for a period of two years (or for such longer period if extended pursuant to Section 2(h) below) from the date of a Triggering Event or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto (ii) cease to be outstanding, or (iii) are no longer restricted securities (as defined in Rule 144(k) under the Securities Act, or any successor rule thereof), assuming for this purpose that the Holders thereof are not affiliates of the Company (in any such case, such period being called the "SHELF REGISTRATION PERIOD"). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell such Registrable Securities during that period, unless such action is (i) required by, or necessary for the Company to stay in compliance with, applicable law or (ii) taken by the Company in good faith and contemplated by Section 2(b)(v) below, and the Company thereafter complies with the requirements of Section 2(h). (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) "TRIGGERING EVENT" means the termination by any person of that certain Agreement and Plan of Merger dated as of September 29, 2003 among the Company, U.S. Commercial Corp., S.A. de C.V. and the Lender (the "MERGER AGREEMENT") pursuant to Section 8.1 of the Merger Agreement. 2. Registration Procedures. In connection with the Shelf Registration contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Holder, prior to the filing thereof with the Commission, a copy of the Shelf Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that any Holder is participating in the Shelf Registration Statement, shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as such Holder reasonably may propose; and (ii) include the names of the Holders who propose to sell Registrable Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Holders of the Registrable Securities (which notice pursuant to clauses (ii)-(v) of this Section 2(b) shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made): (i) when the Shelf Registration Statement or any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information; 2 (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Shelf Registration Statement or the Prospectus in order that the Shelf Registration Statement or the Prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make reasonable efforts to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Shelf Registration Statement. (d) The Company shall furnish to each Holder of Registrable Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall, during the Shelf Registration Period, deliver to each Holder of Registrable Securities included within the coverage of the Shelf Registration, without charge, as many copies of the Prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of the Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (f) Prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Registrable Securities included therein and their respective counsel in connection with the registration or qualification of the Registrable Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Registrable Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. 3 (g) The Company shall cooperate with the Holders of the Registrable Securities to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Registrable Securities pursuant to the Shelf Registration Statement. (h) Subject to Section 5(c) hereof, upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 2(b) above during the period for which the Company is required to maintain an effective Shelf Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Shelf Registration Statement or an amendment or supplement to the Prospectus and any other required document so that, as thereafter delivered to Holders or purchasers of the Registrable Securities, the Prospectus as so amended or supplemented will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with paragraphs (ii) through (v) of Section 2(b) above to suspend the use of the Prospectus until the requisite changes to the Prospectus have been made, then the Holders shall suspend use of such Prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 1(b) above shall be extended by the number of days from and including the date of the giving of such notice to and including the date when the Holders shall have received such amended or supplemented prospectus pursuant to this Section 2(h). (i) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Shelf Registration Statement, which statement shall cover such 12-month period. (k) The Company shall take all such other actions, if any, as any Holder shall reasonably request in order to facilitate the disposition of the Registrable Securities pursuant to the Shelf Registration. (l) The Company shall (i) make reasonably available for inspection by the Holders, and any attorney, accountant or other agent retained by the Holders, all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders or any such attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of 4 the Lender by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 3 hereof. 3. Registration Expenses. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; (ii) all fees and expenses incurred in connection with the compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Registrable Securities to be issued and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing the Registrable Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with the Shelf Registration Statement required by this Agreement, the Company will reimburse the Holders of Registrable Securities covered by the Shelf Registration Statement, for the reasonable fees and disbursements of not more than one counsel, designated by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement (provided that Holders of Common Stock issued upon the conversion of the Note shall be deemed to be Holders of the aggregate principal amount of the Note from which such Common Stock was converted) to act as counsel for the Holders in connection therewith. 4. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (each Holder, and such controlling persons are referred to collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Registrable Securities) to which each Indemnified Party may 5 become subject under the Securities Act, the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or prospectus including any document incorporated by reference therein, or in any amendment or supplement thereto or in any preliminary prospectus relating to the Shelf Registration, or arise out of, or are 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, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Shelf Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to the Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to the Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Registrable Securities concerned to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished by such Holder specifically for use therein; and provided, further, that the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities, purchased the Registrable Securities concerned and any such loss, claim, damage or liability of such Holder results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Registrable Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. (b) Each Holder, severally and not jointly, will indemnify and hold harmless the Company, its officers and directors and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to the Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue 6 statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 4 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 4, notify the indemnifying party of the commencement thereof; but the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have under subsection (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to an indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 4 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 4 is held by a court of competent jurisdiction to be wholly or partially unavailable to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to 7 information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 4(d), the Holders shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Registrable Securities pursuant to the Shelf Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 4 shall survive the sale of the Registrable Securities pursuant to the Shelf Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 5. Default Interest Under Certain Circumstances. (a) Default Interest (the "DEFAULT INTEREST") with respect to the Note shall be assessed as follows as liquidated damages if any of the following events occur (each such event in clauses (i) through (iii) below being herein called a "REGISTRATION DEFAULT"): (i) the Shelf Registration Statement has not been filed with the Commission by the 30th day after the Triggering Event; (ii) the Shelf Registration Statement has not been declared effective by the Commission by the 120th day after the Triggering Event; or (iii) the Shelf Registration Statement is declared effective by the Commission but (A) the Shelf Registration Statement thereafter ceases to be effective or (B) the Shelf Registration Statement or the Prospectus ceases to be usable in connection with resales of Registrable Securities (as defined below) during the periods specified herein and (1) the Company does not cause the Shelf Registration Statement to become effective within five (5) business days after it has ceased to be effective by a post-effective amendment or a report filed pursuant to the Exchange Act or (2) if applicable, the Company does not terminate the suspension periods described below in the first sentence of Section 5(c). 8 Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. Default Interest shall accrue on the Note from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 5% per annum (the "DEFAULT INTEREST RATE"). (b) Any amounts of Default Interest due pursuant to Section 5(a) will be payable in cash on the maturity date of the Note. The amount of Default Interest will be determined by multiplying the applicable Default Interest Rate by the principal amount of the Note on the Issue Date (as defined in the Note), further multiplied by a fraction, the numerator of which is the number of days such Default Interest Rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (c) Notwithstanding paragraph (a) of this Section 5, the Company shall be permitted to suspend the effectiveness of a Registration Statement covering the Registrable Securities for any bona fide reason, for up to 45 consecutive days (the "DEFERRAL PERIOD") in any 180 day period without paying Default Interest; provided, however, that Deferral Periods may not total more than 90 days in any twelve-month period. In addition, the Company shall be, upon written notice to all Holders, permitted to postpone having the Shelf Registration Statement declared effective for a reasonable period of time not to exceed 30 days if the Company possesses material non-public information, the disclosure of which would have a material adverse effect on the Company and its subsidiaries, taken as a whole; provided, however, that any such postponement or suspension pursuant to this Section 5(c) shall not affect the Company's obligation to pay Default Interest as set forth in Section 5(a) above. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Deferral Period. 6. Rules 144 and 144A. The Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Registrable Securities identified to the Company by the Holder upon request. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 6 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9 7. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 hereof may result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Section 1 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the holders of a majority in principal amount of the Registrable Securities affected by such amendment, modification, supplement, waiver or consents (provided that holders of Common Stock issued upon conversion of the Note shall not be deemed holders of Common Stock, but shall be deemed to be holders of the aggregate principal amount of the Note from which such Common Stock was converted). Notwithstanding the foregoing, no modification to the provisions relating to the payment of Default Interest shall apply to any Holder that has not consented thereto in writing. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Registrable Securities, at the most current address given by such Holder to the Company. (2) if to the Lender; CompUSA Inc. 14951 North Dallas Parkway Dallas, TX 75240 Fax No.: (972) 982-4183 Attention: General Counsel with a copy to: 10 Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 Fax No: (212) 728-8111 Attention: Thomas M. Cerabino, Esq. (3) if to the Company, at its address as follows: Good Guys, Inc. 1600 Harbor Bay Parkway Alameda, CA 94502 Fax No: (510) 747-6291 Attention: Chief Executive Officer with a copy to: Howard Rice Nemerovski Canady Falk & Rabkin Three Embarcadero Center Seventh Floor San Francisco, CA 94111-4065 Fax:No.: 415-217-5910 Attention: Richard W. Canady All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (e) Third Party Beneficiaries. The Additional Holders who agree to be bound hereby shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Lender, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11 (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. By the execution and delivery of this Agreement, the Company submits to the nonexclusive jurisdiction of any federal or state court in the State of New York. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. [Signature page follows] 12 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. GOOD GUYS, INC. By: /s/ Kenneth R. Weller ----------------------------------------- Name: Kenneth R. Weller Title: Chairman & Chief Executive Officer COMPUSA INC. By: /s/ Javier Larraza ------------------------------------------ Name: Javier Larraza Title: Executive Vice President/ Chief Financial Officer [Signature Page to Registration Rights Agreement] EX-10.36 6 f93367exv10w36.txt EXHIBIT 10.36 EXHIBIT 10.36 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 8th day of July, 2003, among the financial institutions listed on the signature pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A. (in its individual capacity, the "Bank") with an office at 55 South Lake Avenue Suite 900, Pasadena, California 91101, as Administrative Agent for the Lenders (in its capacity as Administrative Agent, the "Administrative Agent"), General Electric Capital Corporation (in its individual capacity, "GE Capital") with an office at 350 South Beverly Drive Suite 200, Beverly Hills, California 90212, as documentation agent for the Lenders (in its capacity as documentation agent, the "Documentation Agent"), Good Guys California, Inc. (formerly known as The Good Guys - California, Inc.), a California corporation, with offices at 1600 Harbor Bay Parkway, Alameda, California 94502 (the "Borrower"), and (for purposes of paragraphs 6, 7 and 9) Good Guys, Inc., a Delaware corporation ("Parent"), with respect to that certain Loan and Security Agreement, dated as of September 30, 1999 among the parties hereto, as amended by that certain First Amendment to Loan and Security Agreement dated as of August 16, 2001, by those certain letter amendments dated as of March 27, 2002, and May 15, 2002, and as further amended by that certain Second Amendment to Loan and Security Agreement dated as of May 22, 2001, and that certain Third Amendment to Loan and Security Agreement dated as of July 2, 2002 (collectively, the "Loan Agreement"), and with reference to the following facts: RECITALS A. Pursuant to the Loan Agreement, Lenders agreed to make certain financial accommodations to or for the benefit of Borrower upon the terms and conditions contained therein. Unless otherwise defined in this Amendment, (i) capitalized terms used herein shall have the meanings attributed to them in the Loan Agreement, and (ii) references to sections shall refer to sections of the Loan Agreement. B. Borrower has requested certain changes to the Loan Agreement, as provided herein. C. Lenders have agreed to make such changes to the Loan Agreement on the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the continued performance by Borrower of its promises and obligations under the Loan Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby agree as follows: AGREEMENT 1. Acknowledgment of Loan Agreement and Other Loan Documents. Except as expressly modified by this Amendment, the obligations of Borrower under the Loan Agreement and the other Loan Documents are hereby acknowledged, confirmed and ratified by Borrower. 2. Definitions. Unless otherwise defined in this Amendment, capitalized terms used herein have the meanings given to them in the Loan Agreement. Unless otherwise indicated, all references to sections, schedules, or exhibits shall mean sections, schedules, or exhibits of or to the Loan Agreement. 3. Amendment to Loan Agreement. The Loan Agreement shall be amended as follows: 3.1 New Definitions. New definitions are hereby added in appropriate alphabetical order to read as follows: "Fourth Amendment" shall mean the Fourth Amendment to Loan and Security Agreement dated as of July 8, 2003. "Fourth Amendment Closing Date" shall mean the date of the effectiveness of the Fourth Amendment, as provided in paragraph 8 of the Fourth Amendment. "Sales Tax Reserve" shall mean a reserve against the Borrowing Base, to be reflected on each Borrowing Base Certificate submitted by Borrower, equal to the amount, if any, by which Borrower's obligations for the remittance of sales and use taxes payable to Governmental Authorities exceed $5,500,000. 3.2 Revised "Borrowing Base" Definition. The definition of "Borrowing Base" is amended and restated (and such amendment and restatement shall supersede any prior inconsistent course of dealings among the parties with respect to the applicable calculations of the Borrowing Base) as follows: "Borrowing Base" means, at any time, an amount equal to: (a) the lowest of: (i) the Maximum Revolver Amount, or (ii) the sum of: (A) one hundred percent (100%) of the aggregate manufacturer's invoice price of all Eligible Vendor Financed Inventory up to an amount of $30,000,000, plus (B) eighty-five percent (85%) of the aggregate manufacturer's invoice price of all Eligible Vendor Financed Inventory for that portion of Eligible Vendor Financed Inventory, if any, in excess of $30,000,000, plus (C) eighty-five percent (85%) of the Recovery Value of Eligible Inventory not constituting Eligible Vendor Financed Inventory or Committed HDL Inventory, plus 2 (D) the lesser of (1) eighty-five percent (85%) of Eligible Credit Card Accounts, and (2) $10,000,000, plus (E) the Seasonal Borrowing Base Adjustment, if applicable, or (iii) the sum of: (A) eighty-five percent (85%) (or, during any period when a Seasonal Borrowing Base Adjustment is in effect, ninety percent (90%)) of the aggregate manufacturer's invoice price of all Eligible Vendor Financed Inventory up to an amount of $30,000,000, plus (B) seventy percent (70%) (or, during any period when a Seasonal Borrowing Base Adjustment is in effect, seventy-five percent (75%)) of the aggregate manufacturer's invoice price of all Eligible Vendor Financed Inventory for that portion of Eligible Vendor Financed Inventory, if any, in excess of $30,000,000, plus (C) seventy percent (70%) (or, during any period when a Seasonal Borrowing Base Adjustment is in effect, seventy-five percent (75%)) of the gross inventory (at the lower of cost (determined on a FIFO basis) or market as determined from time to time by Administrative Agent, after consultation among Co-Agents, in the exercise of their reasonable credit judgment) of all Eligible Inventory not constituting Eligible Vendor Financed Inventory or Committed HDL Inventory, plus (D) the lesser of (1) eighty-five percent (85%) of Eligible Credit Card Accounts, and (2) $10,000,000, minus (E) the General Ledger Variance Reserve, and minus (F) the Shrinkage and Obsolescence Reserve; minus (b) the sum of: (i) the Vendor Inventory Financing Reserves, plus (ii) the Landlord Waiver Reserves, plus (iii) the Bank Product Reserves, plus (iv) the Sales Tax Reserve, plus 3 (v) all other reserves that the Administrative Agent, after consultation among Co-Agents, in the exercise of their reasonable credit judgment, deems necessary to maintain with respect to the Borrower's account, including reserves for any amounts which the Administrative Agent or any Lender may be obligated to pay in the future for the account of the Borrower. 3.3 Revised "Eligible Credit Card Accounts" Definition. Clause (iii) of the definition of "Eligible Credit Card Accounts" is amended and restated as follows: "(iii) no more than five (5) Business Days from invoice date in the case of Accounts which arise from Sony private label credit cards, and no more than two (2) Business Days from invoice date in all other cases;" 3.4 Seasonal Borrowing Base Adjustment. Section 2.6 is amended by substituting "September 23" in lieu of each reference to "October 1" therein, and by substituting "December 12" in lieu of the reference to "December 20" therein. 3.5 Minimum Availability. Section 9.22 shall be amended and restated as follows: 9.22 Minimum Availability. Borrower shall maintain Availability of not less than the following at all times during each of the following periods:

Period Minimum Availability ------ -------------------- From the date of the Fourth $ 6,500,000 Amendment through August 14, 2003 August 15, 2003 through September 14, $ 6,750,000 2003 September 15, 2003 through October $ 7,000,000 14, 2003 October 15, 2003 through November $ 7,250,000 14, 2003 November 15, 2003 and at all times $ 7,500,000 thereafter

3.6 Minimum EBITDA Covenant. Section 9.30 is hereby deleted. 3.7 Amendment to Notice Addresses. The notice addresses in Section 15.8 shall be amended and restated as follows: 4 If to the Administrative Agent or to the Bank: Bank of America, N.A. 55 S. Lake Avenue, Suite 900 Pasadena, CA 91101 Attn: John McNamara Telecopy Number: 626-397-1273 If to the Documentation Agent: General Electric Capital Corporation Corporate Financial Services 800 Connecticut Avenue, 2 North Norwalk, Connecticut 06854 Attention: Account Manager (Good Guys) Telecopy No.: (203) 852-3670 with copies to: Winston & Strawn 101 California Street, Suite 3900 San Francisco, California 94111 Attention: Hill Blackett, III, Esq. Telecopy No.: (415) 591-1400 and General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopy No.: (203) 316-7889 If to the Borrower: Good Guys California, Inc. 1600 Harbor Bay Parkway Alameda, California 94502 Attention: Chief Financial Officer Telecopy No.:(510) 747-6290 with copies to: Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Attention: Richard W. Canady, Esq. Telecopy No.: (415) 217-5910 5 4. Consent to Acquisition of Online Venture Stock. Notwithstanding anything contained in Section 9.10, Section 9.15 or Section 9.20 of the Loan Agreement, Co-Agents and Lenders, upon the effectiveness of the Fourth Amendment, consent to Borrower's issuance of capital stock of Borrower to the shareholders of the capital stock of Online Venture in connection with Borrower's acquisition of all but not less than all of the outstanding capital stock of Online Venture not already owned by Borrower, provided that (a) the consideration given by Borrower for such capital stock of Online Venture shall be limited to newly-issued capital stock of Borrower, (b) Borrower shall deliver to Administrative Agent a pledge amendment to pledge all of the capital stock of Online Venture in the manner and within the time provided in that certain Pledge Agreement between Borrower and Administrative Agent dated as of August 16, 2001, and (c) promptly upon consummation of such acquisition, Borrower shall deliver to Administrative Agent copies of all documents pertaining to such acquisition. 5. Acknowledgments of Borrower. 5.1 Acknowledgment of Obligations. Borrower hereby acknowledges, confirms and agrees that the Revolving Loans, together with interest accrued and accruing thereon, and fees, costs, expenses and other charges now or hereafter payable by Borrower to Lenders, are unconditionally owing by Borrower to Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever. 5.2 Acknowledgment of Security Interests. Borrower hereby acknowledges, confirms and agrees that Co-Agents and Lenders have and shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Collateral heretofore granted to Lenders pursuant to the Loan Documents or otherwise granted to or held by Co-Agents and Lenders, subject only to Permitted Liens. 5.3 Binding Effect of Documents. Borrower hereby acknowledges, confirms and agrees that: (a) each of the Loan Documents to which it is a party has been duly executed and delivered to Documentation Agent by Borrower, and each is in full force and effect as of the date hereof, (b) the agreements and obligations of Borrower contained in such documents and in this Amendment constitute the legal, valid and binding Obligations of Borrower, enforceable against it in accordance with their respective terms, and Borrower has no valid defense to the enforcement of such Obligations, and (c) Co-Agents and Lenders are and shall be entitled to the rights, remedies and benefits provided for in the Loan Documents and applicable law. 6. Acknowledgment and Reaffirmation of Parent. Parent hereby acknowledges that it has received and reviewed a copy of the Fourth Amendment and consents to the terms and conditions of the Fourth Amendment. Parent hereby ratifies and reaffirms each and every one of its obligations under the Parent Guaranty, and confirms that such obligations are, and shall continue to be, in full force and effect to the full extent provided therein without any defense, claim, counterclaim, right of offset, recoupment or other defense to payment or performance whatsoever, each of which is hereby expressly waived. Without limiting the generality of the foregoing, Parent agrees and acknowledges that the Parent Guaranty applies with full force and effect to the Loan Agreement as amended by the Fourth Amendment and as previously amended. 6 7. Commercial Tort Claims. Each of Borrower and Parent represents that, as of the Fourth Amendment Closing Date, it does not have any Commercial Tort Claims. 8. Conditions of Effectiveness. This Amendment shall become effective upon satisfaction of each of the following conditions: (a) Documentation Agent shall have received copies of this Amendment that bear the signatures of Borrower, Parent, GE Capital and Bank; (b) Documentation Agent shall have received each of the documents listed on the Third Addendum to Schedule of Documents attached hereto as Schedule A that bears the signatures of the respective parties thereto, each of which shall be in form and substance satisfactory to Lenders. 9. Release. 9.1 In consideration of the agreements of Co-Agents and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Borrower and Parent, on behalf of itself and its successors, assigns, and other legal representatives, effective as of the Fourth Amendment Closing Date, hereby absolutely, unconditionally and irrevocably waives and releases any claim, defense, demand, action or suit of any kind or nature whatsoever, known or unknown, suspected or unsuspected, against the Co-Agents and Lenders, or any of them, or their respective successors, assigns, or other legal representatives, arising on or prior to the Fourth Amendment Closing Date in connection with the Loan Agreement or any of the other Loan Documents, or any of the transactions contemplated thereunder. 9.2 Each of Borrower and Parent understands, acknowledges and agrees (i) that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above, and (ii) that it is familiar with, and has been advised by its counsel concerning, the provisions of Section 1542 of the California Civil Code, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each of Borrower and Parent expressly waives any and all rights under Section 1542 of the California Civil Code, and under any federal or state statute or law of similar effect. 10. Representations and Warranties. Borrower hereby represents and warrants that the representations and warranties contained in the Loan Agreement were true and correct in all material respects when made and, except to the extent (a) that a particular representation or warranty by its terms expressly applies only to an earlier date, (b) Borrower has previously advised Co-Agents in writing as contemplated under the Loan Agreement, or (c) amended by this Amendment, are true and correct in all material respects as of the date hereof. All 7 representations and warranties contained in the Loan Agreement which expressly applied to the Closing Date, as amended in part by Section 7 of the Second Amendment, remain true and correct in all material respects as of the Fourth Amendment Closing Date. The Loan Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. 11. Entire Agreement. This Amendment, together with the Loan Agreement and the other Loan Documents, is the entire agreement between the parties hereto with respect to the subject matter hereof. This Amendment supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. Except as otherwise expressly modified herein, the Loan Documents shall remain in full force and effect. 12. Miscellaneous. 12.1 Counterparts. This Amendment may be executed in identical counterpart copies, each of which shall be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Amendment. Any Person delivering this Amendment by facsimile shall send the original manually executed counterpart of this Amendment to Documentation Agent promptly after such facsimile transmission. 12.2 Headings. Section headings used herein are for convenience of reference only, are not part of this Amendment, and are not to be taken into consideration in interpreting this Amendment. 12.3 Recitals. The recitals set forth at the beginning of this Amendment are true and correct, and such recitals are incorporated into and are a part of this Amendment. 12.4 Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws. 12.5 No Waiver. Except as specifically set forth in paragraph 3 of this Amendment, the execution, delivery and effectiveness of this Amendment shall not (a) limit, impair, constitute a waiver of or otherwise affect any right, power or remedy by Administrative Agent, Documentation Agent or any Lender under the Loan Agreement or any other Loan Document, (b) constitute a waiver of any provision in the Loan Agreement or in any of the other Loan Documents, or (c) alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Loan Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. 12.6 Conflict of Terms. In the event of any inconsistency between the provisions of this Amendment and any provision of the Loan Agreement, the terms and provisions of this Amendment shall govern and control. 8 IN WITNESS WHEREOF, the parties have entered into this Amendment on the date first above written. "Borrower" GOOD GUYS CALIFORNIA, INC. By /s/ David A. Carter ------------------------------ David A. Carter Chief Financial Officer "Parent" GOOD GUYS, INC. (executing for purposes of paragraphs 6, 7 and 9 only) By /s/ David A. Carter ------------------------------ David A. Carter Chief Financial Officer "Administrative Agent" BANK OF AMERICA, N.A., as the Administrative Agent By /s/ John C. McNamara ------------------------------ John C. McNamara Vice President "Documentation Agent" GENERAL ELECTRIC CAPITAL CORPORATION, as the Documentation Agent By /s/ Craig J. Winslow ------------------------------ Craig J.Winslow Duly Authorized Signatory 9 "Lenders" BANK OF AMERICA, N.A., as a Lender By /s/ John C. McNamara ------------------------------ John C. McNamara Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By /s/ Craig J. Winslow ----------------------------------------- Craig J. Winslow Duly Authorized Signatory 10 EX-10.37 7 f93367exv10w37.txt EXHIBIT 10.37 EXHIBIT 10.37 FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 29th day of September, 2003, among the financial institutions listed on the signature pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A. (in its individual capacity, the "Bank") with an office at 55 South Lake Avenue Suite 900, Pasadena, California 91101, as Administrative Agent for the Lenders (in its capacity as Administrative Agent, the "Administrative Agent"), General Electric Capital Corporation (in its individual capacity, "GE Capital") with an office at 350 South Beverly Drive Suite 200, Beverly Hills, California 90212, as documentation agent for the Lenders (in its capacity as documentation agent, the "Documentation Agent"), Good Guys California, Inc. (formerly known as The Good Guys - California, Inc.), a California corporation, with offices at 1600 Harbor Bay Parkway, Alameda, California 94502 (the "Borrower"), and (for purposes of paragraphs 7, 8 and 10) Good Guys, Inc., a Delaware corporation ("Parent"), with respect to that certain Loan and Security Agreement, dated as of September 30, 1999 among the parties hereto, as amended by that certain First Amendment to Loan and Security Agreement dated as of August 16, 2001, by those certain letter amendments dated as of March 27, 2002, and May 15, 2002, and as further amended by that certain Second Amendment to Loan and Security Agreement dated as of May 22, 2001, that certain Third Amendment to Loan and Security Agreement dated as of July 2, 2002, and that certain Fourth Amendment to Loan and Security Agreement dated as of July 8, 2003 (collectively, the "Loan Agreement"), and with reference to the following facts: RECITALS A. Pursuant to the Loan Agreement, Lenders agreed to make certain financial accommodations to or for the benefit of Borrower upon the terms and conditions contained therein. Unless otherwise defined in this Amendment, (i) capitalized terms used herein shall have the meanings attributed to them in the Loan Agreement, and (ii) references to sections shall refer to sections of the Loan Agreement. B. Borrower has requested Lenders' consent to Borrower's obtaining up to five million dollars ($5 million) in unsecured subordinated debt financing. C. Lenders have agreed to consent to such subordinated financing on the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the continued performance by Borrower of its promises and obligations under the Loan Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby agree as follows: AGREEMENT 1. ACKNOWLEDGMENT OF LOAN AGREEMENT AND OTHER LOAN DOCUMENTS. Except as expressly modified by this Amendment, the obligations of Borrower under the Loan Agreement and the other Loan Documents are hereby acknowledged, confirmed and ratified by Borrower. 2. DEFINITIONS. Unless otherwise defined in this Amendment, capitalized terms used herein have the meanings given to them in the Loan Agreement. Unless otherwise indicated, all references to sections, schedules, or exhibits shall mean sections, schedules, or exhibits of or to the Loan Agreement. 3. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement shall be amended as follows: 3.1 NEW DEFINITIONS. New definitions are hereby added in appropriate alphabetical order to read as follows: "CompUSA" shall mean CompUSA Inc., a Delaware corporation. "Fifth Amendment" shall mean the Fifth Amendment to Loan and Security Agreement dated as of September 29, 2003. "Fifth Amendment Closing Date" shall mean the date of the effectiveness of the Fifth Amendment, as provided in paragraph 9 of the Fifth Amendment. "Intercreditor and Subordination Agreement" shall mean that certain Intercreditor and Subordination Agreement dated as of September 29, 2003, between Administrative Agent and CompUSA. "Merger Agreement" shall mean that certain Agreement and Plan of Merger between Parent and CompUSA, dated as of September 29, 2003, in the form delivered to Administrative Agent on or before the date of the Fifth Amendment. "Subordinated Debt" shall mean Debt owing by Borrower with respect to the Subordinated Debt Documents. "Subordinated Debt Documents" shall mean the Subordinated Note and any other documents or instruments that from time to time evidence the Subordinated Debt or secure or support payment or performance thereof. "Subordinated Note" shall mean the Unsecured Subordinated Convertible Promissory Note, dated September 29, 2003, from the Borrower to CompUSA in the original principal amount of $5,000,000, in the form delivered to Administrative Agent on or before the date of the Fifth Amendment. 3.2 CROSS-DEFAULT (SECTION 11.1(e)). Section 11.1(e) shall be amended by deleting the initial phrase "default shall occur with respect to any Funded Debt (other than the Obligations)" and substituting the following in lieu thereof: "any default shall occur: (i) under the Subordinated Debt Documents or the Intercreditor and Subordination Agreement, or otherwise with respect to the Subordinated Debt; or 2 (ii) with respect to any Funded Debt (other than the Obligations or the Subordinated Debt)" 3.3 DEFAULT REGARDING MATURITY OF SUBORDINATED DEBT (NEW SECTION 11.1(s)). Section 11.1 shall be amended by inserting the following as a new Section 11.1(s): "(s) Borrower has not, by or before thirty (30) calendar days prior to the then-applicable "Maturity Date" of the Subordinated Note (as such term is defined in the Subordinated Note, including any extensions thereof) caused such Maturity Date to be extended or further extended, as applicable, to a date that is at least ninety (90) calendar days after the Stated Maturity Date; provided that the failure to obtain an extension of the Maturity Date shall not be an Event of Default if (i) payment by the Borrower of the Subordinated Note on such Maturity Date would not cause a Default or an Event of Default to occur, (ii) Borrower's Availability for each day during the two months preceding the thirtieth calendar day prior to the Maturity Date was at least $25,000,000, and (iii) Borrower's Availability for each of the thirty calendar days prior to the Maturity Date is at least $25,000,000 (in both (ii) and (iii), with trade payables being paid currently, and expenses and liabilities being paid in the ordinary course of business without acceleration of sales)." 4. CONSENT TO SUBORDINATED DEBT. Subject to all other provisions of the Loan Agreement, upon the effectiveness of the Intercreditor and Subordination Agreement and satisfaction of all of the other conditions of the effectiveness of the Fifth Amendment, Co-Agents and Lenders consent, pursuant to clause (e) of Section 9.13 of the Loan Agreement, to the terms and conditions of the Subordinated Debt Documents and to Borrower's incurring the unsecured indebtedness contemplated therein, and waive any Default or Event of Default that may have occurred solely by reason of Borrower's negotiation of the Subordinated Debt Documents; provided that Borrower shall use the proceeds of such subordinated indebtedness to reduce the Revolving Loans and for working capital in the ordinary course of its business. Co-Agents' and Lenders' do not hereby consent to the granting of any Lien as security for the Subordinated Debt. 5. CONSENT TO ENTRY INTO MERGER AGREEMENT. Subject to all other provisions of the Loan Agreement and the other Loan Documents, upon the effectiveness of the Fifth Amendment, Co-Agents and Lenders consent to Parent's entry into the Merger Agreement, and waive any Default or Event of Default that may have occurred solely by reason of Parent's negotiation of the Merger Agreement; provided that Co-Agents and Lenders do not hereby waive the Event of Default that would occur under Section 11.1(r) of the Loan Agreement upon the occurrence of the Change of Control that would result from the transactions contemplated by the Merger Agreement. 6. ACKNOWLEDGMENTS OF BORROWER. 6.1 ACKNOWLEDGMENT OF OBLIGATIONS. Borrower hereby acknowledges, confirms and agrees that as of the close of business on September 24, 2003, Borrower was indebted to Lenders in respect of the Revolving Loans in the approximate principal amount of $40,432,610. The Revolving Loans, together with interest accrued and accruing thereon, and fees, costs, expenses and other charges now or hereafter payable by Borrower to Lenders, are 3 unconditionally owing by Borrower to Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever. 6.2 ACKNOWLEDGMENT OF SECURITY INTERESTS. Borrower hereby acknowledges, confirms and agrees that Co-Agents and Lenders have and shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Collateral heretofore granted to Lenders pursuant to the Loan Documents or otherwise granted to or held by Co-Agents and Lenders, subject only to Permitted Liens. 6.3 BINDING EFFECT OF DOCUMENTS. Borrower hereby acknowledges, confirms and agrees that: (a) each of the Loan Documents to which it is a party has been duly executed and delivered to Documentation Agent by Borrower, and each is in full force and effect as of the date hereof, (b) the agreements and obligations of Borrower contained in such documents and in this Amendment constitute the legal, valid and binding Obligations of Borrower, enforceable against it in accordance with their respective terms, and Borrower has no valid defense to the enforcement of such Obligations, and (c) Co-Agents and Lenders are and shall be entitled to the rights, remedies and benefits provided for in the Loan Documents and applicable law. 7. ACKNOWLEDGMENT AND REAFFIRMATION OF PARENT. Parent hereby acknowledges that it has received and reviewed a copy of the Fifth Amendment and consents to the terms and conditions of the Fifth Amendment. Parent hereby ratifies and reaffirms each and every one of its obligations under the Parent Guaranty, and confirms that such obligations are, and shall continue to be, in full force and effect to the full extent provided therein without any defense, claim, counterclaim, right of offset, recoupment or other defense to payment or performance whatsoever, each of which is hereby expressly waived. Without limiting the generality of the foregoing, Parent agrees and acknowledges that the Parent Guaranty applies with full force and effect to the Loan Agreement as amended by the Fifth Amendment and as previously amended. 8. COMMERCIAL TORT CLAIMS. Each of Borrower and Parent represents that, as of the Fifth Amendment Closing Date, it does not have any Commercial Tort Claims. 9. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective upon satisfaction of each of the following conditions: (a) Documentation Agent shall have received copies of this Amendment that bear the signatures of Borrower, Parent, GE Capital and Bank; (b) Documentation Agent shall have received each of the documents listed on the Fourth Addendum to Schedule of Documents attached hereto as Schedule A that bears the signatures of the respective parties thereto, each of which shall be in form and substance satisfactory to Lenders. 10. RELEASE. 10.1 In consideration of the agreements of Co-Agents and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Borrower and Parent, on behalf of itself and its successors, assigns, and other legal representatives, effective as of the Fifth Amendment Closing Date, hereby absolutely, unconditionally and irrevocably waives and releases any claim, defense, 4 demand, action or suit of any kind or nature whatsoever, known or unknown, suspected or unsuspected, against the Co-Agents and Lenders, or any of them, or their respective successors, assigns, or other legal representatives, arising on or prior to the Fifth Amendment Closing Date in connection with the Loan Agreement or any of the other Loan Documents, or any of the transactions contemplated thereunder. 10.2 Each of Borrower and Parent understands, acknowledges and agrees (i) that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above, and (ii) that it is familiar with, and has been advised by its counsel concerning, the provisions of Section 1542 of the California Civil Code, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each of Borrower and Parent expressly waives any and all rights under Section 1542 of the California Civil Code, and under any federal or state statute or law of similar effect. 11. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that the representations and warranties contained in the Loan Agreement were true and correct in all material respects when made and, except to the extent (a) that a particular representation or warranty by its terms expressly applies only to an earlier date, (b) Borrower has previously advised Co-Agents in writing as contemplated under the Loan Agreement, or (c) amended by this Amendment, are true and correct in all material respects as of the date hereof. All representations and warranties contained in the Loan Agreement which expressly applied to the Closing Date, as amended in part by Section 7 of the Second Amendment, remain true and correct in all material respects as of the Fifth Amendment Closing Date. The Loan Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. 12. AMENDMENT FEE. In order to induce Agents and Lenders to enter into this Amendment, and in consideration of the accommodations provided to Borrower herein, Borrower shall pay to Administrative Agent, for the ratable benefit of Lenders, the sum of $75,000 for this Amendment (the "Fifth Amendment Fee") (which Fifth Amendment Fee will have been fully earned by Agents on the Fifth Amendment Closing Date and shall not be in lieu of, but shall be in addition to Agents' entitlement under the Loan Agreement to reimbursement of fees, costs and expenses in connection with this Amendment, including the reasonable fees, costs and expenses of counsel). Administrative Agent may receive the Fifth Amendment Fee on behalf of Lenders by making one or more Revolving Credit Advances in the aggregate amount thereof on or after the Fifth Amendment Closing Date. 13. ENTIRE AGREEMENT. This Amendment, together with the Loan Agreement and the other Loan Documents, is the entire agreement between the parties hereto with respect to the subject matter hereof. This Amendment supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. Except as otherwise expressly modified herein, the Loan Documents shall remain in full force and effect. 5 14. MISCELLANEOUS. 14.1 COUNTERPARTS. This Amendment may be executed in identical counterpart copies, each of which shall be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Amendment. Any Person delivering this Amendment by facsimile shall send the original manually executed counterpart of this Amendment to Documentation Agent promptly after such facsimile transmission. 14.2 HEADINGS. Section headings used herein are for convenience of reference only, are not part of this Amendment, and are not to be taken into consideration in interpreting this Amendment. 14.3 RECITALS. The recitals set forth at the beginning of this Amendment are true and correct, and such recitals are incorporated into and are a part of this Amendment. 14.4 GOVERNING LAW. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws. 14.5 NO WAIVER. Except as specifically set forth in paragraphs 3, 4 and 5 of this Amendment, the execution, delivery and effectiveness of this Amendment shall not (a) limit, impair, constitute a waiver of or otherwise affect any right, power or remedy by Administrative Agent, Documentation Agent or any Lender under the Loan Agreement or any other Loan Document, (b) constitute a waiver of any provision in the Loan Agreement or in any of the other Loan Documents, or (c) alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Loan Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. 14.6 CONFLICT OF TERMS. In the event of any inconsistency between the provisions of this Amendment and any provision of the Loan Agreement, the terms and provisions of this Amendment shall govern and control. IN WITNESS WHEREOF, the parties have entered into this Amendment on the date first above written. "Borrower" GOOD GUYS CALIFORNIA, INC. By /s/ David A. Carter ------------------------- David A. Carter Chief Financial Officer 6 "Parent" GOOD GUYS, INC. (executing for purposes of paragraphs 7, 8 and 10 only) By /s/ David A. Carter ----------------------------------------- David A. Carter Chief Financial Officer "Administrative Agent" BANK OF AMERICA, N.A., as the Administrative Agent By /s/ Kevin R. Kelly ----------------------------------------- Kevin R. Kelly Senior Vice President "Documentation Agent" GENERAL ELECTRIC CAPITAL CORPORATION, as the Documentation Agent By /s/ Craig J. Winslow ----------------------------------------- Craig J. Winslow Duly Authorized Signatory "Lenders" BANK OF AMERICA, N.A., as a Lender By /s/ Kevin R. Kelly ----------------------------------------- Kevin R. Kelly Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By /s/ Craig J. Winslow ----------------------------------------- Craig J. Winslow Duly Authorized Signatory 7 EX-10.38 8 f93367exv10w38.txt EXHIBIT 10.38 EXHIBIT 10.38 INTERCREDITOR AND SUBORDINATION AGREEMENT INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of September 29, 2003 by and among CompUSA Inc., a Delaware corporation (the "Subordinated Lender"; collectively, together with any other holders from time to time of the Subordinated Obligations, the "Subordinated Lenders"), Good Guys California, Inc., a California corporation (together with its successors and assigns, the "Borrower"), Good Guys, Inc., a Delaware corporation, (together with its successors and assigns, "Holdings") (Borrower, Holdings and the other Credit Parties to the Senior Credit Agreement identified below may be referred to herein collectively as the "Credit Parties" and individually as a "Credit Party") and BANK OF AMERICA, N.A., a national banking association, as administrative agent for the Lenders (the "Senior Lenders") from time to time party to the Senior Credit Agreement (together with its successors and assigns, the "Senior Agent"). The parties hereto hereby agree as follows: 1. Definitions. (a) Unless otherwise defined herein, terms defined in the Senior Credit Agreement and used herein shall have the meanings given to them in the Senior Credit Agreement. (b) The following terms shall have the following meanings: "Agreement": this Intercreditor and Subordination Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Blockage Notice": a written notice from the Senior Agent to the Subordinated Lenders that (a) an Other Event of Default has occurred and is continuing or (b) an Other Event of Default would occur if a scheduled interest or principal payment were made under the Subordinated Note in accordance with the terms thereof. "Blockage Period": any period commencing on the date a Blockage Notice is given and ending on the earlier to occur of: (a) the date when (1) the Event of Default that was the basis for such notice has been cured or waived or (2) the conditions shall have ceased to exist which would cause an Event of Default to occur if a scheduled interest or principal payment were made under the Subordinated Note in accordance with the terms thereof; and (b) 180 days after the date such Blockage Notice is given. "Collateral": the collective reference to any and all property from time to time subject to security interests to secure payment or performance of the Senior Obligations or the Subordinated Obligations. "Collateral Enforcement Action": shall mean any action by any Subordinated Lender to (a) exercise or seek to exercise any rights or exercise any remedies with respect to any Collateral, (b) institute any action or proceeding with respect to such rights or remedies, including without limitation, any action of foreclosure or (c) contest, protest or object to any foreclosure proceeding, postpetition financing, use of cash collateral or action brought by the Senior Agent or any Senior Lender or to any other exercise by the Senior Agent or any Senior Lender of any rights and remedies under any Senior Loan Documents. "Collection Action": shall mean (a) to demand, sue for, take or receive from or on behalf of any Credit Party or any guarantor of the Subordinated Obligations, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by any Credit Party with respect to the Subordinated Obligations, (b) to initiate or participate with others in any suit, action or proceeding against any Credit Party to (i) enforce payment of or to collect the whole or any part of the Subordinated Obligations or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Loan Documents or applicable law with respect to the Subordinated Obligations or the Subordinated Loan Documents, including initiating, participating in or commencing a case or proceeding referred to in the definition of Insolvency Event, (c) to accelerate any Subordinated Obligations, or (d) to exercise any put option or to cause any Credit Party to honor any redemption or mandatory prepayment obligation under any Subordinated Loan Document. "Insolvency Event": (a) any Credit Party or any of its Subsidiaries commencing any case, proceeding or other action (1) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (2) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Credit Party or any of its Subsidiaries making a general assignment for the benefit of its creditors; or (b) there being commenced against any Credit Party or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (a) above which (1) results in the entry of an order for relief or any such adjudication or appointment or (2) remains undismissed, undischarged or unbonded for a period of 60 days; or (c) there being commenced against any Credit Party or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (d) any Credit Party or any of its Subsidiaries taking any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (a), (b) or (c) above; or (e) any Credit Party or any of its Subsidiaries generally not paying, or being unable to pay, or admitting in writing its inability to pay, its debts as they become due. "Other Event of Default": any Event of Default (other than a Payment Event of Default) under the Senior Credit Agreement or any of the Senior Loan Documents or any event the occurrence of which entitles the Senior Agent or Senior Lenders to accelerate the maturity of any of the Senior Obligations. "Net Sale Proceeds": the sum of cash proceeds received from any sale of all or any portion of the Collateral, net of all commissions and other fees and all other out-of-pocket costs and expenses whatsoever incurred by the Credit Parties, the Senior Lenders and/or the Senior Agent in connection with such sale, including without limitation, legal fees and appraisal costs. 2 "Payment Event of Default": any default in the payment of the Senior Obligations (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto. "Permitted Securities": securities of any Credit Party or other Person, the payment of which is subordinated, at least to the extent and substantially on the terms set forth in this Agreement, to the prior payment in full of all then outstanding Senior Obligations and to any securities issued in respect of any Senior Obligations under any plan of partial or complete liquidation, reorganization, readjustment, arrangement, composition or extension. "Senior Credit Agreement": the Loan and Security Agreement dated as of September 30, 1999, as amended by that certain First Amendment to Loan and Security Agreement dated as of August 16, 2001, by those certain letter amendments dated as of March 27, 2002, and May 15, 2002, and as further amended by that certain Second Amendment to Loan and Security Agreement dated as of May 22, 2001, that certain Third Amendment to Loan and Security Agreement dated as of July 2, 2002, and that certain Fourth Amendment to Loan and Security Agreement dated as of July 8, 2003, among the Borrower, the other Credit Parties, the Senior Lenders, General Electric Capital Corporation as documentation agent, and the Senior Agent, as the same may be further amended, modified or supplemented from time to time, including, without limitation, amendments, modifications, supplements and restatements thereof giving effect to increases in the Senior Loans (including increases in the Borrowing Base or other measurements of availability of the Senior Loans), renewals, extensions, refundings, deferrals, restructurings, replacements or refinancings of, or additions to, the arrangements provided in such Credit Agreement (whether provided by the original Senior Agent or a successor Senior Agent or other Lenders). "Senior Loans": the loans made by the Senior Lenders to the Borrower pursuant to the Senior Credit Agreement. "Senior Loan Documents": the collective reference to the Senior Credit Agreement, the Senior Notes, the Senior Security Documents and all other documents that from time to time evidence the Senior Obligations or secure payment or performance thereof, as modified from time to time. "Senior Notes": the promissory notes of the Borrower outstanding from time to time under the Senior Credit Agreement. "Senior Obligations": the collective reference to the unpaid principal of and interest on the Senior Notes and all other obligations and liabilities of the Credit Parties to the Senior Lenders or the Senior Agent of whatever kind or nature pursuant to, under or in connection with the Senior Loan Documents (including, without limitation, indemnity obligations with respect to claims asserted or threatened by third parties, interest accruing at the then applicable rate provided in the Senior Credit Agreement after the maturity of the Senior Loans and interest accruing at the then applicable rate provided in the Senior Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, whether arising under, out of, or in connection with, the Senior Credit Agreement, the Senior Notes, this Agreement, the other Senior Loan 3 Documents or any other document made, delivered or given by any Credit Party, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Senior Agent that are required to be paid by Credit Parties pursuant to the terms of the Senior Credit Agreement or this Agreement or any other Senior Loan Document). "Senior Security Documents": the collective reference to all documents and instruments, now existing or hereafter arising, which create or purport to create a security interest in property to secure payment or performance of the Senior Obligations. "Subordinated Loan Documents: the collective reference to the Subordinated Note and any other documents or instruments that from time to time evidence the Subordinated Obligations or secure or support payment or performance thereof. "Subordinated Loan": the loans made by the Subordinated Lenders pursuant to the Subordinated Loan Documents. "Subordinated Note": the Unsecured Subordinated Convertible Promissory Note, dated September 29, 2003, from the Borrower to Subordinated Lender, in the original principal amount of $5,000,000. "Subordinated Obligations": the collective reference to the unpaid principal and interest on the Subordinated Note and all other obligations and liabilities of any of the Credit Parties to the Subordinated Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Subordinated Loan Documents after the maturity of the Subordinated Loan and interest accruing at the then applicable rate provided in the Subordinated Loan Documents after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Subordinated Loan Documents, the Subordinated Note, this Agreement, or any other Subordinated Loan Document, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Subordinated Lenders that are required to be paid by any Credit Party pursuant to the terms of this Agreement or any other Subordinated Loan Document). "Uniform Commercial Code": the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of California; provided, that to the extent that the Uniform Commercial Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Uniform Commercial Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Senior Lenders' Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term "Uniform Commercial Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for 4 purposes of definitions related to such provisions. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section and paragraph references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Subordination. (a) Each Credit Party and each of the Subordinated Lenders agrees, for itself and each future holder of the Subordinated Obligations, that the Subordinated Obligations are expressly "subordinate and junior in right of payment" (as that phrase is defined in paragraph 2(b)) to all Senior Obligations. (b) "Subordinate and junior in right of payment" means that: (1) no part of the Subordinated Obligations shall have any claim to the assets of any Credit Party on a parity with or prior to the claim of the Senior Obligations; and (2) without the express prior written consent of the Senior Agent, no Subordinated Lender will take, demand or receive from any Credit Party, and no Credit Party will make, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any payment of (of whatever kind or nature, whether in cash, property, securities (other than Permitted Securities) or otherwise) the Subordinated Obligations, including, without limitation, any letter of credit or similar credit support facility to support payment of the Subordinated Obligations, unless and until the Senior Obligations have been paid in full and the obligation of Senior Agent and Senior Lenders to extend credit to Borrower under the Senior Loan Documents shall have been irrevocably terminated; provided, however, that at any time, except during a Blockage Period or when a Payment Event of Default has occurred and is continuing, the Borrower may make, and the Subordinated Lenders may receive, regularly scheduled payments (not prepayments) on account of interest on the Subordinated Note in accordance with the terms thereof determined on a non-accelerated basis (without giving effect to any default rate of interest thereunder) and principal payments when due (but no sooner than September 29, 2005) upon the "Maturity Date" of the Subordinated Note (as such term is defined in the Subordinated Note). Notwithstanding clause (2), the Subordinated Lender shall be entitled to accept and receive payment in full of the Subordinated Obligations as a result of the refinancing of the Subordinated Obligations if (i) such refinancing does not shorten the maturity date, increase the interest rate or fees payable, or increase the principal amount applicable to the Subordinated Obligations and (ii) the provider of such refinancing debt subjects such debt to the terms of this Intercreditor and Subordination Agreement. (c) Upon the termination of any Blockage Period or if any Payment Event of Default has been cured or waived or shall have ceased to exist, the Subordinated Lenders' right to receive payments as provided in clause 2(b)(2) shall be reinstated and, subject to the limitations of clause 2(b)(2), the Borrower may resume making such payments to the Subordinated Lenders including any payments that were deferred as a result thereof. 5 (d) The expressions "prior payment in full," "payment in full," "paid in full" and any other similar terms or phrases when used herein with respect to the Senior Obligations shall mean the payment in full, in immediately available funds, of all of the Senior Obligations. 3. Additional Provisions Concerning Subordination. (a) The Subordinated Lenders and each Credit Party agree that upon the occurrence of any Insolvency Event: (1) all Senior Obligations shall be paid in full before any payment or distribution of whatever kind or nature is made with respect to the Subordinated Obligations; provided, however, that Subordinated Lenders may receive and retain any distributions on account of Subordinated Obligations to the extent such distributions consist solely of Permitted Securities; and (2) any payment or distribution of assets of any Credit Party, whether in cash, property or securities (other than Permitted Securities), to which any Subordinated Lender would be entitled except for the provisions hereof, shall be paid or delivered by such Credit Party, or any receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other Person making such payment or distribution, directly to the Senior Agent, to the extent necessary to pay in full all Senior Obligations, before any payment or distribution of any kind or nature shall be made to any Subordinated Lender. (b) Upon the occurrence of any "Insolvency Event": (1) each Subordinated Lender irrevocably authorizes and empowers the Senior Agent (A) to demand, sue for, collect and receive every payment or distribution on account of the Subordinated Obligations payable or deliverable in connection with such event or proceeding and give acquittance therefor, (B) to file claims and proofs of claim in any statutory or non-statutory proceeding and (C) to take such other actions, in its own name as Senior Agent, or in the name of the Subordinated Lenders or otherwise, as the Senior Agent may deem necessary or advisable for the enforcement of the provisions of this Agreement; provided, however, that the foregoing authorization and empowerment imposes no obligation on the Senior Agent to take any such action; (2) each Subordinated Lender shall take such action, duly and promptly, as the Senior Agent may request from time to time (A) to collect the Subordinated Obligations for the account of the Senior Agent and (B) to file appropriate proofs of claim in respect of the Subordinated Obligations; and (3) each Subordinated Lender shall execute and deliver such powers of attorney, assignments or proofs of claim or other instruments as the Senior Agent may request to enable the Senior Agent to enforce any and all claims in respect of the Subordinated Obligations and to collect and receive any and all payments and distributions which may be payable or deliverable at any time upon or in respect of the Subordinated Obligations. (c) If any payment or distribution, whether consisting of money, property or securities (other than Permitted Securities), shall be collected or received by any Subordinated Lender in respect of 6 the Subordinated Obligations or the Collateral, except payments permitted to be made at the time of payment or pursuant to a refinancing as provided in paragraph 2(b), such Subordinated Lender shall forthwith deliver the same to the Senior Agent, in the form received, duly endorsed to the Senior Agent, if required, to be applied to the payment or prepayment of the Senior Obligations until the Senior Obligations are paid in full. Until so delivered, such payment or distribution shall be held in trust by such Subordinated Lender as the property of the Senior Agent, segregated from other funds and property held by such Subordinated Lender. (d) Until the Senior Obligations are paid in full in cash, the Subordinated Lenders shall not take any Collection Action or Collateral Enforcement Action with respect to the Subordinated Obligations, except for a Collection Action as permitted in the following sentence. Upon the earlier to occur of (A) acceleration of the Senior Obligations or (B) the passage of 180 days from the delivery of notice to Senior Agent that a default has occurred with respect to the Subordinated Obligations and such default shall not have been cured or waived within such period, the Subordinated Lenders may, upon five days' prior written notice to Senior Agent, accelerate the Subordinated Obligations or take any other Collection Action (but not a Collateral Enforcement Action) which is not in contravention of the provisions of this Agreement; provided, however, that if following the acceleration of the Senior Debt as described in clause (A) above, such acceleration is rescinded, then all Collection Actions taken by the Subordinated Lenders shall likewise be rescinded if such Collection Action is based solely on clause (A) above. Notwithstanding the foregoing, until the Senior Obligations are paid in full in cash and all lending commitments under the Senior Credit Agreement have been terminated, the Subordinated Lenders shall not (nor shall any agent on their behalf), without the prior written consent of the Senior Agent and the Senior Lenders, take any Collateral Enforcement Action. 4. Rights in Collateral. (a) Notwithstanding anything to the contrary contained in the Senior Credit Agreement, any Senior Security Document, any other Senior Loan Document or any Subordinated Security Document or other Subordinated Loan Document and irrespective of: (1) the time, order or method of attachment or perfection of the security interests created by any Senior Security Document or any Subordinated Security Document; (2) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any Collateral; (3) anything contained in any filing or agreement to which the Senior Agent or any Subordinated Lender now or hereafter may be a party; and (4) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, any security interest in any Collateral pursuant to any Senior Security Document has and shall have priority, to the extent of any unpaid Senior Obligations, over any security interest in such Collateral pursuant to any Subordinated Security Document. 7 (b) So long as the Senior Obligations have not been paid in full and any Senior Security Document remains in effect, whether or not any Insolvency Event has occurred, (1) no Subordinated Lender will take any Collateral Enforcement Action; and (2) the Senior Agent and any Senior Lender shall have the exclusive right to enforce rights and exercise remedies with respect to the Collateral and Senior Agent shall not be required to marshal any Collateral. (c) In exercising rights and remedies with respect to the Collateral, the Senior Agent and Senior Lenders may enforce the provisions of the Senior Security Documents and exercise remedies thereunder and under any other Senior Loan Documents, all in such order and in such manner as it or they may determine in the exercise of its or their sole business judgment. Such exercise and enforcement shall include, without limitation, the rights to sell or otherwise dispose of Collateral, to incur expenses in connection with such sale or disposition and to exercise all the rights and remedies of a secured lender under the Uniform Commercial Code of any applicable jurisdiction. In conducting any public or private sale under the Uniform Commercial Code, the Senior Agent shall give the Subordinated Lenders such notice of such sale as may be required by the applicable Uniform Commercial Code; provided, however, that 10 days' notice shall be deemed to be commercially reasonable notice. (d) Any money, property or securities realized upon the sale, disposition or other realization by the Senior Agent upon all or any part of the Collateral, shall be applied by the Senior Agent in the following order: (1) First, to the payment in full of all costs and expenses (including, without limitation, attorneys' fees and disbursements) paid or incurred by the Senior Agent or the Senior Lenders in connection with such realization on the Collateral or the protection of their rights and interests therein; (2) Second, to the payment in full of all Senior Obligations in such order as the Senior Agent may elect in its sole discretion; (3) Third, to the payment in full of all Subordinated Obligations then due and which are secured by such Collateral, which shall be paid to Subordinated Lender, for itself and as agent for any other Subordinated Lenders; and (4) Fourth, to pay to the Borrower, or its representative or as a court of competent jurisdiction may direct, any surplus then remaining. (e) The Senior Agent's rights with respect to the Collateral include the right to release any or all of the Collateral from the Lien under any Senior Security Document or Subordinated Security Document in connection with any sale of all or any portion of the Collateral. The Subordinated Lenders are hereby deemed to have consented to such sale(s) under the Subordinated Loan Documents. Concurrently with the execution of this Agreement, and from time to time thereafter, the Subordinated Lenders shall deliver to the Senior Agent such duly executed and undated Uniform Commercial Code and, as applicable, intellectual property terminations, satisfactions and discharges of mortgages (the term 8 "mortgage" being deemed to include mortgage deeds, deeds of trust and other similar instruments creating a lien on real property), termination statements and partial release statements (in blank as to the assets being released), as the Senior Agent may request with respect to the Subordinated Lenders' liens on the Credit Parties' assets. If the Senior Agent shall determine, in connection with any sale of Collateral, that the termination, satisfaction, discharge or partial release of the Lien on all or any portion of the Collateral under any Subordinated Security Document in connection with such sale is necessary or advisable, the Senior Agent may deliver to the applicable purchaser at such sale (or, upon the request of such purchaser, file) such previously delivered termination, satisfaction, discharge or partial release documents, which partial release documents the Senior Agent is hereby authorized to complete (whether one or more and from time to time)) by inserting the description of the assets to be released. The Subordinated Lenders shall execute such other release, satisfaction, discharge and termination documents and instruments and shall take such further actions as the Senior Agent shall request. Each Subordinated Lender hereby irrevocably constitutes and appoints the Senior Agent and any officer or Senior Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Subordinated Lender and in the name of such Subordinated Lender or in the Senior Agent's own name, from time to time in the Senior Agent's discretion, for the purpose of carrying out the terms of this paragraph, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this paragraph, including, without limitation, any terminations of financing statements, partial lien releases, mortgage satisfactions and discharges, endorsements, assignments or other instruments of transfer, termination or release, and, in addition, to take any and all other appropriate and commercially reasonably action for the purpose of carrying out the terms of this paragraph. Each Subordinated Lender hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in this paragraph. No person to whom this power of attorney is presented, as authority for Senior Agent to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from any Subordinated Lender as to the authority of Senior Agent to take any action described herein, or as to the existence of or fulfillment of any condition to this power of attorney, which is intended to grant to Senior Agent unconditionally the authority to take and perform the actions contemplated herein. Each Subordinated Lender irrevocably waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this power of attorney. (f) Notwithstanding anything contained herein, until all Senior Obligations have been paid in full and the Senior Security Documents are no longer are in effect, no Subordinated Lenders shall, without the prior written consent of Senior Agent, permit to exist any security interest, charge, encumbrance or other Lien on any Collateral or other property or assets of any Credit Party to secure or provide for payment or performance of the Subordinated Obligations, or exercise any right of set off or counterclaim which the Subordinated Lenders may have with respect to any amounts payable or to be paid by the Subordinated Lenders to any Credit Party. 5. Consent of Subordinated Lenders. (a) Each Subordinated Lender consents that, without the necessity of any reservation of rights against any Subordinated Lender, and without notice to or further assent by any Subordinated Lender: 9 (1) any demand for payment of any Senior Obligations made by the Senior Agent or any Senior Lender may be rescinded in whole or in part by the Senior Agent or such Senior Lender, and any Senior Obligation may be continued, and the Senior Obligations, or the liability of any Credit Party or any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, or any obligation or liability of any Credit Party or any other party under the Senior Credit Agreement or any other agreement, may, from time to time, in whole or in part, be renewed, extended, modified, accelerated, compromised, waived, surrendered, or released by the Senior Agent; and (2) the Senior Credit Agreement, the Senior Notes and any other Senior Loan Document may be amended, modified, extended, supplemented, restated, refinanced, refunded, restructured or terminated, in whole or in part, as the Senior Agent and Senior Lenders may deem advisable from time to time, and any collateral security at any time held by the Senior Agent or any Senior Lender for the payment of any of the Senior Obligations may be sold, exchanged, waived, surrendered or released; in each case all without notice to or further assent by any Subordinated Lender, which will remain bound under this Agreement, and all without impairing, abridging, releasing or affecting the subordination provided for herein. (b) Each Subordinated Lender waives any and all notice of the creation, renewal, extension or accrual of any of the Senior Obligations and notice of or proof of reliance by the Senior Agent upon this Agreement. The Senior Obligations, and any of them, shall be deemed conclusively to have been created, contracted or incurred in reliance upon this Agreement, and all dealings between any Credit Party, on one hand, and the Senior Agent or any Senior Lender, on the other hand, shall be deemed to have been consummated in reliance upon this Agreement. Each Subordinated Lender acknowledges and agrees that the Senior Lenders and the Senior Agent have relied upon the subordination provided for herein in entering into the Senior Credit Agreement and in making funds available to the Borrower thereunder. Each Subordinated Lender waives notice of or proof of reliance on this Agreement and protest, demand for payment and notice of default. 6. Negative Covenants of the Subordinated Lenders. So long as any of the Senior Obligations shall remain outstanding or the obligation of Senior Agent or any Senior Lender to extend credit to Borrower remains in effect, no Subordinated Lender shall, without the prior written consent of the Senior Agent: (a) sell, assign, or otherwise transfer, in whole or in part, the Subordinated Obligations or any interest therein to any other Person (a "Transferee") or create, incur or suffer to exist any security interest, lien, charge or other encumbrance whatsoever upon the Subordinated Obligations in favor of any Transferee unless (1) such action is made expressly subject to this Agreement and (2) the Transferee expressly acknowledges to the Senior Agent, by a writing in form and substance reasonably satisfactory to the Senior Agent, the subordination provided for herein and agrees to be bound by all of the terms hereof; or 10 (b) permit any of the Subordinated Loan Documents to be amended, modified or otherwise supplemented (including by way of changes to definitions) in any manner which would have the effect of (A) increasing the maximum principal amount of the Subordinated Obligations or rate of interest on any of the Subordinated Obligations or fees payable in respect thereof, (B) changing or adding or tightening any event of default or any covenant with respect to the Subordinated Obligations, (C) changing any redemption or prepayment provisions of the Subordinated Obligations, (D) altering the subordination provisions with respect to the Subordinated Obligations, including, without limitation, subordinating the Subordinated Obligations to any other debt, (E) shortening the dates upon which payments of principal or interest are due on any of the Subordinated Obligations, or (F) changing or amending any other term of the Subordinated Loan Documents if such change or amendment would increase the obligations of any Credit Party or confer additional rights on the Subordinated Lenders or any other holder of the Subordinated Obligations in a manner adverse (in the reasonable judgment of the Senior Agent) to the Senior Agent or the Senior Lenders, and the parties hereto agree that any such amendment shall be null and void ab initio and without legal force and effect. 7. Senior Obligations Unconditional. All rights and interests of the Senior Agent hereunder, and all agreements and obligations of the Subordinated Lenders and the Credit Parties hereunder, shall remain in full force and effect irrespective of: (a) any lack of validity or enforceability of any Senior Security Documents or any other Senior Loan Documents; (b) subject to paragraph 5(a), any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Obligations, or any amendment or waiver or other modification, whether by course of conduct or otherwise, of the terms of the Senior Credit Agreement or any other Senior Security Document; (c) subject to paragraph 5(a), any exchange, release or non-perfection of any security interest in any Collateral, or any release, amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the Senior Obligations or any guarantee thereof; or (d) any other circumstances which otherwise might constitute a defense available to, or a discharge of, any Credit Party in respect of the Senior Obligations, or of any Subordinated Lender or any Credit Party in respect of this Agreement. 8. Representations and Warranties. Each Subordinated Lender represents and warrants to the Senior Agent that: (a) its Subordinated Note (1) have been issued to it for good and valuable consideration, (2) are owned by such Subordinated Lender free and clear of any security interests, liens, charges or encumbrances whatsoever arising from, through or under such Subordinated Lender, other than the interest of the Senior Agent under this Agreement, (3) are payable solely and exclusively to such Subordinated Lender and to no other Person and are payable without deduction for any defense, offset or counterclaim, and (4) constitute the only evidence of the obligations evidenced thereby; 11 (b) such Subordinated Lender has the corporate power and authority and the legal right to execute and deliver and to perform its obligations under this Agreement and has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement; (c) this Agreement constitutes a legal, valid and binding obligation of such Subordinated Lender; (d) the execution, delivery and performance of this Agreement will not violate any provision of any requirement of law or contractual obligation of such Subordinated Lender and will not result in the creation or imposition of any Lien on any of the properties or revenues of such Subordinated Lender pursuant to any requirement of law affecting or any contractual obligation of such Subordinated Lender, except the interest of the Senior Agent under this Agreement; and (e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of such Subordinated Lender), is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, except for any such consent, authorization, filing or other act that has been obtained or made. 9. Representation by Senior Agent. The Senior Lenders and the Senior Agent have not made and do not hereby or otherwise make to the Subordinated Lenders, any representations or warranties, express, or implied other than the following: (a) the Senior Agent has the corporate power and authority and the legal right to execute and deliver and to perform its obligations under this Agreement and has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement; and (b) this Agreement constitutes a legal, valid and binding obligation of the Senior Agent. Neither the Senior Lenders nor the Senior Agent assume any liability to any Subordinated Lender with respect to: (a) the financial or other condition of obligors under any instruments of guarantee with respect to the Senior Obligations, (b) the enforceability, validity, value or collectibility of the Senior Obligations or the Subordinated Obligations, any collateral therefor, or any guarantee or security which may have been granted in connection with any of the Senior Obligations or the Subordinated Obligations or (c) any Credit Party's title or right to transfer any collateral or security. 10. Waiver of Claims. To the maximum extent permitted by law, each Subordinated Lender waives any claim it might have against the Senior Agent with respect to, or arising out of, any action or failure to act or any error of judgment, negligence, or mistake or oversight whatsoever on the part of the Senior Agent or any Senior Lenders or their respective directors, officers, employees or agents with respect to any exercise of rights or remedies under the Senior Loan Documents or any transaction relating to the Collateral. Neither the Senior Agent nor any Senior Lender, nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Credit Party or any Subordinated Lender or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. 12 11. Provisions Applicable After Bankruptcy. The provisions of this Agreement shall continue in full force and effect notwithstanding the occurrence of any Insolvency Event. To the extent that any Subordinated Lender has or acquires any rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to the Collateral, such Subordinated Lender hereby agrees not to assert such rights without the prior written consent of the Senior Agent; provided that, if requested by the Senior Agent, such Subordinated Lender shall seek to exercise such rights in the manner requested by the Senior Agent, including the rights in payments in respect of such rights. Without limiting the generality of the foregoing sentence, to the extent that Senior Agent or Senior Lenders consent to any Credit Party's use of cash collateral under Section 363 of the Bankruptcy Code or Senior Agent or any Senior Lender agrees to provide financing to Borrower under Section 364 of the Bankruptcy Code, each Subordinated Lender hereby agrees not to impede, object to (on grounds of lack of adequate protection, or otherwise), or otherwise interfere with such use of cash collateral or financing. Each Subordinated Lender specifically agrees that the Senior Agent and the Senior Lenders may consent to any Credit Party's use of cash collateral or provide financing to any Credit Party on such terms and conditions and in such amounts as the Senior Agent and the Senior Lenders, in their sole discretion, may decide and that, in connection with such cash collateral usage or such financing, any Credit Party (or a trustee appointed for the estate of such Credit Party) may grant to the Senior Agent and/or Senior Lenders liens and security interests upon all or any part of the assets of the Borrower or other Credit Party, which liens and security interests: (i) shall secure payments of all Senior Obligations (whether such Senior Obligations arose prior to the filing of the bankruptcy petition or thereafter); and (ii) shall be superior in priority to the liens on and security interests in the assets of Borrower or other Credit Party held by the Subordinated Lenders. Each Subordinated Lender (both in its capacity as a Subordinated Lender and in its capacity (if any) as a party which may be obligated to any Credit Party or any Credit Party's Affiliates with respect to contracts which are part of the Senior Agent's or any Senior Lender's Collateral) agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute any claim, action, objection or other proceeding (A) challenging the enforceability of the claim of Senior Agent or any Senior Lender, (B) challenging the enforceability of any liens or security interests in any assets securing the Senior Obligations, or (C) asserting any claims which any Credit Party may hold with respect to Senior Agent or any Senior Lender. All allocations of payments among the Senior Agent, Senior Lenders and the Subordinated Lender shall, subject to any court order, continue to be made after the filing of a petition under the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), or any similar proceeding, on the same basis that the payments were to be allocated prior to the date of such filing. Each Subordinated Lender agrees that it will not object to or oppose a sale or other disposition of any assets securing the Senior Obligations (or any portion thereof) free and clear of its security interests, liens or other claims under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the Senior Agent or Senior Lenders have consented to such sale or disposition of such assets. Each Subordinated Lender agrees not to assert any right it may have to "adequate protection" of its interest in the Collateral in any bankruptcy proceeding and agrees that it will not seek to have the automatic stay lifted with respect to such security, without the prior written consent of the Senior Agent and Senior Lenders. Each Subordinated Lender waives any claim it may now or hereafter have against the Senior Agent or any Senior Lender arising out of the election of Senior Agent or any Senior Lender, in any case instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral arrangement, or financing arrangement, or out of any grant of a security interest, under Section 363 or 364 of the Bankruptcy Code, with or by any Credit Party, as debtor in possession (or with or by any trustee for any Credit Party). Each Subordinated Lender agrees that it will not, in its capacity as a secured creditor: (a) propose, vote to 13 accept, or otherwise support confirmation of, a plan of reorganization opposed by the Senior Agent or Senior Lenders, or (b) vote to reject, object to confirmation of, or otherwise oppose confirmation of, a plan of reorganization supported by the Senior Agent. The subordination and other provisions of this Agreement shall be enforceable under Section 510(a) of the Bankruptcy Code. 12. Further Assurances. The Subordinated Lenders and the Borrower, at Borrower's expense and at any time from time to time, upon the written request of the Senior Agent, will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Senior Agent reasonably may request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. 13. Expenses. (a) Each Credit Party will pay or reimburse the Senior Agent and the Senior Lenders and the Subordinated Lenders, upon demand, for all of their respective costs and expenses in connection with the enforcement or preservation of any rights under this Agreement, including, without limitation, fees and disbursements of counsel to the Senior Agent, Senior Lenders and Subordinated Lenders. (b) Each Credit Party will pay, indemnify, and hold the Senior Agent and the Senior Lenders and the Subordinated Lenders harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions (whether sounding in contract, tort or on any other ground), judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to this Agreement or any action taken or omitted to be taken by the Senior Agent, any Senior Lender or Subordinated Lender with respect to any of the foregoing. 14. Provisions Define Relative Rights. This Agreement is intended solely for the purpose of defining the relative rights of the Senior Agent on the one hand and the Subordinated Lenders on the other, and no other Person shall have any right, benefit or other interest under this Agreement. Except as expressly set forth in this Agreement, nothing herein shall: (a) impair, as between any Credit Party and the Senior Lenders and any Credit Party and any Subordinated Lender, the obligation of such Credit Party, which is absolute and unconditional, to pay principal of, interest on and all other portions of the Senior Obligations, on the one hand, and the Subordinated Obligations and all other obligations of such Credit Party, if any, to any Subordinated Lender, on the other hand, in each case in accordance with their respective terms; or (b) affect the relative rights of the Senior Lenders or Subordinated Lenders with respect to any other creditors of any Credit Party. 15. Subrogation. Subject to the indefeasible payment in full of all Senior Obligations and the termination of all commitments to lend by the Senior Lenders under the Senior Credit Agreement, the Subordinated Lenders shall be subrogated to the rights of the Senior Lenders to receive payments or distributions of assets of any Credit Party applicable to the Senior Obligations until the principal of, and interest and premium, if any, on, and all other amounts payable in respect of the Subordinated Obligations shall be paid in full. For purposes of such subrogation, no payment or distribution to the Senior Lenders under the provisions hereof to which the Subordinated Lenders would have been entitled but for the provisions of this Agreement, and no payment pursuant to the provisions of this Agreement to the Senior 14 Lenders by the Subordinated Lenders, as among any Credit Party and its creditors other than the Senior Lenders, shall be deemed to be a payment by such Credit Party to or on account of the Senior Obligations. 16. Legend. Each Subordinated Lender and each Credit Party will cause each of the Subordinated Note and each Subordinated Security Document to bear upon its face a legend referring to this Agreement and indicating that such documents are subordinated as provided herein, all in form and substance satisfactory to the Senior Agent. 17. Powers Coupled With An Interest. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until the Senior Obligations are paid in full and the obligation of the Senior Lenders to extend credit under the Senior Loan Documents is irrevocably terminated. 18. Notices. All notices, requests and demands to or upon the Senior Agent or any Credit Party or any Subordinated Lender to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made (1) when delivered by hand or (2) if given by mail, when deposited in the mails by certified mail, return receipt requested, or (3) if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows: If to the Senior Agent: Bank of America, N.A. 55 S. Lake Avenue, Suite 900 Pasadena, CA 91101 Attn: John McNamara Telecopy Number: 616-397-1273 with copies to: General Electric Capital Corporation Corporate Financial Services 800 Connecticut Avenue, 2 North Norwalk, Connecticut 06854 Attention: Account Manager (Good Guys) Telecopy No.: (203) 852-3670 and Winston & Strawn LLP 101 California Street, Suite 3900 San Francisco, California 94111 Attention: Hill Blackett, III, Esq. Telecopy No.: 415-591-1400 and 15 General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopy No.: 203-316-7889 If to the Subordinated Lenders: Grupo Sansborns, S.A. de C.V. c/o Grupo Finan Inbursa Paseo de Las Palmas 736 Mexico Col. Lomas de Chapultepec Attention: Eduardo Valdes Acra Javier Cervantes Telecopy No.: 011-525-520-5326 With copies to: Willkie Farr & Gallagher LLP 787 Seventh Avenue Attention: Thomas. M. Cerabino, Esq. New York, NY 10019-6099 Tel: (212) 728-8000 Telecopy No.: (212) 728-8111 If to the Borrower: Good Guys California, Inc. 1600 Harbor Bay Parkway Alameda, California 94502 Attention: Chief Financial Officer Telecopy No.: 510-747-6290 With copies to: Howard, Rice Nemerovski, Canady, Falk & Rabkin, A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Attention: Richard W. Canady, Esq. Telecopy No.: 415-217-5910 16 The Senior Agent, the Credit Parties and any Subordinated Lender may change their respective addresses and transmission numbers for notices by notice in the manner provided in this paragraph. 19. Default Notices. The Subordinated Lenders shall provide the Senior Agent with written notice of any event of default with respect to, or acceleration of, all or any part of the Subordinated Obligations concurrently with the sending thereof to any Credit Party and promptly shall notify the Senior Agent in the event a default which is the subject of such a notice is cured or waived. 20. Counterparts. This Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the counterparts of this Agreement signed by all the parties shall be lodged with the Senior Agent. 21. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 22. Integration. This Agreement represents the agreement of the Senior Agent and the Subordinated Lenders with respect to the subject matter hereof and there are no promises or representations by the Senior Agent or any Subordinated Lender relative to the subject matter hereof not reflected herein. 23. Amendments in Writing; No Waiver: Cumulative Remedies. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Senior Agent, each Credit Party and each Subordinated Lender; provided that any provision of this Agreement may be waived by the Senior Agent in a letter or agreement executed by the Senior Agent or by telex or facsimile transmission from the Senior Agent. (b) No failure to exercise, nor any delay in exercising, on the part of the Senior Agent or any Senior Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 24. Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 17 25. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Senior Agent, each Senior Lender, each Subordinated Lender, each Credit Party and each of their respective heirs, administrators, executors, successors and assigns. (b) Upon a successor Senior Agent becoming the Senior Agent under the Senior Loan Documents or upon another lender (a "Refinancing Lender") refinancing all, or with the prior written consent of the then existing Senior Agent and Senior Lenders, any portion, of the Senior Obligations, such successor Senior Agent or Refinancing Lender shall automatically be entitled to all the rights and powers of the Senior Agent and the Senior Lenders hereunder without the need for any further action on the part of any party hereto. In further confirmation of the foregoing, each Subordinated Lender agrees that it will, at the request of Senior Agent or any Senior Lender, enter into an agreement, in the form of this Agreement, mutatis mutandis, to subordinate the Subordinated Obligations and any security interests or liens it now or hereafter has in or upon the Collateral, to the same extent as provided herein, to the party refinancing all or a portion of the Senior Obligations. 26. Invalidated Payments. To the extent that the Senior Agent receives payments on, or proceeds of Collateral for, the Senior Obligations which are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to any Credit Party, 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 Senior Obligations, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by the Senior Agent. 27. Specific Performance. The Senior Agent is hereby authorized to demand specific performance of this Agreement at any time when any Subordinated Lender shall have failed to comply with any of the provisions of this Agreement applicable to such Subordinated Lender whether or not the Credit Parties shall have complied with any of the provisions hereof applicable to any Credit Party, and the Subordinated Lender hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to such remedy of specific performance. 28. GOVERNING LAW: CONSENT TO JURISDICTION AND VENUE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH OF THE CREDIT PARTIES, THE SUBORDINATED LENDERS AND THE SENIOR AGENT HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN california SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG THE CREDIT PARTIES, THE SUBORDINATED LENDERS AND THE SENIOR AGENT PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE SENIOR LOAN DOCUMENTS, 18 PROVIDED, THAT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF CALIFORNIA AND, PROVIDED, FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE SENIOR AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SENIOR OBLIGATIONS, OR TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN FAVOR OF THE SENIOR AGENT. EACH OF THE CREDIT PARTIES AND THE SUBORDINATED LENDERS EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH OF THE CREDIT PARTIES AND THE SUBORDINATED LENDERS HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH OF THE CREDIT PARTIES AND THE SUBORDINATED LENDERS HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINTS AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO IT AT THE ADDRESS SET FORTH IN THE SENIOR CREDIT AGREEMENT OR BENEATH ITS SIGNATURE LINE BELOW, AS THE CASE MAY BE, AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ANY CREDIT PARTY'S OR ANY SUBORDINATED LENDER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 29. MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE SENIOR LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 30. Termination. Subject to the provisions of paragraphs 25(b) and 26, this Agreement shall terminate upon the indefeasible payment in full of the Senior Obligations and the termination of all commitments to lend by the Senior Lenders on a revolving basis under the Senior Credit Agreement. 31. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 32. Conversion. Nothing in this Agreement shall prevent the Subordinated Lender from exercising at any time its rights under the Subordinated Note to convert outstanding principal and accrued interest (or any portion thereof) on the Subordinated Note into shares of common stock of Holdings. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. BANK OF AMERICA, N.A., as Senior Agent By /s/ Kevin R. Kelly ------------------------------------ Kevin R. Kelly Senior Vice President GOOD GUYS CALIFORNIA, INC. By: /s/ David A. Carter ------------------------------------ David A. Carter Chief Financial Officer GOOD GUYS, INC. By: /s/ David A. Carter ------------------------------------ David A. Carter Chief Financial Officer COMPUSA INC. By: /s/ Javier Larraza ------------------------------------ Javier Larraza Executive Vice President/ Chief Financial Officer APPROVED BY: GENERAL ELECTRIC CAPITAL CORPORATION as Documentation Agent and a Lender By: /s/ Craig J. Winslow ------------------------------------ Craig J. Winslow Duly Authorized Signatory 20 ACKNOWLEDGMENT STATE OF COUNTY OF ss.: On _________ before me, the undersigned, personally appeared _________ _____________________________________________________________________________ personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person on behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned in (insert city or political subdivision and state or county or other place acknowledgment taken). _________________________________________________________ (signature and office of individual taking acknowledgment) 21 EX-99.1 9 f93367exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 For more information, contact: Jennifer Doidge 415-318-4107 doidgej@fleishman.com GOOD GUYS, INC. ANNOUNCES MERGER AGREEMENT WITH COMPUSA SAN FRANCISCO - September 29, 2003 - Good Guys (NASDAQ: GGUY) today announced that it has entered into a definitive merger agreement with CompUSA. Under the terms of the agreement, each outstanding share of Good Guys common stock will be converted into $2.05 in cash. Good Guys will become a wholly-owned subsidiary of CompUSA and will continue to operate under the Good Guys name. The merger agreement is subject to certain conditions, including obtaining regulatory approvals and the approval of the holders of at least the majority of the outstanding shares of common stock of Good Guys. The transaction is expected to close prior to the end of Good Guys's fiscal year. Jefferies & Company, Inc. acted as financial advisor to the Board of Directors of Good Guys. In connection with the transaction, CompUSA has invested $5,000,000 in Good Guys in the form of a two-year unsecured subordinated convertible promissory note, convertible into Good Guys common stock at the rate of $2.05 per share. "This transaction will allow our stockholders to receive a substantial premium over recent trading prices of our stock," said Kenneth Weller, chairman and chief executive officer of Good Guys. Mr. Weller also stated that, "the impact of the economic environment on our industry, particularly in Northern California, and the Company's need for additional capital to meet its longer-term objectives, were key drivers of the decision to go forward with the transaction." Mr. Weller added, "Our combination with CompUSA should greatly strengthen the resources of the Company and enhances the Company's prospects for future success." Good Guys will file a proxy statement with the Securities and Exchange Commission for submission to its shareholders for use in connection with a special meeting of shareholders that will be scheduled for the purpose of approving the merger. That proxy statement will fully describe the merger and should be carefully reviewed by shareholders. With fiscal 2003 sales of $750 million, Good Guys is one of the largest specialty retailers of higher-end entertainment electronics in the nation. With its differentiated product selection and knowledgeable team of product specialists, Good Guys is dedicated to providing entertainment solutions to the West Coast's early adopters and tech-savvy consumers. Founded in 1973, Good Guys operates 71 stores in California, Nevada, Washington and Oregon. For more information, visit www.goodguys.com. To the extent this news release contains forward-looking statements, such statements are subject to risks and uncertainties, including, but not limited to, the successful implementation of the Company's current restructuring and store closing program, increases in promotional activities of competitors, changes in consumer buying attitudes, the presence or absence of new products or product features in the Company's merchandise categories, changes in vendor support for advertising and promotional programs, changes in the Company's merchandise sales mix, the success of the Company's modified advertising strategy, the outcome of the Company's lease renegotiation efforts, and economic conditions. # # # EX-99.2 10 f93367exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 For more information, contact: Jennifer Doidge 415-318-4107 doidgej@fleishman.com GOOD GUYS ANNOUNCES SECOND QUARTER FINANCIAL RESULTS SAN FRANCISCO - September 29, 2003 - Good Guys (NASDAQ: GGUY) today announced financial results for the second fiscal quarter ended August 31. For the second quarter, Good Guys reported a net loss of $6.9 million, or $0.25 per share, compared to a net loss of $1.8 million, or $0.07 per share, in the same period last year. Gross profit margin for the quarter decreased to 26.8 percent from 28.6 percent in the same period last year, reflecting continued promotional expenses and higher sell-through of discontinued products. As previously reported, net sales for the second quarter were $152.2 million compared to $177.5 million in the same period last year and comparable store sales decreased 13 percent. Good Guys expects negative comparable store sales to continue through the third quarter. "Good Guys continues to be impacted by the challenging economic environment as evidenced in the lower sales volume and decline in store traffic during the first half of the year," said Kenneth Weller, chairman and chief executive officer, Good Guys. "Despite these challenges, Good Guys has taken decisive actions to prepare for the holiday selling season and we believe our performance in the second half of the year will reflect the results of company-wide efforts to bring more qualified customers to our stores, differentiate the customer experience and better align our sales, marketing and merchandising functions." During the quarter, Good Guys continued to manage its merchandise inventory levels to reflect current sales volume, and to better position its inventory by improving gross margin return on investment (GMROI) through SKU rationalization and more effective supply chain management. At the close of the second quarter, $12.8 million was available to borrow under the company's credit facility, compared to $14.1 million at the close of the prior year period. In addition, as part of its $100 million revolving credit facility, the company has the ability to increase its borrowing from October 1 through December 20 of each year to meet seasonal needs. Good Guys Announces Second-Quarter Financial Results, Page 2 For the six months, Good Guys reported a net loss of $15.3 million, or $0.57 per share, compared to a net loss of $6.4 million, or $0.24 per share, in the same period last year. The company reduced SG&A expenses for the six months by more than $10 million, a decline of nearly 11 percent, over the same period last year. Gross profit margin for the six months was 27.2 percent compared to 28.7 percent in the same period last year. For the six months, net sales were $295.5 million compared to $348.5 million in the same period last year. Comparable store sales for the six months declined 13 percent. Good Guys separately announced today that it has entered into a definitive merger agreement with CompUSA. Under the terms of the agreement, each outstanding share of Good Guys common stock will be converted into $2.05 in cash. In connection with the transaction, CompUSA has also invested $5,000,000 in Good Guys in the form of a two-year unsecured subordinated convertible promissory note, convertible into Good Guys common stock at a rate of $2.05 per share. Good Guys will hold a conference call today at 1:30 p.m. Pacific Daylight Time to discuss its second quarter financial results. Interested parties are invited to listen to the call via a live webcast that can be found in the "About Good Guys" section located at www.goodguys.com. The conference call will be archived online for 30 days. With fiscal 2003 sales of $750 million, Good Guys is one of the largest specialty retailers of higher-end entertainment electronics in the nation. With its differentiated product selection and knowledgeable team of product specialists, Good Guys is dedicated to providing entertainment solutions to the West Coast's early adopters and tech-savvy consumers. Founded in 1973, Good Guys operates 71 stores in California, Nevada, Washington and Oregon. For more information, visit www.goodguys.com. To the extent this news release contains forward-looking statements, such statements are subject to risks and uncertainties, including, but not limited to, the successful implementation of the Company's current restructuring and store closing program, increases in promotional activities of competitors, changes in consumer buying attitudes, the presence or absence of new products or product features in the Company's merchandise categories, changes in vendor support for advertising and promotional programs, changes in the Company's merchandise sales mix, the success of the Company's modified advertising strategy, the outcome of the Company's lease renegotiation efforts, and economic conditions. --tables attached-- Good Guys Announces Second-Quarter Financial Results, Page 3 GOOD GUYS SELECTED FINANCIAL DATA (UNAUDITED)

Three Months Ended Six Months Ended (Amounts in thousand, except per share data) Aug 31, 2003 Aug 31, 2002 Aug 31, 2003 Aug 31, 2002 Net sales $ 152,172 $ 177,493 $ 295,524 $348,526 Net loss $ (6,910) $ (1,798) $ (15,322) $ (6,385) Net loss per common share Basic $ (0.25) $ (0.07) $ (0.57) $ (0.24) Diluted $ (0.25) $ (0.07) $ (0.57) $ (0.24) Weighted average shares Basic 27,109 26,550 27,041 26,299 Diluted 27,109 26,550 27,041 26,299

Good Guys Announces Second-Quarter Financial Results, Page 4 GOOD GUYS CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share data)

Three Months Ended Six Months Ended Aug 31, 2003 Aug 31, 2002 Aug 31, 2003 Aug 31, 2002 % of % of % of % of Amount Sales Amount Sales Amount Sales Amount Sales ------ ----- ------ ----- ------ ----- ------ ----- Net sales $ 152,172 100.0% $ 177,493 100.0% $ 295,524 100.0% $ 348,526 100.0% Cost of sales (111,390) (73.2%) (126,788) (71.4%) (215,093) (72.8%) (248,575) (71.3%) ---------- ----- --------- ----- --------- ----- --------- ----- Gross profit 40,782 26.8% 50,705 28.6% 80,431 27.2% 99,951 28.7% Selling, general and administrative expenses (44,235) (29.0%) (48,781) (27.5%) (89,148) (30.2%) (99,759) (28.6%) Depreciation and amortization (2,446) (1.6%) (2,982) (1.7%) (4,970) (1.7%) (5,885) (1.7%) Store closure expenses (423) (0.3%) - 0.0% (423) (0.1%) 700 0.2% ---------- ----- --------- ----- --------- ----- --------- ----- Loss from operations (6,322) (4.1%) (1,058) (0.6%) (14,110) (4.8%) (4,993) (1.4%) Interest expense, net (588) (0.4%) (740) (0.4%) (1,212) (0.4%) (1,392) (0.4%) ---------- ----- --------- ----- --------- ----- --------- ----- Net loss $ (6,910) (4.5%) $ (1,798) (1.0%) $ (15,322) (5.2%) $ (6,385) (1.8%) ========== ===== ========= ===== ========= ===== ========= ===== Net loss per common share Basic $ (0.25) $ (0.07) $ (0.57) $ (0.24) Diluted $ (0.25) $ (0.07) $ (0.57) $ (0.24) Weighted average shares Basic 27,109 26,550 27,041 26,299 Diluted 27,109 26,550 27,041 26,299

Good Guys Announces Second-Quarter Financial Results, Page 5 GOOD GUYS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except per share data)

Aug 31, 2003 Aug 31, 2002 Feb 28, 2003 ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,422 $ 3,890 $ 733 Accounts receivable, net 19,436 25,190 16,324 Merchandise inventories 88,688 108,348 100,867 Prepaid expenses 9,350 8,207 9,794 --------- -------- --------- Total current assets 121,896 145,635 127,718 PROPERTY AND EQUIPMENT Leasehold improvements 66,551 66,198 66,179 Furniture, fixtures, and equipment 78,079 75,377 77,034 Construction in progress 920 1,654 942 --------- -------- --------- Total property and equipment, at cost 145,550 143,229 144,155 Less accumulated depreciation and amortization (107,295) (97,143) (102,154) --------- -------- --------- Property and equipment, net 38,255 46,086 42,001 OTHER ASSETS 78 647 686 --------- -------- --------- TOTAL ASSETS $ 160,229 $192,368 $ 170,405 ========= ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 35,469 $ 39,883 $ 25,601 Accrued expenses and other liabilities: Payroll 6,973 10,159 7,418 Sales taxes 3,534 4,323 3,401 Store closure 5,408 9,037 6,297 Extended service plan 2,299 5,727 288 Other 20,263 18,495 16,230 --------- -------- --------- Total current liabilities 73,946 87,624 59,235 REVOLVING CREDIT DEBT 40,000 51,422 50,099 SHAREHOLDERS' EQUITY Common stock, $.001 par value: Issued and outstanding 27 27 27 Additional paid-in capital 111,952 111,104 111,418 Retained deficit (65,696) (57,809) (50,374) --------- -------- --------- Total shareholders' equity 46,283 53,322 61,071 Total Liabilities and Shareholders' Equity $ 160,229 $192,368 $ 170,405 ========= ======== ========= ###

-----END PRIVACY-ENHANCED MESSAGE-----

EX-2.1

                                                                     EXHIBIT 2.1

================================================================================

                                GOOD GUYS, INC.,

                                  COMPUSA INC.

                                       and

                           GLADIATOR ACQUISITION CORP.

                       ==================================

                          AGREEMENT AND PLAN OF MERGER

                       ==================================

                         Dated as of September 29, 2003

================================================================================



                                TABLE OF CONTENTS



                                                                                                                    Page No.
                                                                                                                    --------
                                                                                                                 
ARTICLE I.            THE MERGER........................................................................               1
     SECTION 1.1.     The Merger........................................................................               1
     SECTION 1.2.     Closing...........................................................................               1
     SECTION 1.3.     Effective Time....................................................................               2
     SECTION 1.4.     Effect of the Merger..............................................................               2
     SECTION 1.5.     Subsequent Actions................................................................               2
     SECTION 1.6.     Certificate of Incorporation; By-Laws; Directors and Officers.....................               2

ARTICLE II.           CONVERSION OF SECURITIES..........................................................               3
     SECTION 2.1.     Conversion of Capital Stock.......................................................               3
     SECTION 2.2.     Exchange of Certificates..........................................................               4
     SECTION 2.3.     Stock Plans.......................................................................               6

ARTICLE III.          REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.......................               7
     SECTION 3.1.     Corporate Organization............................................................               7
     SECTION 3.2.     Authority Relative to this Agreement..............................................               7
     SECTION 3.3.     No Conflict; Required Filings and Consents........................................               8
     SECTION 3.4.     Financing Arrangements............................................................               8
     SECTION 3.5.     No Prior Activities...............................................................               8
     SECTION 3.6.     Litigation........................................................................               9
     SECTION 3.7.     Brokers...........................................................................               9
     SECTION 3.8.     Information Supplied..............................................................               9

ARTICLE IV.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................               9
     SECTION 4.1.     Organization and Qualification; Subsidiaries......................................               9
     SECTION 4.2.     Capitalization....................................................................              10
     SECTION 4.3.     Authority Relative to this Agreement..............................................              12
     SECTION 4.4.     No Conflict; Required Filings and Consents........................................              12
     SECTION 4.5.     SEC Filings; Financial Statements.................................................              13
     SECTION 4.6.     Absence of Certain Changes or Events..............................................              13
     SECTION 4.7.     Litigation........................................................................              15
     SECTION 4.8.     Employee Benefit Plans............................................................              15
     SECTION 4.9.     Properties........................................................................              17
     SECTION 4.10.    Intellectual Property.............................................................              18
     SECTION 4.11.    Insurance.........................................................................              20
     SECTION 4.12.    Environmental.....................................................................              20
     SECTION 4.13.    Material Contracts................................................................              22
     SECTION 4.14.    Conduct of Business...............................................................              23
     SECTION 4.15.    Compliance with Law...............................................................              24


                                  (i)


                                                                                                                   
     SECTION 4.16.    Taxes.............................................................................              25
     SECTION 4.17.    Labor Relations...................................................................              27
     SECTION 4.18.    Transactions with Affiliates......................................................              27
     SECTION 4.19.    Brokers...........................................................................              27
     SECTION 4.20.    Control Share Acquisition.........................................................              27
     SECTION 4.21.    Vote Required.....................................................................              27
     SECTION 4.22.    Investment Company................................................................              28
     SECTION 4.23.    Information Supplied..............................................................              28
     SECTION 4.24.    WARN..............................................................................              28
     SECTION 4.25.    Suppliers.........................................................................              28
     SECTION 4.26.    Bank Accounts.....................................................................              28
     SECTION 4.27.    Board Action......................................................................              29
     SECTION 4.28.    Opinion of Financial Advisor......................................................              29
     SECTION 4.29.    Disclosure........................................................................              29

ARTICLE V.            CONDUCT OF BUSINESS PENDING THE MERGER............................................              29
     SECTION 5.1.     Conduct of Business by the Company Pending the Merger.............................              29
     SECTION 5.2.     No Solicitation...................................................................              32

ARTICLE VI.           ADDITIONAL AGREEMENTS.............................................................              34
     SECTION 6.1.     Proxy Statement...................................................................              34
     SECTION 6.2.     Meeting of Stockholders of the Company............................................              35
     SECTION 6.3.     Compliance with Law...............................................................              35
     SECTION 6.4.     Notification of Certain Matters...................................................              35
     SECTION 6.5.     Access to Information.............................................................              36
     SECTION 6.6.     Public Announcements..............................................................              36
     SECTION 6.7.     Reasonable Best Efforts; Cooperation..............................................              36
     SECTION 6.8.     Agreement to Defend and Indemnify.................................................              36
     SECTION 6.9.     Employee Benefits.................................................................              37
     SECTION 6.10.    State Takeover Laws...............................................................              38
     SECTION 6.11.    SEC Reports.......................................................................              38
     SECTION 6.12.    Delisting.........................................................................              38
     SECTION 6.13.    Resignations......................................................................              38
     SECTION 6.14.    Communications to Employees.......................................................              38
     SECTION 6.15.    Transfer Taxes....................................................................              38
     SECTION 6.16.    Voting of Company Common Stock....................................................              38

ARTICLE VII.          CONDITIONS OF MERGER..............................................................              39
     SECTION 7.1.     Conditions for Each Party's Obligations to Effect the Merger......................              39
     SECTION 7.2.     Additional Conditions to Obligation of the Company to Effect the Merger...........              39
     SECTION 7.3.     Additional Conditions to Obligations of Parent and Merger Sub to Effect the Merger              40



                                 (ii)


                                                                                                                   
ARTICLE VIII.         TERMINATION, AMENDMENT AND WAIVER.................................................              41
     SECTION 8.1.     Termination.......................................................................              41
     SECTION 8.2.     Effect of Termination.............................................................              42

ARTICLE IX.           GENERAL PROVISIONS................................................................              43
     SECTION 9.1.     Non-Survival of Representations, Warranties and Agreements........................              43
     SECTION 9.2.     Notices...........................................................................              43
     SECTION 9.3.     Expenses..........................................................................              44
     SECTION 9.4.     Certain Definitions...............................................................              44
     SECTION 9.5.     Headings..........................................................................              46
     SECTION 9.6.     Severability......................................................................              46
     SECTION 9.7.     Entire Agreement; No Third-Party Beneficiaries....................................              46
     SECTION 9.8.     Assignment........................................................................              46
     SECTION 9.9.     Governing Law.....................................................................              46
     SECTION 9.10.    Amendment.........................................................................              46
     SECTION 9.11.    Waiver............................................................................              46
     SECTION 9.12.    Counterparts......................................................................              46



                                     (iii)


                          AGREEMENT AND PLAN OF MERGER

                  AGREEMENT AND PLAN OF MERGER, dated as of September 29, 2003
(this "Agreement"), among Good Guys, Inc., a Delaware corporation (the
"Company"), CompUSA Inc., a Delaware corporation ("Parent"), and Gladiator
Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary
of Parent ("Merger Sub").

                              W I T N E S S E T H :

                  WHEREAS, the Board of Directors of the Company (the "Board of
Directors") and the Boards of Directors of Parent and Merger Sub have each
determined that it is advisable and in the best interests of their respective
stockholders for Merger Sub to merge with and into the Company (the "Merger") in
accordance with the General Corporation Law of the State of Delaware (as in
effect from time to time, "Delaware Law") and upon the terms and subject to the
conditions set forth herein;

                  WHEREAS, the Board of Directors and the Boards of Directors of
Parent and Merger Sub have approved the Merger; and

                  WHEREAS, Parent and Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.

                  NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Merger Sub hereby agree as
follows:

                                   ARTICLE I.

                                   THE MERGER

                  SECTION 1.1. The Merger. At the Effective Time (as defined in
Section 1.3) and subject to and upon the terms and conditions of this Agreement
and Delaware Law, Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation. The Company as the surviving corporation
after the Merger hereinafter sometimes is referred to as the "Surviving
Corporation."

                  SECTION 1.2. Closing. The closing of the Merger (the
"Closing") shall take place at the offices of Willkie Farr & Gallagher LLP, 787
Seventh Avenue, New York, NY 10019 at 10:00 am on the second business day
following the satisfaction (or, to the extent permitted by law, waiver by all
parties) of the conditions set forth in Section 7.1, or, if on such day any
condition set forth in Section 7.2 or 7.3 has not been satisfied (or, to the
extent permitted by law, waived by the party entitled to the benefits thereof),
as soon as practicable after all the conditions set forth in Article VII have
been satisfied (other than those conditions that by their nature are to be
satisfied at the Closing), but subject to the fulfillment or, to the extent
permitted by law, waiver of those conditions by the parties entitled to the
benefits thereof, or at such other place, time and date as shall be agreed in
writing among Parent, Merger Sub and the Company.

                                       1


The date on which the Closing occurs is referred to in this Agreement as the
"Closing Date." For purposes of this Agreement, "business day" shall mean any
day except a Saturday, a Sunday or any other day on which commercial banks are
required or authorized to close in New York, New York.

                  SECTION 1.3. Effective Time. Prior to the Closing, the parties
shall prepare, and on the Closing Date the parties shall file, a certificate of
merger or other appropriate documents (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as required by, and
executed in accordance with the relevant provisions of, Delaware Law. The Merger
shall become effective at such time as the Certificate of Merger is filed with
such Secretary of State, or at such later time as Parent, Merger Sub and the
Company shall agree and specify in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time").

                  SECTION 1.4. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.

                  SECTION 1.5. Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or Merger Sub acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either the Company or Merger Sub, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such corporations or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.

                  SECTION 1.6. Certificate of Incorporation; By-Laws; Directors
and Officers.

                  (a)      Unless otherwise determined by Merger Sub before the
Effective Time, at the Effective Time the Restated Certificate of Incorporation
of the Company, as amended (the "Restated Certificate"), as in effect
immediately before the Effective Time, shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter amended as provided by law and
such Certificate of Incorporation.

                  (b)      The By-Laws of Merger Sub, as in effect immediately
before the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such By-Laws.

                                       2


                  (c)      The directors of Merger Sub immediately before the
Effective Time will be the initial directors of the Surviving Corporation, and,
except as Merger Sub may otherwise notify the Company in writing prior to the
Effective Time, the officers of the Company immediately before the Effective
Time will be the initial officers of the Surviving Corporation, in each case
until their respective successors are elected or appointed and qualified or
until their death, resignation or removal in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation. If, at the Effective
Time, a vacancy shall exist on the Board of Directors or in any office of the
Surviving Corporation, such vacancy may thereafter be filled in the manner
provided by law, the Certificate of Incorporation of the Surviving Corporation
and such By-Laws.

                                   ARTICLE II.

                            CONVERSION OF SECURITIES

                  SECTION 2.1. Conversion of Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger Sub,
the Company or the stockholders of any of the foregoing, the shares of stock of
the constituent corporations shall be converted as follows:

                  (a)      Common Stock of Merger Sub. The shares of common
stock, par value $.01 per share, of Merger Sub (the "Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into the number of shares of fully paid and nonassessable shares of
common stock, par value $.01 per share, of the Surviving Corporation equal to
the number of shares of Company Common Stock (as defined below) outstanding
immediately prior to the Effective Time.

                  (b)      Cancellation of Treasury Stock and Merger Sub-Owned
Company Common Stock. Each issued and outstanding share of common stock, par
value $.001 per share, of the Company (the "Company Common Stock") that is owned
by Merger Sub or any subsidiary of Merger Sub or held in the treasury of the
Company (collectively, the "Excluded Shares") shall automatically be canceled
and retired and shall cease to exist, and no cash, Company Common Stock or other
consideration shall be delivered or deliverable in exchange therefor.

                  (c)      Conversion or Retention of Company Common Stock. Each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time other than Excluded Shares or Dissenting Shares (as defined in
Section 2.1(d)) shall be converted into the right to receive $2.05 in cash
following the Merger (the "Merger Consideration").

                  (d)      Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
holder who has validly demanded payment of the fair value for such holder's
shares as determined in accordance with Section 262 of Delaware Law ("Dissenting
Shares") shall not be converted into or be exchangeable for the right to receive
the Merger Consideration (but instead shall be converted into the right to
receive payment from the Surviving Corporation with respect to such Dissenting
Shares in accordance with Delaware

                                       3


Law), unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's right under Delaware Law. If any
such holder of Company Common Stock shall have failed to perfect or shall have
effectively withdrawn or lost such right, each share of Company Common Stock of
such holder shall be treated, at the Company's sole discretion, as a share of
Company Common Stock that had been converted as of the Effective Time into the
right to receive the Merger Consideration in accordance with Section 2.1(c). The
Company shall give prompt notice to Merger Sub of any demands received by the
Company for appraisal of shares of Company Common Stock, and Merger Sub shall
have the right to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Merger Sub, make any payment with respect to, or settle or offer to settle, any
such demands.

                  (e)      Cancellation and Retirement of Company Common Stock.
As of the Effective Time, all shares of Company Common Stock (other than
Dissenting Shares and any shares owned by Parent or any subsidiary of Parent
other than Merger Sub) issued and outstanding immediately prior to the Effective
Time, shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Company Common Stock (a "Certificate") shall, to the extent
such Certificate represents such shares, cease to have any rights with respect
thereto, except, in all cases, the right to receive the Merger Consideration.
The right of any holder of any share of Company Common Stock to receive the
Merger Consideration shall be subject to and reduced by the amount of any
withholding that is required under applicable tax law.

                  SECTION 2.2. Exchange of Certificates.

                  (a)      Exchange Agent. Prior to the mailing of the Proxy
Statement (as defined in Section 3.8), Merger Sub shall appoint a bank or trust
company to act as exchange agent (the "Exchange Agent") for the payment of the
Merger Consideration. Immediately after the Effective Time, Parent shall deposit
or cause the Surviving Corporation to deposit with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article II, the Merger Consideration (such cash
consideration being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions of the Surviving
Corporation, make payments of the Merger Consideration out of the Exchange Fund.
The Exchange Fund shall not be used for any other purpose. Any and all interest
earned on the Exchange Fund shall be paid to Parent.

                  (b)      Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates that immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive Merger Consideration pursuant to
Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass to
the Exchange Agent, only upon delivery of the Certificates to the Exchange
Agent, and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, and such other

                                       4


documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the amount of
cash payable in respect of the shares of Company Common Stock theretofore
represented by such Certificate pursuant to the provisions of this Article II,
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Company Common Stock that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender, the
Merger Consideration as contemplated by this Section 2.2. No interest shall be
paid or accrue on any cash payable upon surrender of any Certificate.

                  (c)      No Further Ownership Rights in Company Common Stock
Exchanged For Cash. The Merger Consideration paid upon the surrender for
exchange of Certificates representing shares of Company Common Stock in
accordance with the terms of this Article II shall be deemed to have been paid
in full satisfaction of all rights pertaining to the shares of Company Common
Stock exchanged for cash theretofore represented by such Certificates.

                  (d)      Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of the Certificates for
six months after the Effective Time shall be delivered to the Surviving
Corporation and any holders of shares of Company Common Stock prior to the
Merger who have not theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation and only as general creditors thereof for
payment of the Merger Consideration.

                  (e)      No Liability. None of Parent, Merger Sub, the
Surviving Corporation, the Company or the Exchange Agent, or any employee,
officer, director, agent or affiliate thereof, shall be liable to any Person in
respect of any cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificate has not been surrendered prior to five years after the Effective
Time (or immediately prior to such earlier date on which the Merger
Consideration would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.3(b))), any such cash in respect of
such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.

                  (f)      Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by the Surviving
Corporation, on a daily basis. Any interest and other income resulting from such
investments shall be paid to Parent. To the extent that there are losses with
respect to such investments, or the Exchange Fund diminishes for other reasons
below the level required to make prompt payments of the Merger Consideration as
contemplated hereby, Parent shall promptly replace or restore the portion of the
Exchange Fund lost through investments or other events so as to ensure that the
Exchange Fund is, at all times, maintained at a level sufficient to make such
payments.

                                       5


                  (g)      Withholding Rights. The Surviving Corporation or the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended and the treasury regulations
promulgated thereunder (the "Code"), or any provision of state, local or foreign
Tax law. To the extent that amounts are so deducted and withheld by the
Surviving Corporation or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or the Exchange Agent.

                  (h)      Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as the Surviving Corporation may require as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration payable in respect thereof, pursuant to
this Agreement.

                  SECTION 2.3. Stock Plans.

                  (a)      Post-November 8, 2000 Options. The Company shall take
all actions necessary to provide that, at the Effective Time, (i) each then
outstanding option to purchase shares of Company Common Stock granted on or
after November 8, 2000 under any of the Company's stock option plans referred to
in Section 4.2 hereof, each as amended (the "Option Plans") and the option for
1,000,000 shares of Company Common Stock granted to Kenneth R. Weller on August
15, 2000 (collectively, the "Post-November 2000 Options"), whether or not then
exercisable or vested, shall be cancelled and (ii) the Company shall provide the
notice prescribed by the Company's 1994 Stock Incentive Plan to each holder of
Post-November 2000 Options.

                  (b)      Pre-November 8, 2000 Options. The Company shall use
its reasonable best efforts to provide that, at the Effective Time, each then
outstanding option to purchase shares of Company Common Stock granted prior to
November 8, 2000 under any of the Company's Option Plans (collectively, the
"Pre-November 2000 Options" and together with the Post-November 2000 Options,
the "Options"), whether or not then exercisable or vested, shall be cancelled in
accordance with applicable law and in a manner reasonably acceptable to Parent
and the Company. The Company represents that as of the date hereof, there are
484,376 Pre-November 2000 Options outstanding and which are held of record by
197 Persons. In connection with the cancellation of the Pre-November 2000
Options, the Company shall not provide consideration to the holders thereof an
amount in cash in excess of $100,000 in the aggregate.

                  (c)      Warrants and Other Rights. The Company acknowledges
and agrees that any and all other outstanding options (other than the Options),
stock warrants and stock rights, other than the shares of Company Common Stock
issuable upon conversion of the Note (as defined below) (collectively, "Warrants
and Other Rights") granted pursuant to any option

                                       6


agreement, option plan, warrant agreement or otherwise (collectively, the
"Warrant Agreements"), whether or not then exercisable or vested, shall upon
consummation of the Merger, pursuant to the terms of such Warrants Agreements,
automatically and without the action of any Person, be converted into the right
to receive upon exercise of the rights under the Warrants Agreements, the Merger
Consideration for which such Warrant Agreement could have been exercised
immediately prior to the Effective Time (such amount being herein referred to as
the "Warrant Price"). Parent agrees to cause the Surviving Corporation to pay
the Warrant Price, if any, upon surrender by a holder of a Warrant Agreement.

                  (d)      Except as provided herein or as otherwise agreed to
by the parties and to the extent permitted by the Option Plans, (i) the Company
shall cause the Option Plans to terminate as of the Effective Time and shall
provide for the payment of any benefit due under such Option Plans in cash; (ii)
the Company shall cause the provisions in any other plan, program or arrangement
that currently provides or previously provided for the issuance or grant by the
Company of any interest in respect of the capital stock of the Company, or for
payments based on the value of the capital stock of the Company (each such other
plan being referred to as an "Other Stock Plan"), to terminate as of the
Effective Time and shall provide for the payment of any benefit due under such
Other Stock Plans in cash; and (iii) the Company shall take all action necessary
to (A) ensure that following the Effective Time no holder of Post-November 2000
Options or Warrants and Other Rights nor any participant in the Option Plans
(other than holders of Pre-November 2000 Options that do not relinquish their
options) or in any Other Stock Plan shall have any right thereunder to acquire
any equity securities of the Company, the Surviving Corporation or any
subsidiary thereof, and (B) terminate all such option plans. The Parent shall
assure that the Surviving Corporation has the funds necessary to meet its
obligations under this Section 2.3(d).

                  (e)      Prior to the Effective Time, the Board of Directors
shall take all commercially reasonable action to terminate the Company's
Employee Stock Purchase Plan and to return all cash accumulated in each
participant's account to such participants.

                                  ARTICLE III.

                      REPRESENTATIONS AND WARRANTIES OF THE
                              PARENT AND MERGER SUB

         Parent and Merger Sub represent and warrant to the Company as follows:

                  SECTION 3.1. Corporate Organization. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Merger Sub is a wholly owned
subsidiary of Parent.

                  SECTION 3.2. Authority Relative to this Agreement. Parent and
Merger Sub have the necessary corporate power and authority to enter into this
Agreement and to carry out their obligations hereunder. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes a legal, valid and binding obligation of each such
corporation, enforceable against

                                       7


each of them in accordance with its terms, except to the extent that its
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer, moratorium or other laws relating to
or affecting creditors' rights generally and by general principles of equity.

                  SECTION 3.3. No Conflict; Required Filings and Consents.

                  (a)      The execution and delivery of this Agreement by
Parent and Merger Sub do not, and the performance of this Agreement by Parent
and Merger Sub will not, (i) conflict with or violate any law, regulation, court
order, judgment or decree applicable to Parent or Merger Sub or by which any of
their property is bound or affected, (ii) violate or conflict with either the
Certificate of Incorporation or By-Laws or other organizational documents of
either Parent or Merger Sub, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or result in, or give rise to any rights of termination,
cancellation or acceleration of any obligations or any loss of any material
benefit under, or result in the creation of a Lien (as defined in Section
4.2(b)) on any of the property or assets of Parent or Merger Sub pursuant to,
any contract, instrument, permit, license or franchise to which Parent or Merger
Sub is a party or by which Parent or Merger Sub or any of their respective
properties is bound or affected, except for, in the case of clause (i),
conflicts, violations, breaches or defaults which would not be reasonably likely
to (x) impair, in any material respect, the ability of either Parent or Merger
Sub to perform their respective obligations under this Agreement or (y) prevent
or materially delay the consummation of any of the transactions contemplated by
this Agreement.

                  (b)      Except for (i) applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), if applicable, (iii) the
filing and recordation of appropriate merger documents as required by Delaware
Law, and (iv) filings as may be required by any applicable "blue sky" laws
and/or the rules of the National Association of Securities Dealers, Inc.,
neither Parent nor Merger Sub is required to submit any notice, report or other
filing with any federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity") in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby. Except as set forth in Schedule 3.3, no
waiver, consent, approval or authorization of any Governmental Entity is
required to be obtained or made by either Parent or Merger Sub in connection
with its execution, delivery or performance of this Agreement.

                  SECTION 3.4. Financing Arrangements. Parent has or, on or
prior to the Closing Date, will have sufficient cash to pay the Merger
Consideration.

                  SECTION 3.5. No Prior Activities. Except for obligations or
liabilities incurred in connection with its incorporation or organization or the
negotiation and consummation of this Agreement and the transactions contemplated
hereby (including any financing), Merger Sub has not incurred any obligations or
liabilities, and has not engaged in any business or activities of any type or
kind whatsoever, or entered into any agreements or arrangements with any Person
or entity.

                                       8


                  SECTION 3.6. Litigation. There are no claims, actions, suits,
proceedings (including, without limitation, condemnation or arbitration
proceedings) or investigations pending or, to the knowledge of Parent or Merger
Sub, threatened against or involving Parent or Merger Sub, or any properties or
rights of Parent or Merger Sub, by or before any Governmental Entity or
arbitrator which, either individually or in the aggregate, are reasonably likely
to be materially adverse to the ability of Parent and/or Merger Sub to
consummate any transactions contemplated by this Agreement or to perform their
respective obligations under this Agreement (a "Purchaser Material Adverse
Effect").

                  SECTION 3.7. Brokers. Except as to J.P. Morgan Securities,
Inc., no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Parent or Merger Sub.

                  SECTION 3.8. Information Supplied. None of the information
supplied by Parent or Merger Sub or their respective officers, directors,
representatives, agents or employees (the "Purchaser Information") for inclusion
in the proxy statement to be filed with the Securities and Exchange Commission
(the "SEC") in connection with the Merger (the "Proxy Statement"), will, on the
date the Proxy Statement is first mailed to the Company's stockholders or at the
time of the meeting of stockholders to be held in connection with the Merger
(the "Special Meeting"), contain any statement which, at such time and in light
of the circumstances under which it will be made, will be false or misleading
with respect to any material fact, or will omit to state any material fact
necessary in order to make the statements therein not false or misleading. If at
any time prior to the date of the Special Meeting, any event with respect to
Parent and/or Merger Sub, or with respect to information supplied by Parent
and/or Merger Sub specifically for inclusion in the Proxy Statement, shall occur
which is required to be described in an amendment of, or supplement to, the
Proxy Statement, such event shall be so described by Parent and/or Merger Sub
and provided to the Company. All documents that Parent and/or Merger Sub is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form, in all material respects, with the
provisions of the Exchange Act, and each such document required to be filed with
any Governmental Entity (other than the SEC) will comply in all material
respects with the provisions of applicable law as to the information required to
be contained therein. Notwithstanding the foregoing, each of Parent and Merger
Sub makes no representation or warranty with respect to the information supplied
or to be supplied by the Company or any affiliate (other than Parent or Merger
Sub to the extent Parent and/or Merger Sub is determined to be an affiliate of
the Company) thereof for inclusion or incorporation by reference in the Proxy
Statement.

                                  ARTICLE IV.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  The Company hereby represents and warrants to Parent and
Merger Sub as follows:

                  SECTION 4.1. Organization and Qualification; Subsidiaries. (a)
Each of the Company and its Subsidiaries (defined below) is a corporation duly
organized, validly existing

                                       9


and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and any necessary governmental
authority and approvals to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted, and is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes
such qualification or licensing necessary, except for such failure which, when
taken together with all other such failures, would not be reasonably likely to
have a Material Adverse Effect. The Company has heretofore made available to
Parent and Merger Sub accurate and complete copies of the Certificate of
Incorporation and Bylaws (or similar governing documents) as currently in effect
of the Company and its Subsidiaries. For purposes of this Agreement, "Material
Adverse Effect" means any change in or effect on the business of the Company or
any of the Subsidiaries (other than losses incurred during the period commencing
on March 1, 2003 and ending on August 31, 2003 in the amount of approximately
$15.3 million) that is or is reasonably likely to be materially adverse to (x)
the business, operations, properties (including intangible properties and
leased, owned or managed properties), condition (financial or otherwise),
assets, liabilities or regulatory status of the Company and the Subsidiaries,
taken as a whole, other than changes or effects resulting from conditions in the
United States or foreign economies or securities markets in general or resulting
from conditions in the industry in which the Company and the Subsidiaries
operate in general, except to the extent that the Company or the Subsidiaries
are disproportionately affected thereby or (y) the ability of the Company to
consummate any transactions contemplated by this Agreement or to perform its
obligations under this Agreement.

                  (b)      A true and complete list of all of the Subsidiaries,
together with the jurisdiction of incorporation or organization of each
Subsidiary, the jurisdictions in which each Subsidiary is licensed or qualified
to do business and the percentage of each Subsidiary's outstanding capital stock
or other equity interests owned by the Company or another Subsidiary, is set
forth in Schedule 4.1 hereto.

                  (c)      For purposes of this Agreement, "Subsidiary" means
any corporation or other legal entity of which the Company (either alone or
through or together with any other Subsidiary) (i) owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity, or (ii) in the case of
partnerships, serves as a general partner, or (iii) in the case of a limited
liability company, serves as managing member or owns a majority of the equity
interests, or (iv) otherwise has the ability to elect a majority of the
directors, trustees or managing members thereof.

                  SECTION 4.2. Capitalization. (a) The authorized capital stock
of the Company consists of: (i) 40,000,000 shares of Company Common Stock and
(ii) 2,000,000 shares of preferred stock, $.01 par value per share, of the
Company (the "Company Preferred Stock"). As of the date hereof, (A) 27,267,690
shares of Company Common Stock were issued and outstanding, all of which were
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, (B) no shares of Company Preferred Stock were issued and
outstanding, (C) 33,250 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding Options under the Company's 1985 Stock
Option Plan, (D) 2,612,450 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding

                                       10


Options under the Company's 1994 Stock Incentive Plan, (E) 1,000,000 shares were
reserved for issuance upon exercise of an outstanding option granted to Kenneth
R. Weller, (F) 1,815,500 shares of Company Common Stock were reserved for
issuance upon the exercise of currently outstanding Warrants and Other Rights
and (G) 2,439,025 shares of Company Common Stock are reserved for issuance upon
conversion of the Note (as defined below). Except as set forth in Schedule
4.2(a) or in this Section 4.2(a): (x) there are no other options, calls,
warrants or rights, agreements, arrangements or commitments of any character
obligating the Company or any of its Subsidiaries to issue, deliver or sell any
shares of capital stock of or other equity interests in the Company or any of
the Subsidiaries; (y) there are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote; and (z) there are no stockholders'
agreements, voting trusts or other agreements or understandings to which the
Company is a party or by which it is bound relating to the voting, registration
or disposition of any shares of the capital stock of the Company (including any
such agreements or understandings that may limit in any way the solicitation of
proxies by or on behalf of the Company from, or the casting of votes by, the
stockholders of the Company with respect to the Merger) or granting to any
person or group of persons the right to elect, or to designate or nominate for
election, a director to the Board of Directors. Except as set forth in Schedule
4.2(a), there are no programs in place or outstanding contractual obligations of
the Company or any of the Subsidiaries (1) to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or (2) to vote or to dispose
of any shares of the capital stock of any of the Subsidiaries. Schedule 4.2(a)
contains a true, accurate and complete list, as of the date hereof, of the name
of each Option and Warrant and Other Rights holder, the number of outstanding
Options and Warrant and Other Rights held by such holder, the grant or purchase
date thereof, the number of shares of Company Common Stock such holder is
entitled to receive upon exercise thereof and the corresponding exercise price.

                  (b)      All the outstanding capital stock of each of the
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights and, except as set forth in Schedule 4.1,
is owned by the Company or a Subsidiary free and clear of any liens, security
interests, pledges, agreements, claims, charges or encumbrances of any nature
whatsoever (collectively "Liens"). There are no existing options, calls,
warrants or similar rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock or other equity
interests or securities of any Subsidiary. Except for the Subsidiaries and its
interest in goodguys.com, Inc., the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in any other
corporation, partnership, joint venture or other business association or entity.
Neither the Company nor any Subsidiary is under any current or prospective
obligation to make a capital contribution or investment in or loan to, or to
assume any liability or obligation of, any corporation, partnership, joint
venture or business association or entity.

                                       11


                  SECTION 4.3. Authority Relative to this Agreement. The Company
has the necessary corporate power and authority to enter into this Agreement and
the other Transaction Documents (as defined below) and, subject to obtaining any
necessary stockholder approval of the Merger, to carry out its obligations
hereunder and thereunder. The execution and delivery each Transaction Document
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger by the Company's stockholders in accordance with Delaware Law. Each
Transaction Document has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer, moratorium or other laws relating to
or affecting creditors' rights generally and by general principles of equity.
The affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote approving this Agreement is the only vote
of the holders of any class or series of the Company's capital stock necessary
to approve this Agreement and the transactions contemplated hereby.

                  SECTION 4.4. No Conflict; Required Filings and Consents.

                  (a)      Except as set forth in Schedule 4.4(a) hereto, the
execution and delivery of (w) this Agreement, (x) the unsecured subordinated
convertible promissory note, dated the date hereof, in the aggregate principal
amount of $5,000,000.00 issued to Parent (the "Note"), (y) the Intercreditor and
Subordination Agreement, dated as of the date hereof, by and among Bank of
America, N.A. as Agent, the Company, Good Guys California, Inc., and Parent (the
"Intercreditor Agreement") and (z) the registration rights agreement, dated the
date hereof, between Parent and the Company (the "Registration Rights Agreement"
and together with this Agreement, the Intercreditor Agreement and the Note, the
"Transaction Documents") by the Company does not, and the performance of such
agreements by the Company will not, (i) conflict with or violate any law,
regulation, court order, judgment or decree applicable to the Company or any of
the Subsidiaries or by which its or any of their property is bound or affected,
(ii) violate or conflict with the Certificate of Incorporation or By-Laws or
equivalent organizational documents of the Company or any Subsidiary, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or result in any, or
give rise to any rights of termination, cancellation or acceleration of any
obligations or any loss of any material benefit under, or result in the creation
of a Lien on any of the properties or assets (whether owned, leased or managed)
of the Company or any of the Subsidiaries pursuant to, any agreement, contract,
instrument, permit, license or franchise to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries or
its or any of their property (whether owned, leased or managed) is bound or
affected, except for, in the case of clause (i), conflicts, violations, breaches
or defaults which, individually or in the aggregate, would not be reasonably
likely to (x) have a Material Adverse Effect, (y) impair, in any material
respect, the ability of the Company to perform its obligations under this
Agreement or (z) prevent or materially delay the consummation of the
transactions contemplated by this Agreement.

                  (b)      Except for (i) applicable requirements, if any, of
the Exchange Act, (ii) the pre-merger notification requirements of the HSR Act,
if applicable, (iii) the filing and

                                       12


recordation of appropriate merger or other documents as required by Delaware
Law, (iv) filings as may be required by any "blue sky" laws of various states
and/or the rules of the National Association of Securities Dealers, Inc., and
(v) as set forth in Schedule 4.4(b) hereto, the Company and each of the
Subsidiaries are not required to submit any notice, report or other filing with
any Governmental Entity in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby. No waiver, consent, approval or authorization of any
Governmental Entity is required to be obtained or made by the Company in
connection with its execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.

                  SECTION 4.5. SEC Filings; Financial Statements.

                  (a)      The Company has timely filed all forms, reports and
documents (including all exhibits thereto) required to be filed with the SEC
since December 31, 1999 (collectively, the "SEC Reports"). The SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the
Subsidiaries is required to file any statements or reports with the SEC pursuant
to Sections 13(a) or 15(d) of the Exchange Act. The Company has heretofore
furnished or made available to Merger Sub a complete and correct copy of any
amendments or modifications to SEC Reports which have not yet been filed with
the SEC pursuant to the Securities Act or the Exchange Act.

                  (b)      The consolidated financial statements contained in
the SEC Reports were prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly presented
in all material respects the consolidated financial position of the Company and
the Subsidiaries as at the respective dates thereof and the consolidated results
of operations and changes in financial position of the Company and the
Subsidiaries for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments (which in the aggregate were not material in amount).

                  (c)      Except as disclosed in any SEC Report filed prior to
the date of this Agreement, and except for liabilities and obligations incurred
in the ordinary course of business consistent with past practice since the date
of the most recent consolidated balance sheet included in the SEC Reports filed
and publicly available prior to the date of this Agreement, the Company and the
Subsidiaries have no liabilities or obligations of any nature (whether accrued,
absolute, fixed, contingent or otherwise).

                  SECTION 4.6. Absence of Certain Changes or Events. Except as
expressly permitted by this Agreement, as disclosed in any SEC Report filed
prior to the date of this Agreement, or as set forth in Schedule 4.6 hereto,
since February 28, 2003, the business of the Company and the Subsidiaries has
been conducted in the ordinary course consistent with past practice and there
has not been:

                                       13


                  (a)      any Material Adverse Effect;

                  (b)      any damage, destruction or loss (whether or not
covered by insurance) with respect to any of the assets of the Company or any of
the Subsidiaries having a Material Adverse Effect;

                  (c)      any redemption or other acquisition of Company Common
Stock by the Company or any of the Subsidiaries or any declaration or payment of
any dividend or other distribution in cash, stock or property with respect to
Company Common Stock, except for purchases heretofore made pursuant to the terms
of the Company's employee benefit plans;

                  (d)      any change by the Company in accounting methods,
principles or practices;

                  (e)      any revaluation by the Company of any asset
(including, without limitation, any writing down of the value of inventory or
writing off of notes or accounts receivable), other than in the ordinary course
of business consistent with past practice;

                  (f)      any entry by the Company or any Subsidiary into any
commitment or transaction material to the Company and the Subsidiaries taken as
a whole, other than commitments or transactions entered into in the ordinary
course of business consistent with past practice;

                  (g)      any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards) stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any directors, officers or key
employees of the Company or any Subsidiary, except in the ordinary course of
business consistent with past practice;

                  (h)      any entry by the Company or any Subsidiary into any
employment, consulting, severance, termination or indemnification agreement with
any director, officer or key employee of the Company or any Subsidiary;

                  (i)      (i) any settlement or compromise by the Company or
any Subsidiary of any claim, litigation or other legal proceeding, other than in
the ordinary course of business consistent with past practice in an amount
involving more than $50,000 or (ii) any payment, discharge or satisfaction by
the Company or any Subsidiary of any other claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
(A) in the ordinary course of business and consistent with past practice or (B)
with respect to any other such claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of the Company; or

                  (j)      any agreement, in writing or otherwise, by the
Company or any Subsidiary to take any of the actions described in this Section
4.6, except as expressly contemplated by this Agreement.

                                       14


                  SECTION 4.7. Litigation. Schedule 4.7 sets forth all
litigation matters in which the Company and/or the Subsidiaries are involved as
a party. There are no claims, actions, suits, proceedings (including, without
limitation, condemnation or arbitration proceedings) or investigations pending
or, to the knowledge of the Company, threatened against or involving the Company
or any of the Subsidiaries, or any properties or rights of the Company or any of
the Subsidiaries, by or before any Governmental Entity or arbitrator which,
either individually or in the aggregate, are reasonably likely to have a
Material Adverse Effect. Neither the Company nor any Subsidiaries nor any of
their property is subject to any outstanding order, writ, judgment, injunction
or decree.

                  SECTION 4.8. Employee Benefit Plans.

                  (a)      (i) Schedule 4.8(a)(i) sets forth a list of all
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other employee
benefit or executive compensation arrangements, perquisite programs or payroll
practices, including, without limitation, any such arrangements or payroll
practices providing severance pay, sick leave, vacation pay, salary continuation
for disability, retirement benefits, deferred compensation, bonus pay, incentive
pay, stock options (including those held by directors, employees, and
consultants), hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, that are maintained by the Company, any
Subsidiary or any entity within the same "controlled group" as the Company or
Subsidiary, within the meaning of Section 4001(a)(14) of ERISA (a "Company ERISA
Affiliate") or to which the Company, any Subsidiary or Company ERISA Affiliate
is obligated to contribute thereunder for current or former employees of the
Company, any Subsidiary or Company ERISA Affiliate (the "Company Employee
Benefit Plans").

                           (ii)     Schedule 4.8(a)(ii) sets forth, with respect
         to each Option that is outstanding under the Option Plans as of the
         date hereof, the name of the holder of such Option, the number of
         shares of Company Common Stock subject to such Option, the date or
         grant of such Option and the exercise price per share of such Option.

                  (b)      None of the Company Employee Benefit Plans is a
"multiemployer plan", as defined in Section 4001(a)(3) of ERISA (the "Company
Multiemployer Plan"). Neither the Company, any Subsidiary nor any Company ERISA
Affiliate has withdrawn in a complete or partial withdrawal from any Company
Multiemployer Plan, nor has any of them incurred any liability due to the
termination or reorganization of a Company Multiemployer Plan.

                  (c)      None of the Company Employee Benefit Plans is a
"single employer plan", as defined in Section 4001(a)(15) of ERISA, that is
subject to Title IV of ERISA. Neither the Company, any Subsidiary nor any
Company ERISA Affiliate has incurred any outstanding liability under Section
4062 of ERISA to the Pension Benefit Guaranty Corporation or to a trustee
appointed under Section 4042 of ERISA. Neither the Company, any Subsidiary nor
any Company ERISA Affiliate has engaged in any transaction described in Section
4069 of ERISA. Neither the Company nor any Subsidiary maintains, or is required,
either currently or in the future, to provide medical benefits to employees,
former employees or retirees after their termination of employment, other than
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985.

                                       15


                  (d)      Each Company Employee Benefit Plan that is intended
to qualify under Section 401 of the Code, and each trust maintained pursuant
thereto, has been determined to be exempt from federal income taxation under
Section 501 of the Code by the IRS, and, to the Company's knowledge, nothing has
occurred with respect to the operation of any such Company Employee Benefit Plan
that would cause the loss of such qualification or exemption or the imposition
of any material liability, penalty or tax under ERISA or the Code.

                  (e)      All contributions (including all employer
contributions and employee salary reduction contributions) required to have been
made under any of the Company Employee Benefit Plans to any funds or trusts
established thereunder or in connection therewith have been made by the due date
thereof.

                  (f)      There has been no material violation of ERISA or the
Code with respect to the filing of applicable reports, documents and notices
regarding the Company Employee Benefit Plans with the Secretary of Labor or the
Secretary of the Treasury or the furnishing of required reports, documents or
notices to the participants or beneficiaries of the Company Employee Benefit
Plans.

                  (g)      None of the Company, the Subsidiaries, the officers
of the Company or any of the Subsidiaries or the Company Employee Benefits Plans
which are subject to ERISA, any trusts created thereunder or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) or any other
breach of fiduciary responsibility that could subject the Company, any of the
Subsidiaries or any officer of the Company or any of the Subsidiaries to any
material tax or penalty on prohibited transactions imposed by such Section 4975
or to any material liability under Section 502(i) or (1) of ERISA.

                  (h)      Except as set forth in Schedule 4.8(h), neither the
Company nor any of the Subsidiaries is a party to any contract, agreement or
other arrangement which could result in the payment of amounts that could be
nondeductible by reason of Section 162(m) or Section 280G of the Code.

                  (i)      True, correct and complete copies of the following
documents, with respect to each of the Company Benefit Plans, have been
delivered or made available to Parent by the Company: (i) all Company Employee
Benefit Plans and related trust documents, and amendments thereto; (ii) the most
recent Forms 5500 and (iii) summary plan descriptions.

                  (j)      There are no pending actions, claims or lawsuits
which have been asserted, instituted or, to the Company's knowledge, threatened,
against the Company Employee Benefit Plans, the assets of any of the trusts
under such plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Company Employee Benefit Plans with respect to the operation of
such plans (other than routine benefit claims).

                  (k)      All Company Employee Benefit Plans subject to ERISA
or the Code have been maintained and administered, in all material respects, in
accordance with their terms and with all provisions of ERISA and the Code,
respectively, (including rules and regulations

                                       16


thereunder) and other applicable federal and state laws and regulations and all
employees required to be included as participants by the terms of such plans
have been properly included.

                  SECTION 4.9. Properties.

                  (a)      The Company and each of the Subsidiaries has good and
marketable title to, or a valid leasehold interest in, all its properties and
assets, free and clear of all Liens, except (i) Liens for current taxes not yet
due and payable, (ii) Liens securing debt under that certain Loan and Security
Agreement, dated as of September 30, 1999, by and among Bank of America, N.A.
and General Electric Capital Corporation (as Lenders), Bank of America, N.A. (as
Administrative Agent), General Electric Capital Corporation (as Documentation
Agent) and Good Guys California, Inc. (as Borrower), as amended, (iii) Liens
securing the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons and (iv) Liens against equipment
leased by the Company, as lessee, under any operating lease, including Liens
evidenced by protective UCC filings in favor of lessors of such equipment. All
tangible personal property, fixtures and equipment which comprise the assets of
the Company and the Subsidiaries, or are otherwise used in connection with its
respective businesses, are in a good state of repair (ordinary wear and tear
excepted) and operating condition. All improvements on the Leased Real Property
(as defined below) are in good operating condition and repair, have all
necessary access rights and utilities and generally are adequate and suitable in
all material respects for the present and continued use, operation and
maintenance thereof as now used, operated or maintained. Neither the Company nor
any Subsidiary has any knowledge of or received written notice from any utility
company, municipality or other entity of the discontinuation of sewer, water,
electric, gas, telephone or other utilities or services presently provided or
available to any Leased Real Property.

                  (b)      Schedule 4.9(b) sets forth a true and complete list
and description of each lease or sublease relating to Leased Real Property from
which the Company or any Subsidiary currently operates (collectively, the
"Company Material Leases"). Such description includes (i) the street address and
current use of each Leased Real Property, (ii) the name of the landlord (and
sublandlord, if applicable) and the entity which holds the tenant (and
subtenant, if applicable) interest under each Company Material Lease, (iii) the
identity of any guarantor of the Company's or any Subsidiary's obligations under
any Company Material Lease, (iv) the approximate square footage of each Leased
Real Property, (v) the aggregate annual rent (including base rent, and if
applicable, percentage and additional rent) under each Company Material Lease
(vi) the length of the term and any options to renew provided for in each
Company Material Lease and (vii) any provisions with respect to early
termination of a Company Material Lease.

                  (c)      Neither the Company nor any Subsidiary owns any real
property.

                  (d)      There are no violations of any law, ordinance or
regulation (including, without limitation, any building, planning or zoning law,
ordinance or regulation) relating to any of the real property or interests in
real property leased or subleased by the Company or any Subsidiary, as lessee or
lessor (the "Leased Real Property"), except for those violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.

                                       17


                  (e)      The Company has, or has caused to be, delivered to
Parent true and complete copies of the Company Material Leases and any and all
material ancillary documents pertaining thereto (including, but not limited to,
all amendments, subordination, non-disturbance and attornment agreements,
operating agreements, restrictive covenant agreements and notices to exercise
renewal options). With respect to each of the Company Material Leases, (i) such
lease or sublease is legal, valid, binding, enforceable and in full force and
effect, (ii) except as otherwise set forth in Schedule 4.9(e), (x) such lease or
sublease will not cease to be legal, valid, binding, enforceable and in full
force and effect on terms identical to those currently in effect as a result of
the consummation of the transactions contemplated by this Agreement, nor will
the consummation of such transactions without the prior consent of any other
party constitute a breach or default under such Company Material Lease or
otherwise give the other party thereto a right to terminate such Company
Material Lease and (y) there are no material controversies, claims, disputes or
disagreements existing between the parties to such Company Material Lease and
(iii) neither the Company nor any Subsidiary knows of, or has given or received
notice of, any violation or default thereunder (nor, to the knowledge of the
Company, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default
thereunder).

                  (f)      All improvements on real property constructed by or
on behalf of the Company or any Subsidiary, to the knowledge of the Company,
were constructed in compliance with applicable laws, ordinances and regulations
(including, but not limited to, any building or zoning laws, ordinances and
regulations) affecting such Leased Real Property.

                  SECTION 4.10. Intellectual Property.

                  (a)      The Company and the Subsidiaries own all right, title
and interest in and to, or have a valid and enforceable license to use all the
Intellectual Property (defined below) used by them in connection with their
respective businesses, which represents all Intellectual Property rights
necessary or desirable to the conduct of their business as now conducted. After
the Closing, Merger Sub will own all right, title and interest in and to, or
have a valid and enforceable license to use, the Intellectual Property. The
Company and the Subsidiaries are in compliance with all contractual obligations
relating to the protection of such Intellectual Property as they use pursuant to
license or other agreement. To the knowledge of the Company, there are no
conflicts with or infringements of any Intellectual Property by any third party.
To the knowledge of the Company, the conduct of the Company's and the
Subsidiaries' business as currently conducted does not conflict with or infringe
or will conflict with or infringe any intellectual property or proprietary
rights of any third party and none of the Intellectual Property infringes upon
or unlawfully or wrongfully uses or incorporates any intellectual property or
proprietary rights of any third party. There is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of the Subsidiaries: (i) alleging any such conflict or
infringement with any third party's intellectual property or proprietary rights;
or (ii) challenging the Company's or any of the Subsidiaries' ownership or use
of, or the validity or enforceability of any Intellectual Property.

                  (b)      Schedule 4.10(b) sets forth a complete and current
list of patents, copyrights, domain names, trademarks and common law rights
pertaining to the Intellectual Property ("Listed Intellectual Property") and a
summary description of each such item, the owner

                                       18


of record, date of application or issuance and relevant jurisdiction as to each.
Except as described in Schedule 4.10(b), all Listed Intellectual Property is
owned by the Company or the Subsidiaries free and clear of security interests,
liens, encumbrances or claims of any nature. All Listed Intellectual Property is
valid, subsisting, unexpired, in proper form and enforceable and all renewal
fees and other maintenance fees that have fallen due on or prior to the
effective date of this Agreement have been paid. Except as listed in Schedule
4.10(b), no Listed Intellectual Property is the subject of any proceeding before
any governmental, registration or other authority in any jurisdiction, including
any office action or other form of preliminary or final refusal of registration.

                  (c)      Schedule 4.10(c) sets forth a complete list of all
agreements relating to Intellectual Property owned by the Company or any of the
Subsidiaries or to Intellectual Property licensed to the Company or any of the
Subsidiaries. Except as set forth on Schedule 4.10(c), neither the Company nor
any of the Subsidiaries, are under any obligation to pay royalties or other
payments in connection with any agreement relating to the Intellectual Property,
nor are they restricted from assigning their rights respecting any Intellectual
Property nor will the Company or any of the Subsidiaries, otherwise be, as a
result of the execution and delivery of this Agreement or the performance of
Company's obligations under this Agreement, in breach of any agreement, contract
or license relating to the intellectual property or proprietary rights of any
other person or entity.

                  (d)      Except as set forth in Schedule 4.10(d), no present
or former employee, officer or director of the Company or any of the
Subsidiaries, or any agent, consultant, outside contractor or subcontractor of
the Company or any of the Subsidiaries, holds any right, title or interest,
directly or indirectly, in whole or in part, in or to any Intellectual Property.
Except as set forth in Schedule 4.10(d), neither the Company nor any of the
Subsidiaries have sold, licensed, leased or otherwise transferred or granted any
interest or rights in or to any portion of the Intellectual Property.

                  (e)      To the Company's knowledge: (i) none of the
Intellectual Property has been used, disclosed or appropriated to the detriment
of the Company or any of the Subsidiaries for the benefit of any other person or
entity other than the Company or any of the Subsidiaries; and (ii) no officer,
director, employee, independent contractor or agent of the Company or any of the
Subsidiaries has misappropriated any trade secrets or other confidential
information of any other person or entity in the course of the performance of
his or her duties as an officer, director, employee, independent contractor or
agent of the Company or any of the Subsidiaries; and (iii) the Company and the
Subsidiaries have taken all actions necessary or advisable to protect the
Intellectual Property.

                  (f)      Any Intellectual Property that was created by
employees of the Company or any of the Subsidiaries was made in the regular
course of such employees' employment or service relationships with the Company
or any of the Subsidiaries using the Company's or any of the Subsidiaries'
facilities and resources and, as such, constitute "works made for hire" within
the meaning of Section 101 of the Copyright Act of 1976 (or are owned by such
employees' employer pursuant to an equivalent legal doctrine in applicable
jurisdictions). Each such employee who has created, contributed to or
participated in the conception and development of the Intellectual Property or
any employee who in the regular course of his employment may

                                       19


create Intellectual Property and all consultants, contractors, subcontractors or
any other person or entity performing work on behalf of the Company or any of
the Subsidiaries who have created, contributed to or participated in the
conception and development of Intellectual Property, have signed an assignment
or been a party to a similar agreement with the Company or any of the
Subsidiaries that has accorded the Company or any of the Subsidiaries full,
effective and exclusive ownership or, in the alternate, transferring and
assigning to the Company or any of the Subsidiaries all right, title and
interest in and to such Intellectual Property including copyright, patent and
other intellectual property rights therein.

                  (g)      For purposes of this Agreement, "Intellectual
Property" shall mean (i) trademarks and service marks, logos, trade dress,
product configurations, trade names and other indications of origin,
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith; (ii) patentable inventions, inventions
(whether or not patentable), discoveries, improvements, ideas, know-how, formula
methodology, processes, technology, software (including password protected
interpretive code or source code, object code, source files, development
documentation, programming tools, drawings, specifications and technical data)
and all applications or patents in any jurisdiction pertaining to the foregoing,
including re-issues, divisions, continuations, continuations-in-part, renewals
or extensions; (iii) trade secrets, customer lists and supplier lists, including
confidential information and the right in any jurisdiction to limit the use or
disclosure thereof; (iv) copyrights in writings, designs, software, mask works
or other works, applications or registrations in any jurisdiction for the
foregoing and all moral rights related thereto; (v) database rights; (vi)
Internet Web sites, Web pages, domain names and applications and registrations
pertaining thereto and all intellectual property used in connection with or
contained in all versions of such Web sites; (vii) rights under all agreements
and licenses relating to the foregoing; (viii) books and records pertaining to
the foregoing; and (ix) claims or causes of action arising out of or related to
past, present or future infringement or misappropriation of the foregoing.

                  SECTION 4.11. Insurance. Schedule 4.11 sets forth a true and
complete list of all insurance policies carried by, or covering the Company and
the Subsidiaries with respect to their businesses, assets and properties and
with respect to which records are maintained at the Company's principal
executive offices, together with, in respect of each such policy, the name of
the insurer, the policy number, the type of policy, the amount of coverage and
the deductible. True and complete copies of each such policy have previously
been provided to Parent. All such policies are in full force and effect, and no
notice of cancellation has been given with respect to any such policy. All
premiums due on such policies have been paid in a timely manner and the Company
and the Subsidiaries have complied in all material respects with the terms and
provisions of such policies.

                  SECTION 4.12. Environmental.

         Except as set forth in Schedule 4.12:

                  (a)      The Company and the Subsidiaries are and have been in
compliance with all applicable Environmental Laws defined below, have obtained
all Environmental Permits (defined below) and are and have been in compliance
with their requirements, and have resolved all past non-compliance with
Environmental Laws and Environmental Permits without any

                                       20


pending, on-going or future obligation, cost or liability, except where the
failure to do so would not be reasonably likely to have, individually or the
aggregate, a Material Adverse Effect.

                  (b)      Neither the Company nor any of the Subsidiaries has
(i) generated, stored, placed, held, located, released, transported or disposed
of any Hazardous Substances (defined below) on, under, from or at any of the
Company's or any of the Subsidiaries' properties (whether presently or formerly
owned, leased or managed) or any other properties, (ii) any knowledge or reason
to know of the presence or threat of release of any Hazardous Substances on,
under or at any of the Company's or any of the Subsidiaries' properties or any
other property but arising from the Company's or any of the Subsidiaries'
current or former properties or operations, or (iii) received any written notice
(A) of any violation of or liability under any Environmental Laws, (B) of the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any such
violation or liability, (C) requiring the response to or remediation of
Hazardous Substances at or arising from any of the Company's or any of the
Subsidiaries' current or former properties or operations or any other
properties, (D) alleging noncompliance by the Company or any of the Subsidiaries
with the terms of any Environmental Permit in any manner reasonably likely to
require material expenditures or to result in material liability or (E)
demanding payment for response to or remediation of Hazardous Substances at or
arising from any of the Company's or any of the Subsidiaries' current or former
properties or operations or any other properties;

                  (c)      No Environmental Law imposes any obligation upon the
Company or the Subsidiaries arising out of or as a condition to any transaction
contemplated by this Agreement, including any requirement to modify or to
transfer any permit or license, any requirement to file any notice or other
submission with any Governmental Entity, the placement of any notice,
acknowledgment or covenant in any land records, or the modification of or
provision of notice under any agreement, consent order or consent decree. No
Lien has been placed upon any of the Company's or the Subsidiaries' properties
(whether owned, leased or managed) under any Environmental Law;

                  (d)      The Company and the Subsidiaries have provided Parent
with copies of any environmental assessment or audit report (including all
records maintained for required environmental compliance) or other similar
studies or analyses in the possession of the Company or the Subsidiaries
relating to any real property currently or formerly owned, leased, managed or
occupied by the Company or the Subsidiaries.

                  (e)      As used in this Agreement, the following terms have
the meanings set forth below:

                           (i)      "Environmental Law" means any local, state
         or federal law, (including the common law), regulation or ordinance now
         or hereafter in effect and as amended, and any judicial or
         administrative interpretation thereof, including any judicial or
         administrative order, consent decree or judgment, relating to pollution
         or protection of the environment, health or safety or natural
         resources, including, without limitation, those relating to the use,
         handling, transportation, treatment, storage, disposal, release or
         discharge of Hazardous Substances.

                                       21


                           (ii)     "Environmental Permit" means any permit,
         approval, identification number, license or other authorization
         required under any applicable Environmental Law.

                           (iii)    "Hazardous Substances" means any chemicals,
         materials or substances that are potentially harmful to human health
         and the environment or otherwise regulated as toxic or hazardous or as
         a pollutant, contaminant or waste under any applicable Environmental
         Law, including without limitation, petroleum, petroleum products,
         cathode ray tubes, asbestos and asbestos-containing materials, and
         mold.

                  SECTION 4.13. Material Contracts.

                  (a) Except as set forth in the SEC Reports filed prior to the
date of this Agreement or in Schedule 4.13, neither the Company nor any of the
Subsidiaries is a party to or bound by:

                           (i)      any "material contract" (as such term is
         defined in Item 601(b)(10) of Regulation S-K of the Securities Act and
         the Exchange Act);

                           (ii)     any contract or agreement for the purchase
         or lease (as lessee) of materials or personal property from any
         supplier or for the furnishing of services to the Company or any
         Subsidiary that involves or is likely to involve future monthly
         payments by the Company or any of the Subsidiaries of $50,000 or more;

                           (iii)    any contract or agreement for the sale,
         license or lease (as lessor) by the Company or any Subsidiary of
         services, materials, products, supplies or other assets, owned or
         leased by the Company or the Subsidiaries, that involves or is likely
         to involve future monthly payments to the Company or any of the
         Subsidiaries of $50,000 or more;

                           (iv)     any contract, agreement or instrument
         relating to or evidencing indebtedness for borrowed money of the
         Company or any Subsidiary in excess of an aggregate of $50,000;

                           (v)      any contract, agreement or understanding
         with goodguys.com, Inc. or its stockholders;

                           (vi)     any non-competition agreement or any other
         agreement or obligation which purports to limit in any respect the
         manner in which, or the localities in which, the business of the
         Company or the Subsidiaries may be conducted;

                           (vii)    any agreement with any present or former
         affiliates of the Company;

                           (viii)   any partnership, joint venture, strategic
         alliance or cooperation agreement (or any agreement similar to any of
         the foregoing);

                           (ix)     any voting or other agreement governing how
         any shares of Company Common Stock shall be voted;

                                       22


                           (x)      any agreement with any stockholders of the
         Company; or

                           (xi)     any contract or other agreement which would
         prohibit or materially delay the consummation of the Merger or any of
         the transactions contemplated by this Agreement.

The foregoing contracts and agreements to which the Company or any Subsidiary
are parties or are bound are collectively referred to herein as "Company
Material Contracts."

                  (b)      Each Company Material Contract is valid and binding
on the Company (or, to the extent a Subsidiary is a party, such Subsidiary) and
is in full force and effect, and the Company and each Subsidiary have performed
all obligations required to be performed by them to date under each Company
Material Contract, except where such noncompliance, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.
Except as set forth on Schedule 4.13(b)(i), the Company has, or has caused to
be, delivered to Parent or its counsel true and complete copies of the Company
Material Contracts requested by same and any and all ancillary documents
pertaining thereto (including, but not limited to, all amendments and waivers).
Except as otherwise set forth in Schedule 4.13(b)(ii), each Company Material
Contract will not cease to be legal, valid, binding, enforceable and in full
force and effect on terms identical to those currently in effect as a result of
the consummation of the transactions contemplated by this Agreement, nor will
the consummation of such transactions constitute a breach or default under such
Company Material Contract or otherwise give the contracting party a right to
terminate such Company Material Contract. Except as set forth in Schedule
4.13(b)(ii), neither the Company nor any Subsidiary knows of, or has given or
received notice of, any violation or default under (nor, to the knowledge of the
Company, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default under) any
Company Material Contract.

                  (c)      Except as disclosed in the SEC Reports filed prior to
the date of this Agreement or in Schedule 4.13(c) or as expressly provided for
in this Agreement, neither the Company nor any of the Subsidiaries is a party to
any oral or written (i) employment or consulting agreement that cannot be
terminated on thirty days' or less notice, (ii) agreement with any officer or
other key employee of the Company or any of the Subsidiaries the benefits of
which are contingent or vest, or the terms of which are materially altered, upon
the occurrence of a transaction involving the Company or any the Subsidiaries of
the nature contemplated by this Agreement, (iii) agreement with respect to any
officer or other key employee of the Company or any of the Subsidiaries
providing any term of employment or compensation guarantee or (iv) stock or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of such transactions.

                  SECTION 4.14. Conduct of Business.

                  (a)      Except as set forth in Schedule 4.14(a), the business
and operations of the Company and the Subsidiaries are not being conducted in
default or violation of any term, condition or provision of (i) their respective
Certificates of Incorporation or By-Laws or similar

                                       23



organizational documents, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease or other instrument or agreement of any kind to which the
Company or any of the Subsidiaries is now a party or by which the Company or any
of the Subsidiaries or any of their respective properties or assets may be
bound, except, with respect to the foregoing clause (ii), defaults or violations
that would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. Except as set forth in Schedule 4.14(a), to the
Company's knowledge, no other party to any Company Material Contract is in
default or violation in respect thereof, and no event has occurred which, with
due notice or lapse of time or both, would constitute such a default or
violation.

                  (b)      Schedule 4.14(b) sets forth a true and complete list
of all licenses, permits, franchises, authorizations and approvals issued or
granted to the Company or its Subsidiaries by any Governmental Authority (the
"Licenses and Permits"), and all pending applications therefor. Such list
contains a summary description of each such item and, where applicable,
specifies the date issued, granted or applied for, the expiration date and the
current status thereof. Each License and Permit has been duly obtained, is valid
and in full force and effect, and is not subject to any pending or, to the
Company's knowledge, threatened administrative or judicial proceeding to revoke,
cancel, suspend or declare such License and Permit invalid in any respect. To
the Company's knowledge, the Licenses and Permits are sufficient and adequate in
all material respects to permit the continued lawful conduct of the Company's
and Subsidiaries' businesses in the manner now conducted and as proposed to be
conducted, and none of the operations of the Company or Subsidiaries are being
conducted in a manner that violates in any material respect any of the terms or
conditions under which any License and Permit was granted. Except as set forth
in Schedule 4.14(b), no such License and Permit will be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.

                  (c)      The contracts, agreements and understandings set
forth on Schedule 4.14(c) have been terminated or expired by their terms,
without any further liability to the Company or the Subsidiaries.

                  SECTION 4.15. Compliance with Law. Except as set forth in
Schedule 4.15, the operations of the Company and the Subsidiaries have been
conducted in compliance in all material respects with all applicable laws,
regulations, orders and other requirements of all Governmental Authorities
having jurisdiction over the Company and the Subsidiaries and their respective
assets, properties and operations. Except as set forth in Schedule 4.15, neither
the Company nor any Subsidiary has received notice of any violation of any such
law, regulation, order or other legal requirement, and is not in default with
respect to any order, writ, judgment, award, injunction or decree of any
Governmental Authority. The Company has no knowledge of any proposed change in
any such laws, rules or regulations (other than laws of general applicability)
that would materially and adversely affect the transactions contemplated by this
Agreement or would be reasonably likely to have a Material Adverse Effect. To
the Company's knowledge, neither the Company nor any Subsidiary, nor any
director, officer, agent, employee or other Person associated with or acting on
behalf of the Company or any Subsidiary has: used any funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any

                                       24



provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

                  SECTION 4.16. Taxes.

                  (a)      Except as set forth in Schedule 4.16:

                           (i)      All Tax Returns (as defined below) required
         to be filed by or on behalf of the Company or any Subsidiary or any
         affiliated, combined or unitary group of which the Company or any
         Subsidiary is or was a member have been duly and timely filed (giving
         effect to all timely obtained extensions) with the appropriate taxing
         authorities and were, in all material respects, true, complete and
         correct.

                           (ii)     The Company and each Subsidiary have paid or
         will have paid to the appropriate taxing authority on its behalf,
         within the time and in the manner prescribed by law, all material Taxes
         (as defined below) for which it is liable, whether or not shown as
         being due on any Tax Returns.

                           (iii)    The Company and each Subsidiary have
         established on its books and records adequate reserves in accordance
         with GAAP for the payment of all Taxes for which it is liable that are
         not yet due and payable, and with respect to any such Taxes that have
         been proposed, assessed or asserted against them.

                           (iv)     The Company and each Subsidiary have
         complied in all respects with all applicable laws, rules and
         regulations relating to the payment and withholding of Taxes for which
         it is liable (including, without limitation, withholding of such Taxes
         pursuant to sections 1441 and 1442 of the Code or similar provisions
         under any state, local or foreign laws) and has, within the time and in
         the manner prescribed by law, withheld and paid over to the appropriate
         taxing authorities all amounts required to be so withheld and paid over
         under all applicable domestic and foreign laws.

                           (v)      Neither the Company nor any Subsidiary has
         requested any extension of time within which to file any Tax Return in
         respect of any taxable year, which Tax Return has not since been filed.

                           (vi)     There are no outstanding waivers or
         comparable consents that have been given by the Company or any
         Subsidiary or with respect to any Tax Return of the Company or any
         Subsidiary regarding the application of any statute of limitations with
         respect to any Taxes or Tax Returns of the Company or any such
         Subsidiary.

                           (vii)    No United States federal, state, local or
         foreign audits, investigations, other administrative proceedings or
         court proceedings are presently pending against the Company or any
         Subsidiary with regard to any Taxes or Tax Returns of the Company or
         any Subsidiary and no notification has been received by the Company or
         any Subsidiary that such an audit, investigation or other proceeding is
         pending or threatened.

                                       25



                           (viii)   Other than in the ordinary course of
         business consistent with its past practices, neither the Company nor
         any Subsidiary has granted any power of attorney or similar document
         that is currently in force with respect to any matter relating to
         Taxes.

                           (ix)     No property of the Company or any Subsidiary
         is property that the Company, the Subsidiary or any party to this
         transaction is or will be required to treat as being owned by another
         person pursuant to the provisions of section 168(f)(8) of the Internal
         Revenue Code of 1954, as amended, as in effect prior to the enactment
         of the Tax Reform Act of 1986, or is "tax-exempt use property" within
         the meaning of section 168 of the Code.

                           (x)      The Company and each Subsidiary are members
         of an affiliated group of corporations within the meaning of section
         1504(a) of the Code of which the Company is the common parent and such
         affiliated group files a consolidated return with respect to United
         States federal income taxes.

                           (xi)     Neither the Company nor any Subsidiary has
         liability for the Taxes of any person (other than members of the
         affiliated group described in Section 4.16(a)(x))) under Treasury
         Regulations section 1.1502-6 (or a similar or corresponding provision
         of state, local, or foreign law).

                           (xii)    There are no Liens for Taxes upon the assets
         or properties of the Company or any Subsidiary except for statutory
         Liens for Taxes not yet due.

                           (xiii)   Neither the Company or any Subsidiary is a
         party to, is bound by or has an obligation under any Tax sharing
         agreement, Tax indemnification agreement, Tax allocation agreement or
         similar contract or arrangement (including any agreement, contract or
         arrangement providing for the sharing or ceding of credits or losses)
         or has a potential liability or obligation to any person as a result of
         or pursuant to any such agreement, contract, arrangement or commitment.

                           (xiv)    No jurisdiction where the Company or any
         Subsidiary has not filed a Tax Return has made a claim that the Company
         or such Subsidiary is required to file a Tax Return in such
         jurisdiction.

                           (xv)     The Company and each Subsidiary have
         previously delivered or made available to Parent complete and accurate
         copies of all income Tax Returns filed with any taxing authority filed
         by or on behalf of the Company or any Subsidiary for taxable years 1999
         through 2003.

                  (b)      For purposes of this Agreement, "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, goods and services, capital, transfer, franchise, profits, license,
withholding, payroll, employment, employer health, excise, severance, stamp,
occupation, real or personal property, social security, estimated, recording,
gift, value assessed, windfall profits or other taxes, customs duties, fees,
assessments or charges of any kind whatsoever, whether computed on a separate,
consolidated, unitary, combined or other basis, together with any interest,
fines, penalties, additions to tax or other additional amounts imposed

                                       26



by any taxing authority (domestic or foreign). For purposes of this Agreement,
"Tax Return" shall mean any return, declaration, report, estimate, information
or other document (including any documents, statements or schedules attached
thereto and any amendments thereof) required to be filed with any federal,
state, local or foreign tax authority with respect to Taxes.

                  SECTION 4.17. Labor Relations. Except as set forth in the SEC
Reports or Schedule 4.17, (i) each of the Company and the Subsidiaries is, and
has at all times been, in material compliance with all applicable laws, rules,
regulations and orders respecting employment and employment practices, terms and
conditions of employment, wages, hours or work and occupational safety and
health, and is not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law; (ii) there is no labor
grievance, arbitration, strike, slowdown, stoppage or lockout pending, or, to
the knowledge of the Company, threatened against or affecting the Company or any
of the Subsidiaries; (iii) neither the Company nor any of its Subsidiaries is a
party to or bound by any collective bargaining or similar agreement with any
union or other labor organization or is engaged in any labor negotiations with
any labor union; (iv) there are no proceedings pending between the Company and
any of the Subsidiaries or any of their respective employees before any federal
or state agency; and (v) to the knowledge of the Company, there are no
activities or proceedings of any labor union to organize any non-union employees
of the Company or any of the Subsidiaries.

                  SECTION 4.18. Transactions with Affiliates. Except as
disclosed in Schedule 4.18, no present or former affiliate of the Company has,
or since December 31, 2002 has had, (i) any interest in any property (whether
real, personal or mixed and whether tangible or intangible) used in or
pertaining to any of the businesses of the Company or any of the Subsidiaries,
(ii) has had business dealings or a material financial interest in any
transaction with the Company or any of the Subsidiaries (other than compensation
and benefits received in the ordinary course of business as an employee or
director of the Company or any of the Subsidiaries) or (iii) an equity interest
or any other financial or profit interest in any Person that has had business
dealings or a material financial interest in any transaction with the Company or
any of the Subsidiaries.

                  SECTION 4.19. Brokers. No broker, finder or investment banker
(other than Jefferies & Company, Inc.) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company. The
Company has heretofore furnished to Parent true and complete copies of all
agreements and other arrangements between the Company and Jefferies & Company,
Inc.

                  SECTION 4.20. Control Share Acquisition. No state takeover
statute or similar statute or regulation, including, without limitation, Section
203 of the Delaware Law and any statute adopted by the State of California
(which statutes and regulations are herein after collectively referred to as
"Takeover Laws"), or other comparable takeover provision of the Certificate of
Incorporation or By-Laws of the Company applies or purports to apply to the
Merger or this Agreement, or any of the transactions contemplated by this
Agreement.

                  SECTION 4.21. Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock is the
only vote of the holders of any class

                                       27



or series of the Company's capital stock which may be necessary to approve this
Agreement and the transactions contemplated hereby, including the Merger.

                  SECTION 4.22. Investment Company. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

                  SECTION 4.23. Information Supplied. None of the information to
be supplied by the Company specifically for inclusion or incorporation by
reference in the Proxy Statement will, on the date it is first mailed to the
holders of the Company Common Stock or on the date of the Special Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, at such time and in light of the circumstances under which they are
made, not misleading. If at any time prior to the date of the Special Meeting,
any event with respect to the Company, or with respect to information supplied
by the Company specifically for inclusion in the Proxy Statement, shall occur
which is required to be described in an amendment or supplement to the Proxy
Statement, such event shall be so described by the Company. All documents that
the Company is responsible for filing with the SEC in connection with the
transactions contemplated herein, to the extent relating to the Company or other
information supplied by the Company for inclusion therein, will comply as to
form, in all material respects, with the provisions of the Exchange Act, and
each such document required to be filed with any Governmental Entity other than
the SEC will comply in all material respects with the provisions of applicable
law as to the information required to be contained therein. Notwithstanding the
foregoing, but subject to the definition of "Material Adverse Effect", the
Company makes no representation or warranty with respect to the information
supplied or to be supplied by Parent, Merger Sub or their respective affiliates
(other than the Company to the extent the Company is determined to be an
affiliate of Parent and/or Merger Sub) for inclusion or incorporation by
reference in the Proxy Statement.

                  SECTION 4.24. WARN. Within the past twelve months: (i) neither
the Company nor any of its Subsidiaries has effectuated a "plant closing" or a
"mass layoff" (as such terms are defined in the Worker Adjustment and Retraining
Notification Act (the "WARN Act")); (ii) the Company has not been affected by
any transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state, local or foreign law or
regulation; and (iii) none of the Company's or any of its Subsidiaries'
employees has suffered an "employment loss" (as defined in the WARN Act) during
the 90 day period prior to the date of this Agreement.

                  SECTION 4.25. Suppliers. No supplier of the Company or any
Subsidiary whose failure to continue to be a supplier of the Company or any
Subsidiary would reasonably be likely to result in, individually or in the
aggregate, a Material Adverse Effect has indicated to the Company or any of its
Subsidiaries that it will stop, or materially decrease the rate of, supplying
products or services to the Company or any of its Subsidiaries.

                  SECTION 4.26. Bank Accounts. Schedule 4.26 sets forth a
complete list of the names and locations of each bank or other financial
institution at which the Company or any of its Subsidiaries has an account
(giving the account numbers) or safe deposit box and the names of all Persons
authorized to draw thereon or have access thereto, and the names of all Persons,
if

                                       28



any, holding powers of attorney or comparable delegation of authority from the
Company or its Subsidiaries and a summary statement thereof.

                  SECTION 4.27. Board Action. The Board of Directors, at a
meeting duly called and held at which all directors of the Company were present,
duly and unanimously adopted resolutions (i) approving and declaring advisable
this Agreement and the other Transaction Documents, the Merger and the
transactions contemplated hereby and thereby; (ii) declaring that it is in the
best interests of the Company's stockholders that the Company enter into the
Transaction Documents and consummate the Merger on the terms and subject to the
conditions set forth in this Agreement; (iii) approving the Transaction
Documents, the Merger and the transactions contemplated hereby and thereby for
purposes of Section 203 of Delaware Law, (iv) directing that this Agreement be
submitted to a vote at a meeting of the Company's stockholders to be held as
promptly as practicable; and (v) recommending that the holders of Company Common
Stock adopt this Agreement, which resolutions have not been subsequently
rescinded, modified or withdrawn in any way except as permitted by Section 5.2.
Such resolutions are sufficient to render inapplicable to Merger Sub and Parent,
this Agreement, the Merger and the transactions contemplated hereby the
restrictions on "business combinations" contained in Section 203 of Delaware
Law.

                  SECTION 4.28. Opinion of Financial Advisor. Prior to or
concurrently with the execution of this Agreement, Jefferies & Company, Inc. has
rendered to the Board of Directors a written opinion, dated as of the date of
this Agreement, to the effect that, subject to the assumptions and limitations
set forth therein, the Merger Consideration to be received by the holders of the
Company Common Stock pursuant to the Merger is fair to such holders, other than
Parent, Merger Sub and their respective affiliates, from a financial point of
view. A true and correct copy of such opinion will be delivered to Merger Sub,
solely for information purposes, within one business day following receipt
thereof by the Company. The Company has been authorized by Jefferies & Company,
Inc. to permit the inclusion of such opinion in its entirety in the Proxy
Statement.

                  SECTION 4.29. Disclosure. No representation or warranty by the
Company in this Agreement and no statement contained in the certificates
delivered pursuant to Sections 7.3(a) and (b) hereof or in any Schedule
furnished or to be furnished by the Company to Parent or Merger Sub pursuant to
the provisions hereof, contains or will contain any untrue statement of material
facts or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was made, in order to make the statements
herein or therein not misleading.

                                   ARTICLE V.

                     CONDUCT OF BUSINESS PENDING THE MERGER

                  SECTION 5.1. Conduct of Business by the Company Pending the
Merger. The Company covenants and agrees that, from and after the date of this
Agreement until the earlier of the termination of this Agreement in accordance
with its terms and the Effective Time, except as expressly contemplated by this
Agreement, the Company shall, and shall cause each of the Subsidiaries to (i)
carry on its respective businesses in the ordinary course consistent with past

                                       29



practice, (ii) use reasonable best efforts to preserve intact its current
business organizations and keep available the services of its current officers
and key employees, (iii) use reasonable best efforts to preserve its
relationships with customers, suppliers, third party payors and other Persons
with which it has business dealings, (iv) comply in all material respects with
all laws and regulations applicable to it or any of its properties, assets or
business and (v) maintain in full force and effect all Licenses and Permits
necessary for such business. Without limiting the generality of the foregoing,
except as (x) expressly contemplated by this Agreement or (y) set forth in
Schedule 5.1, the Company shall not, and shall cause each of the Subsidiaries
not to, directly or indirectly, without the prior written consent of Merger Sub:

                  (a)      amend its Certificate of Incorporation or By-Laws or
similar organizational documents or change the number of directors constituting
its entire board of directors;

                  (b)      (i)(A) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock or other equity interests, except that a wholly owned Subsidiary
may declare and pay a dividend or make advances to its parent or the Company or
(B) redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock or other securities; (ii) issue, sell, pledge, dispose of or
encumber any (A) additional shares of its capital stock or other equity
interests, (B) securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of its
capital stock or other equity interests, or (C) of its other securities, other
than shares of Company Common Stock issued upon the exercise of Options or
Warrants and Other Rights outstanding on the date hereof in accordance with the
Option Plans or Warrant Agreements, as the case may be, as in effect on the date
hereof; or (iii) split, combine or reclassify any of its outstanding capital
stock or other equity interests;

                  (c)      acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof
(including entities which are Subsidiaries) or (B) any assets, including real
estate, except (x) purchases of inventory, equipment and supplies in the
ordinary course of business consistent with past practice and (y) other
purchases in the ordinary course of business consistent with past practice in an
amount not involving more than $50,000 in the aggregate;

                  (d)      authorize or make any capital expenditures in the
aggregate in excess of $400,000;

                  (e)      except in the ordinary course of business, amend or
terminate any Company Material Contract or Company Material Lease, or waive,
release or assign any material rights or claims thereunder;

                  (f)      transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any property or assets other than in the ordinary course
of business and consistent with past practice;

                  (g)      (i) enter into any employment or severance agreement
with or, except in accordance with the existing policies of the Company, grant
any severance or termination pay to

                                       30



any officer, director or key employee of the Company or any Subsidiary; or (ii)
hire or agree to hire any new or additional key employees or officers;

                  (h)      except as required to comply with applicable law or
as provided for in this Agreement or required by any option plan or any
employment agreement set forth on Schedule 5.1(h), (A) adopt, enter into,
terminate, amend or increase the amount or accelerate the payment or vesting of
any benefit or award or amount payable under any Company Employee Benefit Plan
or other arrangement for the current or future benefit or welfare of any
director, officer or current or former employee, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director, officer
or, other than in the ordinary course of business consistent with past practice,
employee, (C) pay any benefit not provided for under any Benefit Plan, (D) grant
any awards under any bonus, incentive, performance or other compensation plan or
arrangement or Company Employee Benefit Plan (including the grant of stock
options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing restrictions
in any Company Employee Benefit Plans or agreements or awards made thereunder)
or (E) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or Company Employee Benefit Plan;

                  (i)      (i) incur or assume any long-term debt, or except in
the ordinary course of business in amounts consistent with past practice, incur
or assume any short-term indebtedness; (ii) incur or modify any material
indebtedness or other liability; (iii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other Person, except in the ordinary course of business
and consistent with past practice; (iv) make any loans, advances or capital
contributions to, or investments in, any other Person (other than to wholly
owned Subsidiaries or customary loans or advances to employees in accordance
with past practice); (v) settle any claims other than in the ordinary course of
business, in accordance with past practice, and without admission of liability;
or (vi) enter into any material commitment or transaction;

                  (j)      change any accounting method, including any
accounting method with respect to Taxes, used by it unless required by GAAP;

                  (k)      other than in the ordinary course of business
consistent with past practice, make any Tax election or settle or compromise any
Tax liability;

                  (l)      (i) settle or compromise any claim, litigation or
other legal proceeding, other than in the ordinary course of business consistent
with past practice in an amount involving more than $250,000 in the aggregate or
(ii) pay, discharge or satisfy any other claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of (A) any such other claims, liabilities
or obligations, in the ordinary course of business and consistent with past
practice, or (B) of any such other claims, liabilities or obligations reflected
or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company;

                                       31



                  (m)      except in the ordinary course of business consistent
with past practice, waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or any
Subsidiary is a party;

                  (n)      permit any insurance policy naming the Company or any
Subsidiary as a beneficiary or a loss payable payee to be canceled or terminated
without notice to Parent, except in the ordinary course of business and
consistent with past practice or in connection with replacing such policy with a
policy providing comparable coverage;

                  (o)      revalue any assets of the Company, except as required
by GAAP;

                  (p)      enter into any new material line of business or enter
into any contract that restrains, limits or impedes the Company's or any of its
Subsidiaries' ability to compete with or conduct any business or line of
business;

                  (q)      enter into any contract to allocate, share or
otherwise indemnify for Taxes;

                  (r)      acquire, make (or commit to make) an investment in,
or make a capital contribution to, any Person;

                  (s)      take or omit to take any action which would make any
of the representations or warranties of the Company contained in this Agreement
untrue and incorrect in any material respect as of the date when made if such
action had then been taken or omitted, or would result in any of the conditions
set forth in Article VII hereof not being satisfied; or

                  (t)      enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose or
announce an intention to do any of the foregoing.

                  SECTION 5.2. No Solicitation. (a) The Company shall not, nor
shall it permit or authorize any of the Subsidiaries or any officer, director,
employee, agent or representative (including accountants, attorneys and
investment bankers) of the Company or any of the Subsidiaries (collectively, the
"Company Representatives") to, (i) solicit or initiate, or encourage, directly
or indirectly, any inquiries regarding or the submission of, any Takeover
Proposal (as defined below), (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information or data with respect to, or
take any other action to knowingly facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(iii) enter into any agreement with respect to any Takeover Proposal or approve
or resolve to approve any Takeover Proposal; provided, however, that nothing
contained in this Section 5.2 or any other provision hereof shall prohibit the
Company or the Board of Directors from (A) taking and disclosing to the
Company's stockholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2 or Item 1012(a) of Regulation
M-A promulgated under the Exchange Act or (B) making such disclosure to the
Company's stockholders as, in the good faith judgment of the Board of Directors,
after receiving advice from outside counsel, is required under applicable law,
provided that the Company may not, except as permitted by Section 5.2(b),
withdraw or modify, or propose to withdraw or modify, its approval or
recommendation of this Agreement or the transactions contemplated hereby,
including the Merger, or approve or recommend, or propose to

                                       32



approve or recommend any Takeover Proposal, or enter into any agreement with
respect to any Takeover Proposal. Upon execution of this Agreement, the Company
shall, and it shall cause the Company Representatives to, immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Takeover Proposal. Notwithstanding the foregoing,
prior to the Effective Time, the Company may furnish information concerning its
business, properties or assets to any Person or group pursuant to
confidentiality agreements with terms and conditions similar to the
Confidentiality Agreement, dated August 23, 2002, as amended (the
"Confidentiality Agreement"), between the Company and Parent (provided that such
confidentiality agreements may not include any provision granting any such
Person or group an exclusive right to negotiate with the Company), and may
negotiate and participate in discussions and negotiations with such Person or
group concerning a Takeover Proposal if: (x) such Person or group has submitted
a Superior Proposal which is pending at the time the Company determines to take
such action; and (y) the Board of Directors determines in good faith, based upon
advice of outside counsel, that such action is required to discharge the Board
of Director's fiduciary duties to the Company's stockholders under Delaware Law.
The Company shall not release or permit the release of any Person from, or waive
or permit the waiver of any provision of, any such confidentiality agreement or
any other confidentiality, standstill or similar agreement to which the Company
is a party or under which the Company has any rights. Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any breach
by any Company Representative, or action taken by any Company Representative
with the intent of circumventing, any of the provisions set forth in the
preceding sentence shall be deemed to constitute a breach of this Section 5.2 by
the Company (whether or not such Company Representative is purporting to act on
behalf of the Company).

                  The Company will promptly (and in any event within one (1)
business day) notify Parent in writing, of the existence of any proposal,
discussion, negotiation or inquiry received by the Company with respect to any
Takeover Proposal, and the Company will promptly communicate to Parent the
material terms and conditions of any proposal, discussion, negotiation or
inquiry which it may receive. The Company will promptly provide to Parent any
non-public information concerning the Company provided to any other Person which
was not previously provided to Parent. The Company will keep Parent reasonably
informed of the status and details of any such Takeover Proposal.

                  As used in this Agreement, the following terms have the
meanings set forth below:

                  "Superior Proposal" means an unsolicited written proposal by a
Third Party (defined below) to acquire, directly or indirectly, 25% or more of
the shares of Company Common Stock then outstanding or all or substantially all
of the assets of the Company, and (i) otherwise on terms which the Board of
Directors determines in good faith to be more favorable to the Company's
stockholders than the Merger (based in part on advice of the Company's
independent financial advisor that the value of the consideration provided for
in such proposal, taking into account the Termination Fee (as defined below),
exceeds the value of the consideration provided for in the Merger), (ii) which
is not subject to a financing contingency and (iii) which, in the good faith
reasonable judgment of the Board of Directors of the Company, is reasonably
likely to be consummated within a reasonable time.

                                       33



                  "Takeover Proposal" means any inquiry, proposal or offer,
whether in writing or otherwise, from a Third Party to acquire beneficial
ownership (as defined under Rule 13(d) of the Exchange Act) of all or a material
portion of the assets of the Company or any of its Subsidiaries or 20% or more
of any class of equity securities of the Company or any of the Subsidiaries
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer, exchange offer or similar
transaction with respect to either the Company or any of the Subsidiaries,
including any single or multi-step transaction or series of related
transactions, which is structured to permit such Third Party or another Third
Party to acquire beneficial ownership of any material portion of the assets of,
or 20% or more of the equity interest in either the Company or any of the
Subsidiaries.

                  "Third Party" means any Person or group other than Parent,
Merger Sub or any affiliate thereof.

                  (b)      Except as set forth in this Section 5.2(b), neither
the Board of Directors nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Parent or Merger Sub,
the approval or recommendation by the Board of Directors or any such committee
of this Agreement or the transactions contemplated hereby, including the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Takeover
Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, prior to the Effective Time, the Board
of Directors may withdraw or modify its approval or recommendation of this
Agreement or the transactions contemplated hereby, including the Merger, approve
or recommend a Superior Proposal, or enter into an agreement with respect to a
Superior Proposal, in each case if (A) the Company shall have received a
Superior Proposal which is pending at the time the Company determines to take
such action, (B) the Board of Directors shall have determined in good faith,
based upon advice of outside counsel, that such action is required to discharge
the Board of Director's fiduciary duties to the Company's stockholders under
Delaware Law, (C) at least three business days shall have passed following
Parent's receipt of written notice from the Company advising Parent that the
Board of Directors has received such a Superior Proposal which it intends to
accept, specifying the material terms and conditions of such Superior Proposal,
and Parent does not make an offer that the Board of Directors shall have
concluded in its good faith judgment, after consultation with its financial
advisors and outside counsel, is as favorable (taking into account the
Termination Fee) to the Company stockholders as such Superior Proposal and (D)
concurrently with taking such action the Company shall pay the Termination Fee
as provided in Section 8.2(b) (whether or not this Agreement shall be
terminated).

                                   ARTICLE VI.

                              ADDITIONAL AGREEMENTS

                  SECTION 6.1. Proxy Statement. As promptly as practicable after
the date of this Agreement, the Company shall prepare the preliminary Proxy
Statement and, after consultation with and review by Merger Sub, file the
preliminary Proxy Statement with the SEC. The Company shall use its reasonable
best efforts to (i) obtain and furnish the information required to be included
by the SEC in the Proxy Statement and, after consultation with and review by
Merger Sub, to respond promptly to any comments made by the SEC with respect to
the Proxy

                                       34



Statement; and (ii) promptly upon the earlier of (x) receiving notification that
the SEC is not reviewing the preliminary Proxy Statement and (y) the conclusion
of any SEC review of the preliminary Proxy Statement, cause a definitive Proxy
Statement to be mailed to the Company's stockholders and, if necessary, after
the definitive Proxy Statement shall have been so mailed, promptly circulate
amended or supplemental proxy materials and, if required in connection
therewith, resolicit proxies; provided, however, that no such amended or
supplemental proxy materials will be mailed by the Company without consultation
and review by Parent or Merger Sub. The Company will promptly notify Parent and
Merger Sub of the receipt of comments of the SEC and of any request from the SEC
for amendments or supplements to the preliminary Proxy Statement or definitive
Proxy Statement or for additional information, and will promptly supply Parent
and Merger Sub with copies of all written correspondence between the Company or
Company Representatives, on the one hand, and the SEC or members of its staff,
on the other hand, with respect to the preliminary Proxy Statement, the
definitive Proxy Statement, the Merger or any of the other transactions
contemplated by this Agreement. Parent and Merger Sub will cooperate with the
Company in connection with the preparation of the Proxy Statement, including,
but not limited to, furnishing to the Company any and all information regarding
Parent and Merger Sub and their respective affiliates as may be required to be
disclosed therein. The Proxy Statement shall contain the recommendation of the
Board of Directors that the Company's stockholders approve this Agreement and
the transactions contemplated hereby, provided that the Board of Directors may
withdraw, modify or change its recommendation of the Merger and this Agreement
if it does so in accordance with Section 5.2(b) hereof.

                  SECTION 6.2. Meeting of Stockholders of the Company. As
promptly as practicable after the date of this Agreement, the Company shall
promptly take all action necessary in accordance with Delaware Law and its
Certificate of Incorporation and By-Laws to convene the Special Meeting, whether
or not the Board of Directors or any committee thereof has withdrawn or
modified, or proposes to withdraw or modify its approval or recommendation of
this Agreement or the transactions contemplated hereby, including the Merger.
The stockholder vote required for approval of the Merger will be no greater than
that set forth in Delaware Law. Subject to the provisions of Section 5.2(b)
hereof, the Company shall use its reasonable best efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other action necessary or, in the reasonable opinion of Merger Sub, advisable to
secure any vote of stockholders required by Delaware Law to effect the Merger.

                  SECTION 6.3. Compliance with Law. Each of the Company, Parent
and Merger Sub will comply in all material respects with all applicable laws and
with all applicable rules and regulations of any Governmental Entity in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.

                  SECTION 6.4. Notification of Certain Matters. The Company
shall give prompt notice to Parent of (i) the occurrence, or non-occurrence of
any event whose occurrence, or non-occurrence would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any respect at any time from the date hereof to the Effective Time
and (ii) any failure of the Company, or any of its officers, directors,
employees or agents, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.4 shall not limit or
otherwise affect the remedies available hereunder to Parent.

                                       35



                  SECTION 6.5. Access to Information. From the date hereof to
the Effective Time, the Company shall, and shall cause its Subsidiaries,
officers, directors, employees, auditors and agents to, afford the officers,
employees and agents of Parent and Merger Sub reasonable access at all
reasonable times to its officers, employees, agents, properties (including,
without limitation, for purposes of conducting environmental site assessments),
offices and other facilities and to all books and records, and shall promptly
furnish Parent and Merger Sub with (a) all financial, operating and other data
and information as Parent or Merger Sub, through its officers, employees or
agents, may reasonably request and (b) a copy of each report, schedule and other
document filed or received by the Company or any of the Subsidiaries during such
period pursuant to the requirements of applicable securities laws.

                  SECTION 6.6. Public Announcements. So long as this Agreement
is in effect, Parent and the Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger and shall not issue, or permit their affiliates to issue, any such
press release or make any such public statement before such consultation, except
as may be required by law.

                  SECTION 6.7. Reasonable Best Efforts; Cooperation. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
all reasonable best efforts to obtain in a timely manner all necessary waivers,
consents (including, without limitation, any consents relating to Company
Material Leases) and approvals and to effect all necessary registrations and
filings, and to use all reasonable best efforts to take, or cause to be taken,
all other actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in responding to inquiries from, and making presentations to,
regulatory authorities and (ii) defending against and responding to any action,
suit, proceeding, or investigation, whether judicial or administrative,
challenging or relating to this Agreement or the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed.

                  Company shall use reasonable best efforts to obtain from each
landlord or sublandlord (as the case may be) of Company or any Subsidiary under
a Company Material Lease an estoppel certificate certifying that such Company
Material Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), the dates to which the rent and other charges payable
hereunder have been paid, and stating whether or not, to the knowledge of the
signer of such certificate, the tenant or subtenant (as the case may be)
thereunder is in default in the performance of any covenant, agreement or
condition contained in such Company Material Lease and, if so, specifying each
such default of which the signer may have knowledge.

                  SECTION 6.8. Agreement to Defend and Indemnify.

                  (a)      From and after the Effective Time, Parent agrees to,
and agrees to cause the Surviving Corporation to, honor any rights to
indemnification or exculpation from liabilities in favor of the officers and
directors of the Company and each of its Subsidiaries (collectively, the
"Indemnified Parties") as provided in their respective certificates of
incorporation or by-laws

                                       36



(or comparable organizational documents) and the indemnification agreements set
forth on Schedule 6.8(a), of the Company. Parent further agrees, for a period of
five years after the Effective Time, that it will not, and will not permit the
Surviving Corporation (or any successor entity owned or controlled by Parent),
to amend, modify or repeal any provision of the certificates of incorporation or
by-laws (or comparable organizational documents) of the Company or any of its
Subsidiaries relating to the indemnification of officers, directors and/or
employees.

                  (b)      For five years after the Effective Time, Parent
shall, and shall cause the Surviving Corporation (or any successor entity owned
or controlled by Parent) to, use reasonable best efforts to provide officers'
and directors' liability insurance in respect of acts or omissions occurring at
or prior to the Effective Time covering each such person currently covered by
the Company's officers' and directors' liability insurance policy on terms
reasonably comparable to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this paragraph, Parent shall
not be obligated to cause the Surviving Corporation (or any successor entity
owned or controlled by Parent) to pay premiums in excess of 200% of the amount
per annum the Company paid in its last full fiscal year, which amount has been
disclosed in writing to Parent, and if Parent or the Surviving Corporation is
unable to obtain the insurance required by this paragraph, it shall obtain as
much comparable insurance as possible for an annual premium equal to such
maximum amount.

                  (c)      Notwithstanding Section 9.7 hereof, this Section 6.8
is intended to be for the benefit of and to grant third-party rights to
Indemnified Parties whether or not parties to this Agreement, and each of the
Indemnified Parties shall be entitled to enforce the covenants contained herein.

                  (d)      If the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any Person, then and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 6.8.

                  SECTION 6.9. Employee Benefits. For a period of six months
following the Effective Time (the "Benefits Continuation Date"), Parent shall
maintain, or cause to be maintained, each of the Company Employee Benefit Plans
(other than stock based plans), provided that the Parent may substitute another
plan or arrangement for any Company Employee Benefit Plan provided that such
substituted plan or arrangement offers comparable benefits taken as a whole,
provided, further, that in the event the costs of maintaining the Company
Employee Benefit Plans increase prior to the Benefits Continuation Date, Parent
may proportionately increase the fees it charges the Surviving Corporation's
employees to participate in the Company Employee Benefit Plans. Notwithstanding
the foregoing, Parent or the Surviving Corporation may amend or terminate any of
the Company Employee Benefit Plans following the Benefits Continuation Date in
accordance with their respective terms and applicable law. In addition, Parent
shall, or shall cause the Surviving Corporation (or any successor entity owned
or controlled by Parent) to, honor the agreements set forth on Schedule 6.9.

                                       37



                  SECTION 6.10. State Takeover Laws. If any Takeover Law becomes
or is deemed to become applicable to the Merger or this Agreement or any of the
transactions contemplated by this Agreement, the Company shall promptly take all
action necessary to render such Takeover Law inapplicable to all of the
foregoing.

                  SECTION 6.11. SEC Reports. From and after the date of this
Agreement until the earlier of the termination of this Agreement or the
Effective Time, the Company shall file on a timely basis all SEC Reports
required to be filed by it with the SEC under the Exchange Act and the
Securities Act, which SEC Reports shall comply in all material respects with the
requirements of the Exchange Act and the Securities Act, each as applicable to
such SEC Reports.

                  SECTION 6.12. Delisting. Each of the parties hereto agrees to
cooperate with the other party in taking, or causing to be taken, all actions
necessary to (i) delist the Company Common Stock from the Nasdaq National Market
and (ii) to terminate the registration of the Company Common Stock under the
Exchange Act; provided that such delisting or termination shall not be effective
until after the Effective Time.

                  SECTION 6.13. Resignations. At or prior to the Effective Time,
the Company shall obtain the resignations of each director of the Company and,
if so requested by Merger Sub, of any officer of the Company and any director or
officer of any Subsidiary of the Company.

                  SECTION 6.14. Communications to Employees. Merger Sub and the
Company will cooperate with each other with respect to, and endeavor in good
faith to agree in advance upon the method and content of, all written or oral
communications or disclosure to employees of the Company or any of the
Subsidiaries with respect to the Merger and any other transactions contemplated
by this Agreement.

                  SECTION 6.15. Transfer Taxes. All stock transfer, real estate
transfer, documentary, stamp, recording and other similar Taxes (including
interest, penalties and additions to any such Taxes) ("Transfer Taxes") incurred
in connection with the transactions contemplated by this Agreement shall be paid
by either Merger Sub or the Surviving Corporation, and the Company shall
cooperate with Merger Sub and Parent in preparing, executing and filing any Tax
Returns with respect to such Transfer Taxes.

                  SECTION 6.16. Voting of Company Common Stock. Parent and
Merger Sub shall, and shall cause their respective affiliates to, vote any
shares of Company Common Stock held by them in favor of the Merger and the
adoption of this Agreement.

                  SECTION 6.17. Note. Prior to or concurrently with the
execution of this Agreement, Parent will make the investment to be evidenced by
the Note.

                                       38



                                  ARTICLE VII.

                              CONDITIONS OF MERGER

                  SECTION 7.1. Conditions for Each Party's Obligations to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction on or prior to the Effective Time of the
following conditions:

                  (a)      Stockholder Approval. The Merger and this Agreement
shall have been approved and adopted by the requisite vote of the stockholders
of the Company.

                  (b)      Injunction. No statute, rule, regulation, judgment,
writ, decree, order or injunction shall have been promulgated, enacted, entered
or enforced, and no other action shall have been taken, by any Governmental
Entity that in any of the foregoing cases has the effect of making illegal or
directly or indirectly restraining, prohibiting or restricting the consummation
of the Merger.

                  (c)      HSR. Any waiting period applicable to the Merger
under the HSR Act shall have expired or have been terminated.

                  SECTION 7.2. Additional Conditions to Obligation of the
Company to Effect the Merger. The obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
additional following conditions, unless waived by the Company:

                  (a)      Performance of Obligations of Parent and Merger Sub.
Parent and Merger Sub shall have performed in all material respects their
respective agreements contained in this Agreement required to be performed on or
prior to the Effective Time and the Company shall have received certificates of
the President or Chief Executive Officer or a Vice President of Parent and
Merger Sub to that effect.

                  (b)      Representations and Warranties of Parent and Merger
Sub. The representations and warranties of Parent and Merger Sub contained in
this Agreement shall be true and correct in all respects when made and on and as
of the Effective Time as if made on and as of such time (except for those
representations and warranties of Parent and Merger Sub that are so qualified
and relate to a particular date which representations and warranties shall be
true and correct in all respects as of such date); provided, however, that this
condition shall be deemed satisfied if the cumulative effect of all inaccuracies
of Parent's and Merger Sub's representations and warranties (for this purpose
disregarding any qualification or limitation as to knowledge, materiality or
Purchaser Material Adverse Effect) would not be reasonably likely to have a
Purchaser Material Adverse Effect. The Company shall have received certificates
of the President or Chief Executive Officer or a Vice President of each of
Parent and Merger Sub to the foregoing effects.

                  (c)      Purchaser Material Adverse Effect. Since the date
hereof, there shall not have been any Purchaser Material Adverse Effect.

                                       39



                  SECTION 7.3. Additional Conditions to Obligations of Parent
and Merger Sub to Effect the Merger. The obligations of Parent and Merger Sub to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the additional following conditions, unless waived by Parent
and Merger Sub:

                  (a)      Performance of Obligations of the Company. The
Company shall have performed in all material respects its agreements contained
in this Agreement required to be performed on or prior to the Effective Time,
and Parent and Merger Sub shall have received a certificate of the President or
Chief Executive Officer or a Vice President of the Company to that effect.

                  (b)      Representations and Warranties of the Company. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all respects when made and on and as of the Effective
Time as if made on and as of such time (except for those representations and
warranties of the Company that are so qualified and relate to a particular date
which representations and warranties shall be true and correct in all respects
as of such date); provided, however, that this condition shall be deemed
satisfied if the cumulative effect of all inaccuracies of the Company's
representations and warranties (for this purpose disregarding any qualification
or limitation as to knowledge, materiality or Material Adverse Effect) would not
be reasonably likely to have a Material Adverse Effect. Parent and Merger Sub
shall have received a certificate of the President or Chief Executive Officer or
a Vice President of the Company to the foregoing effects.

                  (c)      Material Adverse Effect. Since the date hereof, there
shall not have been any Material Adverse Effect.

                  (d)      Consents. The Company shall have obtained and
provided to Parent and Merger Sub copies of evidence with respect thereto the
consents of third parties listed on Schedule 7.3(d), the terms of which consents
shall be reasonably satisfactory to Parent and Merger Sub.

                  (e)      Pre-November 2000 Options. Not less than seventy-five
percent (75%) of the Pre-November 2000 Options shall have been terminated,
without any further liability to the Company or the Subsidiaries.

                  (f)      Approvals. All notices, applications, approvals,
consents, and waivers ("Approvals") required to be furnished to or obtained from
any Governmental Entity necessary in order for the Company to conduct its
business following the consummation of the transactions contemplated by this
Agreement in all material respects in the manner as such business, taken as a
whole, was conducted prior to the Effective Time shall have been obtained or
furnished and any applicable waiting period or periods shall have expired (or,
if there be no time limit for waiver or objection, a notice of no-objection or
equivalent with respect thereto shall have been received by the Company).

                                       40



                                 ARTICLE VIII.

                        TERMINATION, AMENDMENT AND WAIVER

                  SECTION 8.1. Termination. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company:

                  (a)      By the mutual written consent of the Board of
Directors of Parent, Merger Sub and the Company; or

                  (b)      By Parent, Merger Sub or the Company if any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action (which order, decree or ruling or other action each party hereto
shall use its reasonable best efforts to have vacated or reversed), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable; or

                  (c)      By Parent, Merger Sub or the Company, if the
stockholders of the Company fail to approve the Merger upon the taking of a vote
at a duly held meeting of the stockholders or at any adjournment thereof; or

                  (d)      By Parent or Merger Sub if, without any material
breach by Merger Sub or Parent of their respective obligations under this
Agreement, the Merger shall not have been consummated on or before March 15,
2004 (the "Termination Date").

                  (e)      By the Company if, without any material breach by the
Company of its obligations under this Agreement, the Merger shall not have been
consummated on or before the Termination Date.

                  (f)      By the Company:

                           (i)      if the Company has approved a Superior
         Proposal in accordance with Section 5.2(b), provided the Company has
         complied with all provisions thereof, including the notice provisions
         therein; or

                           (ii)     if Parent or Merger Sub shall have breached
         its representations, warranties, covenants or other agreements
         contained in this Agreement and the cumulative effect of all
         inaccuracies of the Parent's and Merger Sub's representations and
         warranties (for this purpose disregarding any qualification or
         limitation as to knowledge, materiality or Purchaser Material Adverse
         Effect) would be reasonably likely to have a Purchaser Material Adverse
         Effect and which breach or failure to perform is incapable of being
         cured or has not been cured by ten business days following written
         notice thereof to Parent from the Company.

                  (g)      By Parent or Merger Sub:

                                       41



                           (i)      if the Board of Directors shall have
         withdrawn, or modified or changed in a manner adverse to Parent or
         Merger Sub, its approval or recommendation of this Agreement or the
         Merger, or shall have approved a Takeover Proposal, or if the Company
         shall have entered into an agreement to effect a Takeover Proposal; or

                           (ii)     if (A) a tender or exchange offer relating
         to securities of the Company shall have been commenced (other than
         pursuant to Section 2.3(b) hereof) and the Board of Directors shall not
         have recommended that the Company's stockholders reject such tender or
         exchange offer within ten business days after the commencement thereof
         or (B) the Board of Directors shall have waived Section 203 of Delaware
         Law with respect to any Person other than Parent, Merger Sub or their
         affiliates or any group of which any them is a member; or

                           (iii)    if the Company, or any of the Company
         Representatives, shall take any actions in breach of Section 5.2(a)
         hereof; or

                           (iv)     if the Company shall have breached its
         representations, warranties, covenants or other agreements contained in
         this Agreement and if the cumulative effect of all inaccuracies of the
         Company's representations and warranties (for this purpose disregarding
         any qualification or limitation as to knowledge, materiality or
         Material Adverse Effect) would be reasonably likely to have a Material
         Adverse Effect and which breach or failure to perform is incapable of
         being cured or has not been cured within ten business days following
         written notice thereof to the Company from Merger Sub.

                  SECTION 8.2. Effect of Termination.

                  (a)      In the event of termination of this Agreement by
either the Company, Parent or Merger Sub as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company, other than the
provisions of this Article VIII and as provided in Section 6.8 and Section 9.1
and except that nothing herein shall relieve any party for breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.

                  (b)      If (x) Parent or Merger Sub terminates this Agreement
pursuant to Section 8.1(g)(i), 8.1(g)(ii) or 8.1(g)(iii) or (y) the Company
terminates this Agreement pursuant to Section 8.1(f)(i), then in each case, the
Company shall pay, or cause to be paid to Parent, at the time of termination, an
amount equal to One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the
"Termination Fee").

                  (c)      If (x) Parent, Merger Sub or the Company terminates
this Agreement pursuant to Section 8.1(c), 8.1(d), 8.1(e) or 8.1(g)(iv), in each
case after the Company's receipt of a Takeover Proposal, and (y) within twelve
(12) months after such termination, the Company enters into an agreement with
respect to a Takeover Proposal, then the Company shall pay the Termination Fee
concurrently with entering into any such agreement.

                  (d)      If (x) Parent, Merger Sub or the Company terminates
this Agreement pursuant to Section 8.1(c), 8.1(d), 8.1(e) or 8.1(g)(iv) and the
Company has not received a Takeover Proposal at the time of termination and (y)
within nine (9) months after such

                                       42



termination, the Company enters into an agreement with respect to a Takeover
Proposal, then the Company shall not pay the Termination Fee but shall pay
Parent Nine Hundred Thousand Dollars ($900,000), for expenses incurred in
connection with the drafting, negotiation and execution of this Agreement and
the other Transaction Documents, concurrently with entering into any such
agreement.

                                   ARTICLE IX.

                               GENERAL PROVISIONS

                  SECTION 9.1. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or the termination of this Agreement
pursuant to Section 8.1, as the case may be, except as provided in Section 8.2
and except that the agreements set forth in Article II, Section 6.8 and Section
6.9 shall survive the Effective Time in accordance with their express terms and
those set forth in Article VIII and Section 9.3 shall survive termination
indefinitely.

                  SECTION 9.2. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made (i) as of the date delivered or sent by facsimile if
delivered personally or by facsimile, and (ii) on the third business day after
deposit in the U.S. mail, if mailed by registered or certified mail (postage
prepaid, return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):

                  (a)      if to Parent or Merger Sub:

                           Grupo Sansborns, S.A. de C.V.
                           c/o Grupo Finan Inbursa
                           Paseo de Las Palmas 736
                           Mexico Col. Lomas de Chapultepec
                           Attention: Eduardo Valdes Acra
                                      Javier Cervantes
                           Facsimile: 011-525-520-5326
                                      011-525-540-7492

                           With a copy to:

                           Willkie Farr & Gallagher LLP
                           787 Seventh Avenue
                           New York, New York 10019
                           Attention: Thomas M. Cerabino, Esq.
                           Facsimile: (212) 728-8111

                                       43



                  (b)       if to the Company:

                           Good Guys, Inc.
                           1600 Harbor Bay Parkway
                           Alameda, CA 94502
                           Attention: Chief Executive Officer
                           Facsimile: (510) 747-6291

                           With copies to:

                           Howard, Rice, Nemerovski, Canady, Falk & Rabkin
                           3 Embarcadero Center, 7th Floor
                           San Francisco, CA 94111-4065
                           Attention: Richard W. Canady
                           Facsimile: (415) 217-5910

                  SECTION 9.3. Expenses. Except as set forth in Section 8.2(b),
all fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses.

                  SECTION 9.4. Certain Definitions. For purposes of this
Agreement, the term:

                  (a)      "affiliate" of a Person means a Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned Person;

                  (b)      "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise; and

                  (c)      "knowledge" means the knowledge of any officer or
director of the party making the representation and warranty.

                  (d)      "Person" means an individual, corporation,
partnership, limited liability company, association, trust, unincorporated
organization or other entity.

                  (e)      The following terms shall have the meanings ascribed
to them in the respective section of the Agreement:

"Agreement" - See the Preamble

"Benefits Continuation Date" - See Section 6.9

"Board of Directors" - See the Recitals

"Certificate of Merger" - See Section 1.3

"Certificate" - See Section 2.1(e)

"Closing" - See Section 1.2

"Closing Date" - See Section 1.2

"Code" - See Section 2.2(g)

"Company" - See the Preamble

"Company Common Stock" - See Section 2.1(b)

                                       44



"Company Employee Benefit Plans" - See Section 4.8(a)

"Company ERISA Affiliate" - See Section 4.8(a)

"Company Material Contracts" - See Section 4.13(a)

"Company Material Leases" - See Section 4.9(b)

"Company Multiemployer Plan" - See Section 4.8(b)

"Company Preferred Stock" - See Section 4.2(a)

"Company Representatives" - See Section 5.2(a)

"Confidentiality Agreement" - See Section 5.2(a)

"Delaware Law" - See the Recitals

"Dissenting Shares" - See Section 2.1(d)

"Effective Time" - See Section 1.3

"Environmental Law" - See Section 4.12(e)

"Environmental Permit" - See Section 4.12(e) "

ERISA" - See Section 4.8(a)

"Exchange Act" - See Section 3.3(b)

"Exchange Agent" - See Section 2.2(a)

"Exchange Fund" - See Section 2.2(a)

"Excluded Shares" - See Section 2.1(b)

"GAAP" - See Section 4.5(b)

"Governmental Entity" - See Section 3.3(b)

"Hazardous Substances" - See Section 4.12(e)

"HSR Act" - See Section 3.3(b)

"Indemnified Parties" - See Section 6.8(a)

"Intellectual Property" - See Section 4.10(g)

"Intercreditor Agreement" - See Section 4.4(a)

"Leased Real Property" - See Section 4.9(d)

"Licenses and Permits" - See Section 4.14(b)

"Liens" - See Section 4.2(b)

"Listed Intellectual Property" - See Section 4.10(b)

"Material Adverse Effect" - See Section 4.1(a)

"Merger" - See the Recitals

"Merger Consideration" - See Section 2.1(b)

"Merger Sub" - See the Preamble

"Merger Sub Common Stock" - See 2.1(a)

"Note" - See Section 4.4(a)

"Option Plans" - See Section 2.3(a)

"Option Price" - See Section 2.3(a)

"Options" - See Section 2.3(b)

"Other Stock Plan" - See Section 2.3(d)

"Parent" - See the Preamble

"Post-November 2000 Options" - See Section 2.3(a)

"Pre-November 2000 Options" - See Section 2.3(b)

"Proxy Statement" - See Section 3.8

"Purchaser Information" - See Section 3.7

"Purchaser Material Adverse Effect" See Section 3.6

"Registration Rights Agreement" - See Section 4.4(a)

"Restated Certificate" - See Section 1.6

"SEC" - See Section 3.8

"SEC Reports" - See Section 4.5(a)

"Securities Act" - See Section 4.5(a)

"Special Meeting" - See Section 3.8

"Subsidiary" - See Section 4.1(c)

"Superior Proposal" - See Section 5.2(a)

"Surviving Corporation" - See Section 1.1

"Takeover Laws" - See Section 4.20

"Takeover Proposal" - See Section 5.2(a)

"Tax Return" -Section 4.16(b)

"Taxes" - See Section 4.16(b)

"Termination Date" - See Section 8.1(d)

"Termination Fee" - See Section 8.2(b)

"Third Party" - See Section 5.2

"Transaction Documents" - See Section 4.4(a)

"Transfer Taxes" - See Section 6.14

                                       45



"WARN Act" - See Section 4.24

"Warrant Agreements" - See Section 2.3(c)

"Warrants and Other Rights" - See Section 2.3(c)

"Warrant Price" - See Section 2.3(c)

                  SECTION 9.5. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

                  SECTION 9.6. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the maximum
extent possible.

                  SECTION 9.7. Entire Agreement; No Third-Party Beneficiaries.
This Agreement and the Confidentiality Agreement constitute the entire agreement
and supersede any and all other prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder, except as otherwise provided
herein.

                  SECTION 9.8. Assignment. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate of Parent provided that no
such assignment shall relieve the assigning party of its obligations hereunder.

                  SECTION 9.9. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed entirely within that
State.

                  SECTION 9.10. Amendment. This Agreement may be amended by the
parties hereto by action taken by Parent and Merger Sub, and by action taken by
or on behalf of the Board of Directors at any time before the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each share of Company Common Stock will be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.

                  SECTION 9.11. Waiver. At any time before the Effective Time,
any party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto and (c) waive
compliance by the other parties hereto with any of their agreements or
conditions contained

                                       46



herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only as against such party and only if set forth in an
instrument in writing signed by such party. The failure of any party hereto to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.

                  SECTION 9.12. Counterparts. This Agreement may be executed in
one or more counterparts (including by facsimile), and by the different parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an original but all of which shall constitute one and the same agreement.

                                       47



                  IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

                                   GOOD GUYS, INC.

                                   By: /s/ Kenneth R. Weller
                                       -----------------------------------------
                                       Name: Kenneth R. Weller
                                       Title: Chairman & Chief Executive Officer

                                   COMPUSA INC.

                                   By: /s/ Javier Larraza
                                       -----------------------------------------
                                       Name: Javier Larraza
                                       Title: Executive Vice President/ Chief
                                         Financial Officer

                                   GLADIATOR ACQUISITION CORP.

                                   By: /s/ Javier Larraza
                                       -----------------------------------------
                                       Name: Javier Larraza
                                       Title: President

                                   US Commercial Corp. De C.V. hereby
                                   unconditionally agrees to cause Parent and
                                   Merger Sub to pay the Merger Consideration
                                   on or after the Closing in accordance with
                                   the terms of this Agreement.

                                   US COMMERCIAL CORP. DE C.V.

                                   By: /s/ Eduardo Valdes
                                       -----------------------------------------
                                       Name: Eduardo Valdes
                                       Title: Attorney In Fact

                      [Signature Page to Merger Agreement]

EX-10.34

                                                                   EXHIBIT 10.34

THE SECURITIES REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON ITS
CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT OR
SUCH LAWS AND, IF REQUESTED BY MAKER, UPON DELIVERY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO MAKER THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE
ACT OR SUCH LAWS.

ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS
PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE
TERMS OF, THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF
SEPTEMBER 29, 2003, AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM
TIME TO TIME, BY AND AMONG BANK OF AMERICA, N.A., AS AGENT, GOOD GUYS
CALIFORNIA, INC., GOOD GUYS, INC., AND COMPUSA, INC.

               UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

$5,000,000.00                                                 September 29, 2003

                  FOR VALUE RECEIVED, Good Guys California, Inc., a California
corporation (the "Maker"), hereby unconditionally promises to pay to the order
of CompUSA Inc. (the "Holder" or the "Lender"), or its permitted assigns, the
original aggregate principal sum of Five Million Dollars ($5,000,000.00),
together with interest on the unpaid principal balance of this Note outstanding
at a rate per annum equal to three percent (3%) (computed on the basis of the
actual number of days elapsed in a 360-day year) per annum and continuing on the
outstanding principal until this Note is exchanged or paid in full. All payments
of principal and interest by the Maker under this Note shall be made in cash in
immediately available funds on the Maturity Date (as defined below).

                  So long as any Event of Default (as defined below) or any
Shareholder Event (as defined below) shall be continuing, (i) every amount due
and owing under this Note shall bear interest at an annual rate of five percent
(5%) (the "Default Interest Rate") and (ii) any accrued but unpaid interest on
this Note shall be payable on demand and shall accrue until the obligation of
the Maker with respect to the payment of such interest has been discharged
(whether before or after judgment). In no event shall any interest charged,
collected or reserved under this Note exceed the maximum rate then permitted by
applicable law and if any such payment is paid by the Maker, then such excess
sum shall be credited by the Holder as a payment of principal.

         1.       Definitions. Unless the context otherwise requires, when used
herein the following terms shall have the meaning indicated:



                  "Common Stock" shall mean the common stock, par value $.001
per share, of Parent.

                  "Conversion Date" shall have the meaning ascribed to such term
in Section 3(b)

                  "Conversion Price" shall mean $2.05 per share (subject to
adjustment in the event of any stock dividend, stock split, stock distribution
or combination or similar event with respect to such stock after the date of
this Note).

                  "Default Interest Rate" shall have the meaning ascribed to
such term in the second paragraph herein.

                  "Event of Default" shall have the meaning ascribed to such
term in Section 6(a) herein.

                  "Holder" shall have the meaning ascribed to such term in the
first paragraph herein.

                  "Issue Date" shall mean September 29, 2003.

                  "Lender" shall have the meaning ascribed to such term in the
first paragraph herein.

                  "Maker" shall have the meaning ascribed to such term in the
first paragraph herein.

                  "Maturity Date" shall mean September 29, 2005 or, if the
Lender elects in its sole and absolute discretion by written notice to the Maker
given not later than thirty (30) days prior to September 29, 2005, the date
specified by Lender but not later than the third anniversary of the Issue Date.

                  "Merger Agreement" shall mean the Agreement and Plan of
Merger, dated as of September 29, 2003 and as amended, between Parent and the
other parties named therein.

                  "Merger" shall have the meaning ascribed to such term in the
Merger Agreement.

                  "Note" shall have the meaning ascribed to such term in Section
2 herein.

                  "Obligations" shall mean all debts, liabilities, and
obligations for monetary amounts (whether or not such amounts are liquidated or
determinable) owing by the Maker to Lender and arising under this Note. This
term includes, without limitation, all interest, charges, expenses, attorneys
fees and any other sum chargeable to the Maker under this Note.

                  "Parent" shall mean Good Guys, Inc., a Delaware corporation.

                  "Securities" shall mean this Note and the shares of Common
Stock issuable upon conversion of this Note.

                                      - 2 -



                  "Shareholder Event" shall have the meaning ascribed to such
term in Section 6(a)(v) herein.

         2.       Merger Agreement. This Unsecured Subordinated Convertible
Promissory Note (this "Note") is the unsecured subordinated convertible
promissory note of the Maker referred to in the Merger Agreement. This Note is
transferable and assignable to any person to whom such transfer is permissible
under applicable law; provided, however, that any transfer of this Note must be
accompanied by the surrender of this Note to Maker together with any necessary
transfer documents. The Maker agrees to issue from time to time replacement
Notes in the form hereof to facilitate such transfers and assignments. In
addition, after delivery of an indemnity in form and substance satisfactory to
the Maker, the Maker also agrees to issue a replacement Note if the Note is
lost, stolen, mutilated or destroyed.

         3.       Conversion.

                  (a)      Optional Conversion. The Lender may convert the
outstanding principal amount (or any portion thereof) and accrued but unpaid
interest (or any portion thereof) on this Note into shares of Common Stock at
any time, and from time to time, at the Conversion Price. The number of shares
of Common Stock issuable upon conversion of this Note shall be determined by
dividing the principal amount of this Note (or any portion thereof) and accrued
but unpaid interest (or any portion thereof) surrendered for conversion by the
Conversion Price.

                  (b)      Mechanics. To convert this Note, the Lender shall
surrender this Note, duly endorsed, at the principal offices of the Maker or any
transfer agent of the Maker. The date upon which the Lender surrenders the Note
to the Maker is the "Conversion Date." At its expense, as soon as practicable
after the Conversion Date, Parent shall deliver to the Lender a certificate for
the number of whole shares of Common Stock issuable upon the conversion and cash
in lieu of any fractional shares. The person in whose name the Common Stock
certificate is registered shall be deemed to be a stockholder of record on the
Conversion Date. In furtherance of the foregoing, Parent and Maker acknowledge
that any delay in or failure to deliver such certificates to the person in whose
name the Common Stock certificate is registered following the Conversion Date
shall not affect the right of such person to be treated for all purposes, in
respect of the number of whole shares of Common Stock issuable upon such
conversion, as the record holder of such number of shares of Common Stock on the
Conversion Date. In the event this Note is to be converted in part, the Maker
shall execute and deliver to the Lender, a new Note equal in principal amount to
the unconverted portion of the Note surrendered. Parent agrees to reserve, out
of its authorized but unissued Common Stock, a sufficient number of shares of
Common Stock to permit the conversion of this Note into shares of Common Stock.
All shares of Common Stock delivered upon conversion of this Note shall be newly
issued shares, shall be duly authorized, validly issued, fully paid and
nonassessable and shall be free from preemptive rights and free of any lien or
adverse claim.

                  (c)      Fractional Shares. Parent shall not be required to
issue fractional shares of Common Stock upon conversion of this Note. In lieu
thereof, Maker will pay an amount of cash equal to current market value of the
fractional shares.

                                      - 3 -



         4.       Payments. The Maker shall have no right to prepay all or any
portion of this Note prior to the Maturity Date. All payments by the Maker under
this Note shall be made without set-off, defense or counterclaim and be free and
clear and without any deduction or withholding for any taxes or fees of any
nature whatever, unless the obligation to make such deduction or withholding is
imposed by law. The principal balance and all accrued but unpaid interest on
this Note shall be paid in full on the Maturity Date.

         5.       No Waiver by Lender. The Lender's failure, at any time or
times, to require strict performance by the Maker of any provision of this Note
shall not waive, affect or diminish any right of Lender thereafter to demand
strict compliance and performance herewith. Any suspension or waiver by the
Lender of an Event of Default shall not suspend, waive or affect any other Event
of Default under this Note whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations of the Maker contained in
this Note and no Event of Default of the Maker under this Note shall be deemed
to have been suspended by Lender, unless such suspension or waiver is by an
instrument in writing signed by Lender and directed to Maker specifying such
suspension or waiver.

         6.       Event of Default.

                  (a)      The occurrence of any one or more of the following
events (regardless of the reason therefore) shall constitute an "Event of
Default" hereunder:

                  (i)      upon the failure to pay within three (3) business
days of the date when due the principal balance, any accrued interest or any
other amount payable hereunder;

                  (ii)     if the Maker shall have breached in any material
respect any of its representations or warranties contained in the Merger
Agreement and such breach shall not have been cured within twenty (20) days
after the Maker's receipt from the Holder of written notice that the specified
possible breach is to be remedied or if the failure cannot be cured within ten
(10) days after the Maker's attempts in such twenty (20)-day period, and the
failure may be cured within a reasonable time, then the Maker shall have an
additional period of not more than ten (10) days to attempt to cure the breach;

                  (iii)    if the Maker shall have breached in any material
respect any of its representations, warranties, covenants or other agreement
(other than the one referred to in Section 6(a)(i) herein) contained in any
other Section of this Note and such breach shall not have been cured within
twenty (20) days after the Maker's receipt from the Holder of written notice
that the specified possible breach is to be remedied or if the failure cannot be
cured within ten (10) days after the Maker's attempts in such twenty (20)-day
period, and the failure may be cured within a reasonable time, then the Maker
shall have an additional period of not more than ten (10) days to attempt to
cure the breach;

                  (iv)     (A) if the Maker (1) commences any voluntary
proceeding under any provision of Title 11 of the United States Code, as now or
hereafter amended, or commences any other proceeding, under any law, now or
hereafter in force, relating to bankruptcy, insolvency, reorganization,
liquidation, or otherwise to the relief of debtors or the readjustment of

                                      - 4 -



indebtedness, (2) makes any assignment for the benefit of creditors or a
composition or similar arrangement with such creditors, or (3) appoints a
receiver, trustee or similar judicial officer or agent to take charge of or
liquidate any of its property or assets or upon the commencement against the
Maker of any involuntary proceeding of the kind described in this paragraph; or
(B) if any involuntary proceeding under any provision of Title 11 of the United
States Code, as now or hereafter amended, or any other proceeding, under any
law, now or hereafter in force, relating to bankruptcy, insolvency,
reorganization, liquidation, or otherwise to the relief of debtors or the
readjustment of indebtedness is commenced against the Maker and not dismissed
within thirty (30) days;

                  (v)      if (A) the stockholders of Parent fail to approve the
Merger upon the taking of a vote at a duly held meeting of the stockholders or
any adjournment thereof or (B) the Merger Agreement otherwise terminates as a
result of the failure to receive such stockholder approval (each, a "Shareholder
Event") and ninety (90) days has elapsed since the occurrence of any such
Shareholder Event; and

                  (vi)     upon the acceleration of any other indebtedness of
the Maker for borrowed money that has an outstanding principal amount in excess
of $1,000,000.

                  (b)      If any Event of Default specified in Section 6(a)
shall have occurred and be continuing, the Lender may, by notice to the Maker,
declare all Obligations to forthwith be due and payable, whereupon all such
Obligations shall become and be due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Maker; provided, however, that upon the occurrence of an Event of Default
specified in Section 6(a)(iv), such Obligations shall become due and payable
without presentment, demand, protest, declaration, notice or demand by Lender.

         7.       Subordination. The indebtedness evidenced by this Note is
hereby expressly subordinated in right of payment to other indebtedness of Maker
as provided in that certain Intercreditor and Subordination Agreement, dated as
of September 29, 2003, as the same may be amended, modified or supplemented from
time to time, by and among Bank Of America, N.A., as Agent, Maker, Parent, and
Lender.

         8.       Holder Representations and Warranties. Holder represents and
warrants to the Maker as follows:

                  (a)      Purchase Entirely for Own Account Etc. Holder is
acquiring the Securities for its own account, and not with a view to, or for
sale in connection with, any distribution of the Securities in violation of the
Securities Act of 1933, as amended (the "Securities Act"). Except as
contemplated by this Note, Holder has no present agreement, undertaking,
arrangement, obligation or commitment providing for the disposition of the
Securities. Holder, if it is a legal entity, has not been organized, reorganized
or recapitalized specifically for the purpose of investing in the Securities.

                  (b)      Investor Status; Etc. Holder certifies and represents
to Maker that at the time Holders acquires any of the Securities, Holder will be
an "accredited investor" as defined in Rule 501 of Regulation D promulgated
under the Securities Act. Holder's financial condition is

                                      - 5 -



such that it is able to bear the risk of holding the Securities for an
indefinite period of time and the risk of loss of its entire investment. Holder
has been afforded the opportunity to ask questions of and receive answers from
the management of Maker concerning this investment and has sufficient knowledge
and experience in investing in companies similar to Maker in terms of Maker's
stage of development so as to be able to evaluate the risks and merits of its
investment in Maker.

         9.       Additional Remedies Upon Default. Subject to Section 7 hereof,
notwithstanding anything to the contrary contained herein, upon an Event of
Default hereunder, and during the continuation thereof, the Holder may exercise
any other right, power or remedy as may be provided herein or as may be provided
at law or in equity.

         10.      Registration Rights. The shares of Common Stock issuable upon
conversion of this Note shall have registration rights as provided in the
Registration Rights Agreement, dated the date hereof, between the Parent and the
Lender.

         11.      Amendment. None of the terms or provisions of this Note may be
excluded, modified or amended except by a written instrument duly executed by
the Holder and the Maker expressly referring to this Note and setting forth the
provision so excluded, modified or amended.

         12.      Usury Savings Clause. Maker and Lender intend to comply at all
times with applicable usury laws. If at any time such laws would render usurious
any amounts due under this Note under applicable law, then it is Maker's and
Lender's express intention that Maker not be required to pay interest on this
Note at a rate in excess of the maximum lawful rate, that the provisions of this
Section 12 shall control over all other provisions of this Note which may be in
apparent conflict hereunder, that such excess amount shall be immediately
credited to the principal balance of this Note, and the provisions hereof shall
immediately be reformed and the amounts thereafter decreased, so as to comply
with the then applicable usury law, but so as to permit the recovery of the
fullest amount otherwise due under this Note.

         13.      Costs. If action is instituted to collect on this Note, the
Maker promises to pay all costs and expenses, including reasonable attorney's
fees, incurred in connection with such action.

         14.      Governing Law. This Note shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
conflicts of law principles thereof.

         15.      Notices. All notices hereunder shall be given in writing and
shall be deemed delivered when received by the other party hereto at the address
set forth in the Purchase Agreement or at such other address as may be specified
by such party from time to time in accordance with the Merger Agreement.

         16.      Waiver. Except as otherwise provided for in this Note, the
Maker hereby expressly waives presentment, demand for payment, dishonor, notice
of dishonor, protest, notice of protest and any other formality. The Maker
acknowledges that it has been advised by counsel of its choice with respect to
this Note and the transactions evidenced by this Note.

                                      - 6 -



                  This Note shall be binding upon the successors or assigns of
the Maker and Parent and shall inure to the benefit of the successors and
assigns of the Holder.

                                       GOOD GUYS CALIFORNIA, INC.

                                       By: /s/ Kenneth R. Weller
                                           ------------------------------------
                                           Name: Kenneth R. Weller
                                           Title: Chairman & CEO

                                       GOOD GUYS, INC.

                                       By: /s/ Kenneth R. Weller
                                           ------------------------------------
                                           Name: Kenneth R. Weller
                                           Title: Chairman & CEO

                              [Note Signature Page]

EX-10.35

                                                                   EXHIBIT 10.35

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (this "AGREEMENT") is made as of
September 29, 2003, by and between CompUSA Inc. ("the LENDER") and Good Guys,
Inc., a Delaware corporation (the "COMPANY").

                                R E C I T A L S :

         WHEREAS, the Company's wholly owned subsidiary Good Guys California,
Inc., a California corporation, proposes to issue and sell to the Lender
$5,000,000 aggregate principal amount of its 3% Unsecured Subordinated
Convertible Promissory Notes (the "NOTE");

         WHEREAS, the Note will be convertible into shares of common stock, par
value $.001 per share, of the Company (the "COMMON STOCK") at the conversion
price set forth in the Note; and

         WHEREAS, as an inducement to the Lender to purchase the Note, the
Company agrees with the Lender, for the benefit of the Lender and its permitted
assigns (each an "ADDITIONAL HOLDER", and together with the Lender, the
"HOLDERS"), as follows:

         1. Shelf Registration. (a) The Company shall, at its cost, prepare and,
as promptly as practicable after a Triggering Event (as defined below) (but in
no event no more than 30 days after a Triggering Event), file with the
Securities and Exchange Commission (the "COMMISSION") and thereafter use its
reasonable efforts to cause to be declared effective as soon as practicable a
registration statement on Form S-3 (the "SHELF REGISTRATION STATEMENT") relating
to the offer and sale of the Registrable Securities (defined below) by the
Holders thereof from time to time in accordance with the methods of distribution
set forth in the Shelf Registration Statement and Rule 415 under the Securities
Act of 1933, as amended (the "SECURITIES ACT") (hereinafter, the "SHELF
REGISTRATION"); provided, however, that no Additional Holder shall be entitled
to have the shares of Common Stock issuable upon conversion of the Note (the
"REGISTRABLE SECURITIES") held by it covered by such Shelf Registration
Statement unless such Additional Holder agrees in writing to be bound by all the
provisions of this Agreement applicable to such Additional Holder.

         (b) The Company shall use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
included therein (the "PROSPECTUS") to be lawfully delivered by the Holders of
the Registrable Securities, for a period of two years (or for such longer period
if extended pursuant to Section 2(h) below) from the date of a Triggering Event
or such shorter period that will terminate when all the Registrable Securities
covered by the Shelf Registration Statement (i) have been sold pursuant thereto
(ii) cease to be outstanding, or (iii) are no longer restricted securities (as
defined in Rule 144(k) under the Securities Act, or any successor rule thereof),
assuming for this purpose that the Holders thereof are not affiliates of the
Company (in any such case, such period being called the "SHELF REGISTRATION
PERIOD").



The Company shall be deemed not to have used its reasonable best efforts to keep
the Shelf Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Registrable
Securities covered thereby not being able to offer and sell such Registrable
Securities during that period, unless such action is (i) required by, or
necessary for the Company to stay in compliance with, applicable law or (ii)
taken by the Company in good faith and contemplated by Section 2(b)(v) below,
and the Company thereafter complies with the requirements of Section 2(h).

         (c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
Prospectus and any amendment or supplement thereto, as of the effective date of
the Shelf Registration Statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission and (ii) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

         (d) "TRIGGERING EVENT" means the termination by any person of that
certain Agreement and Plan of Merger dated as of September 29, 2003 among the
Company, U.S. Commercial Corp., S.A. de C.V. and the Lender (the "MERGER
AGREEMENT") pursuant to Section 8.1 of the Merger Agreement.

         2. Registration Procedures. In connection with the Shelf Registration
contemplated by Section 1 hereof, the following provisions shall apply:

         (a) The Company shall (i) furnish to each Holder, prior to the filing
thereof with the Commission, a copy of the Shelf Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and, in the event that any Holder is participating in the Shelf
Registration Statement, shall use its reasonable best efforts to reflect in each
such document, when so filed with the Commission, such comments as such Holder
reasonably may propose; and (ii) include the names of the Holders who propose to
sell Registrable Securities pursuant to the Shelf Registration Statement as
selling securityholders.

         (b) The Company shall give written notice to the Holders of the
Registrable Securities (which notice pursuant to clauses (ii)-(v) of this
Section 2(b) shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made):

                  (i) when the Shelf Registration Statement or any amendment
         thereto has been filed with the Commission and when the Shelf
         Registration Statement or any post-effective amendment thereto has
         become effective;

                  (ii) of any request by the Commission for amendments or
         supplements to the Shelf Registration Statement or the Prospectus
         included therein or for additional information;

                                       2



                  (iii) of the issuance by the Commission of any stop order
         suspending the effectiveness of the Shelf Registration Statement or the
         initiation of any proceedings for that purpose;

                  (iv) of the receipt by the Company or its legal counsel of any
         notification with respect to the suspension of the qualification of the
         Registrable Securities for sale in any jurisdiction or the initiation
         or threatening of any proceeding for such purpose; and

                  (v) of the happening of any event that requires the Company to
         make changes in the Shelf Registration Statement or the Prospectus in
         order that the Shelf Registration Statement or the Prospectus does not
         contain an untrue statement of a material fact nor omit to state a
         material fact required to be stated therein or necessary to make the
         statements therein (in the case of the Prospectus, in light of the
         circumstances under which they were made) not misleading.

         (c) The Company shall make reasonable efforts to obtain the withdrawal
at the earliest possible time, of any order suspending the effectiveness of the
Shelf Registration Statement.

         (d) The Company shall furnish to each Holder of Registrable Securities
included within the coverage of the Shelf Registration, without charge, at least
one copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).

         (e) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Registrable Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the Prospectus (including each
preliminary prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the use of the
Prospectus or any amendment or supplement thereto by each of the selling Holders
of the Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the Prospectus, or any amendment or supplement
thereto, included in the Shelf Registration Statement.

         (f) Prior to any public offering of the Registrable Securities pursuant
to the Shelf Registration Statement, the Company shall register or qualify or
cooperate with the Holders of the Registrable Securities included therein and
their respective counsel in connection with the registration or qualification of
the Registrable Securities for offer and sale under the securities or "blue sky"
laws of such states of the United States as any Holder of the Registrable
Securities reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the Registrable Securities covered by such Registration Statement; provided,
however, that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it is not then so qualified or (ii) take any
action which would subject it to general service of process or to taxation in
any jurisdiction where it is not then so subject.

                                       3



         (g) The Company shall cooperate with the Holders of the Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing the Registrable Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as the Holders may request a reasonable period of time
prior to sales of the Registrable Securities pursuant to the Shelf Registration
Statement.

         (h) Subject to Section 5(c) hereof, upon the occurrence of any event
contemplated by paragraphs (ii) through (v) of Section 2(b) above during the
period for which the Company is required to maintain an effective Shelf
Registration Statement, the Company shall promptly prepare and file a
post-effective amendment to the Shelf Registration Statement or an amendment or
supplement to the Prospectus and any other required document so that, as
thereafter delivered to Holders or purchasers of the Registrable Securities, the
Prospectus as so amended or supplemented will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. If the Company notifies the Holders in
accordance with paragraphs (ii) through (v) of Section 2(b) above to suspend the
use of the Prospectus until the requisite changes to the Prospectus have been
made, then the Holders shall suspend use of such Prospectus, and the period of
effectiveness of the Shelf Registration Statement provided for in Section 1(b)
above shall be extended by the number of days from and including the date of the
giving of such notice to and including the date when the Holders shall have
received such amended or supplemented prospectus pursuant to this Section 2(h).

         (i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Shelf
Registration and will make generally available to its security holders (or
otherwise provide in accordance with Section 11(a) of the Securities Act) an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90 days, if
such period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the Shelf
Registration Statement, which statement shall cover such 12-month period.

         (k) The Company shall take all such other actions, if any, as any
Holder shall reasonably request in order to facilitate the disposition of the
Registrable Securities pursuant to the Shelf Registration.

         (l) The Company shall (i) make reasonably available for inspection by
the Holders, and any attorney, accountant or other agent retained by the
Holders, all relevant financial and other records, pertinent corporate documents
and properties of the Company and (ii) cause the Company's officers, directors,
employees, accountants and auditors to supply all relevant information
reasonably requested by the Holders or any such attorney, accountant or agent in
connection with the Shelf Registration Statement, in each case, as shall be
reasonably necessary to enable such persons, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act; provided,
however, that the foregoing inspection and information gathering shall be
coordinated on behalf of

                                       4



the Lender by you and on behalf of the other parties, by one counsel designated
by and on behalf of such other parties as described in Section 3 hereof.

         3. Registration Expenses. (a) All expenses incident to the Company's
performance of and compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement is ever filed or becomes
effective, including without limitation;

                  (i) all registration and filing fees and expenses;

                  (ii) all fees and expenses incurred in connection with the
         compliance with federal securities and state "blue sky" or securities
         laws;

                  (iii) all expenses of printing (including printing
         certificates for the Registrable Securities to be issued and printing
         of Prospectuses), messenger and delivery services and telephone;

                  (iv) all fees and disbursements of counsel for the Company;

                  (v) all application and filing fees in connection with listing
         the Registrable Securities on a national securities exchange or
         automated quotation system pursuant to the requirements hereof; and

                  (vi) all fees and disbursements of independent certified
         public accountants of the Company (including the expenses of any
         special audit and comfort letters required by or incident to such
         performance).

The Company will bear its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Company.

         (b) In connection with the Shelf Registration Statement required by
this Agreement, the Company will reimburse the Holders of Registrable Securities
covered by the Shelf Registration Statement, for the reasonable fees and
disbursements of not more than one counsel, designated by the Holders of a
majority in principal amount of the Registrable Securities covered by the Shelf
Registration Statement (provided that Holders of Common Stock issued upon the
conversion of the Note shall be deemed to be Holders of the aggregate principal
amount of the Note from which such Common Stock was converted) to act as counsel
for the Holders in connection therewith.

         4. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder and each person, if any, who controls such Holder within
the meaning of the Securities Act or the Exchange Act (each Holder, and such
controlling persons are referred to collectively as the "INDEMNIFIED PARTIES")
from and against any losses, claims, damages or liabilities, joint or several,
or any actions in respect thereof (including, but not limited to, any losses,
claims, damages, liabilities or actions relating to purchases and sales of the
Registrable Securities) to which each Indemnified Party may

                                       5



become subject under the Securities Act, the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement or prospectus including any document incorporated by
reference therein, or in any amendment or supplement thereto or in any
preliminary prospectus relating to the Shelf Registration, or arise out of, or
are 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, and shall reimburse, as incurred, the Indemnified Parties for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action in
respect thereof; provided, however, that (i) the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Shelf Registration Statement or
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus relating to the Shelf Registration in reliance upon and in conformity
with written information pertaining to such Holder and furnished to the Company
by or on behalf of such Holder specifically for inclusion therein and (ii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus relating to the Shelf Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Holder from whom the person asserting any such
losses, claims, damages or liabilities purchased the Registrable Securities
concerned to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished by such Holder specifically for
use therein; and provided, further, that the indemnity agreement contained in
this subsection (a) shall not inure to the benefit of any Holder from whom the
person asserting any such losses, claims, damages or liabilities, purchased the
Registrable Securities concerned and any such loss, claim, damage or liability
of such Holder results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Registrable
Securities to such person, a copy of the final prospectus if the Company had
previously furnished copies thereof to such Holder; provided further, however,
that this indemnity agreement will be in addition to any liability which the
Company may otherwise have to such Indemnified Party.

         (b) Each Holder, severally and not jointly, will indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act from and against any losses, claims, damages or liabilities or any actions
in respect thereof, to which the Company or any such controlling person may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Shelf Registration Statement or prospectus or in any amendment
or supplement thereto or in any preliminary prospectus relating to the Shelf
Registration, or arise out of or are based upon the omission or alleged omission
to state therein a material fact necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
omission or alleged untrue

                                       6



statement or omission was made in reliance upon and in conformity with written
information pertaining to such Holder and furnished to the Company by or on
behalf of such Holder specifically for inclusion therein; and, subject to the
limitation set forth immediately preceding this clause, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.

         (c) Promptly after receipt by an indemnified party under this Section 4
of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 4,
notify the indemnifying party of the commencement thereof; but the failure to
notify the indemnifying party shall not relieve the indemnifying party from any
liability that it may have under subsection (a) or (b) above except to the
extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and provided further that the
failure to notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to an indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
the indemnifying party will not be liable to such indemnified party under this
Section 4 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement (i) includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action, and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of any indemnified party.

         (d) If the indemnification provided for in this Section 4 is held by a
court of competent jurisdiction to be wholly or partially unavailable to hold
harmless an indemnified party under subsections (a) or (b) above, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to in subsection (a) or (b) above in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and the indemnified party on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to

                                       7



information supplied by the Company on the one hand or such Holder or such other
indemnified party, as the case may be, on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 4(d), the Holders shall not
be required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Registrable Securities
pursuant to the Shelf Registration Statement exceeds the amount of damages which
such Holders have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph (d),
each person, if any, who controls such indemnified party within the meaning of
the Securities Act or the Exchange Act shall have the same rights to
contribution as such indemnified party and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act shall have
the same rights to contribution as the Company.

         (e) The agreements contained in this Section 4 shall survive the sale
of the Registrable Securities pursuant to the Shelf Registration Statement and
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of any
indemnified party.

         5. Default Interest Under Certain Circumstances. (a) Default Interest
(the "DEFAULT INTEREST") with respect to the Note shall be assessed as follows
as liquidated damages if any of the following events occur (each such event in
clauses (i) through (iii) below being herein called a "REGISTRATION DEFAULT"):

                  (i) the Shelf Registration Statement has not been filed with
         the Commission by the 30th day after the Triggering Event;

                  (ii) the Shelf Registration Statement has not been declared
         effective by the Commission by the 120th day after the Triggering
         Event; or

                  (iii) the Shelf Registration Statement is declared effective
         by the Commission but (A) the Shelf Registration Statement thereafter
         ceases to be effective or (B) the Shelf Registration Statement or the
         Prospectus ceases to be usable in connection with resales of
         Registrable Securities (as defined below) during the periods specified
         herein and (1) the Company does not cause the Shelf Registration
         Statement to become effective within five (5) business days after it
         has ceased to be effective by a post-effective amendment or a report
         filed pursuant to the Exchange Act or (2) if applicable, the Company
         does not terminate the suspension periods described below in the first
         sentence of Section 5(c).

                                       8



Each of the foregoing will constitute a Registration Default whatever the reason
for any such event and whether it is voluntary or involuntary or is beyond the
control of the Company or pursuant to operation of law or as a result of any
action or inaction by the Commission.

         Default Interest shall accrue on the Note from and including the date
on which any such Registration Default shall occur to but excluding the date on
which all such Registration Defaults have been cured, at a rate of 5% per annum
(the "DEFAULT INTEREST RATE").

         (b) Any amounts of Default Interest due pursuant to Section 5(a) will
be payable in cash on the maturity date of the Note. The amount of Default
Interest will be determined by multiplying the applicable Default Interest Rate
by the principal amount of the Note on the Issue Date (as defined in the Note),
further multiplied by a fraction, the numerator of which is the number of days
such Default Interest Rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.

         (c) Notwithstanding paragraph (a) of this Section 5, the Company shall
be permitted to suspend the effectiveness of a Registration Statement covering
the Registrable Securities for any bona fide reason, for up to 45 consecutive
days (the "DEFERRAL PERIOD") in any 180 day period without paying Default
Interest; provided, however, that Deferral Periods may not total more than 90
days in any twelve-month period. In addition, the Company shall be, upon written
notice to all Holders, permitted to postpone having the Shelf Registration
Statement declared effective for a reasonable period of time not to exceed 30
days if the Company possesses material non-public information, the disclosure of
which would have a material adverse effect on the Company and its subsidiaries,
taken as a whole; provided, however, that any such postponement or suspension
pursuant to this Section 5(c) shall not affect the Company's obligation to pay
Default Interest as set forth in Section 5(a) above. The Company shall not be
required to specify in the written notice to the Holders the nature of the event
giving rise to the Deferral Period.

         6. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the request of any Holder, make
publicly available other information so long as necessary to permit sales of
their securities pursuant to Rules 144 and 144A. The Company covenants that it
will take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rules 144 and 144A (including the requirements of
Rule 144A(d)(4)). The Company will provide a copy of this Agreement to
prospective purchasers of Registrable Securities identified to the Company by
the Holder upon request. Upon the request of any Holder, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding the foregoing, nothing in this Section 6
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.

                                       9



         7. Miscellaneous.

         (a) Remedies. The Company acknowledges and agrees that any failure by
the Company to comply with its obligations under Section 1 hereof may result in
material irreparable injury to the Holders for which there is no adequate remedy
at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Section 1 hereof. The Company further agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.

         (b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.

         (c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the holders of a majority in principal amount of the Registrable
Securities affected by such amendment, modification, supplement, waiver or
consents (provided that holders of Common Stock issued upon conversion of the
Note shall not be deemed holders of Common Stock, but shall be deemed to be
holders of the aggregate principal amount of the Note from which such Common
Stock was converted). Notwithstanding the foregoing, no modification to the
provisions relating to the payment of Default Interest shall apply to any Holder
that has not consented thereto in writing.

         (d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:

                  (1) if to a Holder of the Registrable Securities, at the most
         current address given by such Holder to the Company.

                  (2) if to the Lender;

                           CompUSA Inc.
                           14951 North Dallas Parkway
                           Dallas, TX  75240
                           Fax No.:  (972) 982-4183
                           Attention:  General Counsel

         with a copy to:

                                       10



                           Willkie Farr & Gallagher LLP
                           787 Seventh Avenue
                           New York, New York  10019
                           Fax No:  (212) 728-8111
                           Attention:  Thomas M. Cerabino, Esq.

                  (3) if to the Company, at its address as follows:

                           Good Guys, Inc.
                           1600 Harbor Bay Parkway
                           Alameda, CA 94502
                           Fax No:  (510) 747-6291
                           Attention:  Chief Executive Officer

         with a copy to:

                           Howard Rice Nemerovski Canady Falk & Rabkin
                           Three Embarcadero Center
                           Seventh Floor
                           San Francisco, CA 94111-4065
                           Fax:No.:  415-217-5910
                           Attention:  Richard W. Canady

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.

         (e) Third Party Beneficiaries. The Additional Holders who agree to be
bound hereby shall be third party beneficiaries to the agreements made hereunder
between the Company, on the one hand, and the Lender, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder.

         (f) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.

         (g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                                       11



         (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

         By the execution and delivery of this Agreement, the Company submits to
the nonexclusive jurisdiction of any federal or state court in the State of New
York.

         (j) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.

                            [Signature page follows]

                                       12



IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first above written.

                                  GOOD GUYS, INC.

                                  By: /s/ Kenneth R. Weller
                                      -----------------------------------------
                                      Name: Kenneth R. Weller
                                      Title: Chairman & Chief Executive Officer

                                  COMPUSA INC.

                                  By: /s/ Javier Larraza
                                      ------------------------------------------
                                      Name: Javier Larraza
                                      Title: Executive Vice President/ Chief
                                        Financial Officer

                [Signature Page to Registration Rights Agreement]

EX-10.36

                                                                   EXHIBIT 10.36

                 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

                  THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 8th day of July, 2003, among the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), Bank of America, N.A. (in its individual capacity, the "Bank") with
an office at 55 South Lake Avenue Suite 900, Pasadena, California 91101, as
Administrative Agent for the Lenders (in its capacity as Administrative Agent,
the "Administrative Agent"), General Electric Capital Corporation (in its
individual capacity, "GE Capital") with an office at 350 South Beverly Drive
Suite 200, Beverly Hills, California 90212, as documentation agent for the
Lenders (in its capacity as documentation agent, the "Documentation Agent"),
Good Guys California, Inc. (formerly known as The Good Guys - California, Inc.),
a California corporation, with offices at 1600 Harbor Bay Parkway, Alameda,
California 94502 (the "Borrower"), and (for purposes of paragraphs 6, 7 and 9)
Good Guys, Inc., a Delaware corporation ("Parent"), with respect to that certain
Loan and Security Agreement, dated as of September 30, 1999 among the parties
hereto, as amended by that certain First Amendment to Loan and Security
Agreement dated as of August 16, 2001, by those certain letter amendments dated
as of March 27, 2002, and May 15, 2002, and as further amended by that certain
Second Amendment to Loan and Security Agreement dated as of May 22, 2001, and
that certain Third Amendment to Loan and Security Agreement dated as of July 2,
2002 (collectively, the "Loan Agreement"), and with reference to the following
facts:

                                    RECITALS

         A.       Pursuant to the Loan Agreement, Lenders agreed to make certain
financial accommodations to or for the benefit of Borrower upon the terms and
conditions contained therein. Unless otherwise defined in this Amendment, (i)
capitalized terms used herein shall have the meanings attributed to them in the
Loan Agreement, and (ii) references to sections shall refer to sections of the
Loan Agreement.

         B.       Borrower has requested certain changes to the Loan Agreement,
as provided herein.

         C.       Lenders have agreed to make such changes to the Loan Agreement
on the terms and conditions set forth in this Amendment.

                  NOW, THEREFORE, in consideration of the continued performance
by Borrower of its promises and obligations under the Loan Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby
agree as follows:

                                    AGREEMENT

         1.       Acknowledgment of Loan Agreement and Other Loan Documents.
Except as expressly modified by this Amendment, the obligations of Borrower
under the Loan Agreement and the other Loan Documents are hereby acknowledged,
confirmed and ratified by Borrower.



         2.       Definitions. Unless otherwise defined in this Amendment,
capitalized terms used herein have the meanings given to them in the Loan
Agreement. Unless otherwise indicated, all references to sections, schedules, or
exhibits shall mean sections, schedules, or exhibits of or to the Loan
Agreement.

         3.       Amendment to Loan Agreement. The Loan Agreement shall be
amended as follows:

                  3.1      New Definitions. New definitions are hereby added in
appropriate alphabetical order to read as follows:

                  "Fourth Amendment" shall mean the Fourth Amendment to Loan and
Security Agreement dated as of July 8, 2003.

                  "Fourth Amendment Closing Date" shall mean the date of the
effectiveness of the Fourth Amendment, as provided in paragraph 8 of the Fourth
Amendment.

                  "Sales Tax Reserve" shall mean a reserve against the Borrowing
Base, to be reflected on each Borrowing Base Certificate submitted by Borrower,
equal to the amount, if any, by which Borrower's obligations for the remittance
of sales and use taxes payable to Governmental Authorities exceed $5,500,000.

                  3.2      Revised "Borrowing Base" Definition. The definition
of "Borrowing Base" is amended and restated (and such amendment and restatement
shall supersede any prior inconsistent course of dealings among the parties with
respect to the applicable calculations of the Borrowing Base) as follows:

                  "Borrowing Base" means, at any time, an amount equal to:

                  (a) the lowest of:

                           (i) the Maximum Revolver Amount, or

                           (ii) the sum of:

                                    (A) one hundred percent (100%) of the
                                    aggregate manufacturer's invoice price of
                                    all Eligible Vendor Financed Inventory up to
                                    an amount of $30,000,000, plus

                                    (B) eighty-five percent (85%) of the
                                    aggregate manufacturer's invoice price of
                                    all Eligible Vendor Financed Inventory for
                                    that portion of Eligible Vendor Financed
                                    Inventory, if any, in excess of $30,000,000,
                                    plus

                                    (C) eighty-five percent (85%) of the
                                    Recovery Value of Eligible Inventory not
                                    constituting Eligible Vendor Financed
                                    Inventory or Committed HDL Inventory, plus

                                       2


                                    (D) the lesser of (1) eighty-five percent
                                    (85%) of Eligible Credit Card Accounts, and
                                    (2) $10,000,000, plus

                                    (E) the Seasonal Borrowing Base Adjustment,
                                    if applicable, or

                           (iii) the sum of:

                                    (A) eighty-five percent (85%) (or, during
                                    any period when a Seasonal Borrowing Base
                                    Adjustment is in effect, ninety percent
                                    (90%)) of the aggregate manufacturer's
                                    invoice price of all Eligible Vendor
                                    Financed Inventory up to an amount of
                                    $30,000,000, plus

                                    (B) seventy percent (70%) (or, during any
                                    period when a Seasonal Borrowing Base
                                    Adjustment is in effect, seventy-five
                                    percent (75%)) of the aggregate
                                    manufacturer's invoice price of all Eligible
                                    Vendor Financed Inventory for that portion
                                    of Eligible Vendor Financed Inventory, if
                                    any, in excess of $30,000,000, plus

                                    (C) seventy percent (70%) (or, during any
                                    period when a Seasonal Borrowing Base
                                    Adjustment is in effect, seventy-five
                                    percent (75%)) of the gross inventory (at
                                    the lower of cost (determined on a FIFO
                                    basis) or market as determined from time to
                                    time by Administrative Agent, after
                                    consultation among Co-Agents, in the
                                    exercise of their reasonable credit
                                    judgment) of all Eligible Inventory not
                                    constituting Eligible Vendor Financed
                                    Inventory or Committed HDL Inventory, plus

                                    (D) the lesser of (1) eighty-five percent
                                    (85%) of Eligible Credit Card Accounts, and
                                    (2) $10,000,000, minus

                                    (E) the General Ledger Variance Reserve, and
                                    minus

                                    (F) the Shrinkage and Obsolescence Reserve;

                  minus

                  (b) the sum of:

                           (i) the Vendor Inventory Financing Reserves, plus

                           (ii) the Landlord Waiver Reserves, plus

                           (iii) the Bank Product Reserves, plus

                           (iv) the Sales Tax Reserve, plus

                                       3


                           (v) all other reserves that the Administrative Agent,
                           after consultation among Co-Agents, in the exercise
                           of their reasonable credit judgment, deems necessary
                           to maintain with respect to the Borrower's account,
                           including reserves for any amounts which the
                           Administrative Agent or any Lender may be obligated
                           to pay in the future for the account of the Borrower.

                  3.3      Revised "Eligible Credit Card Accounts" Definition.
Clause (iii) of the definition of "Eligible Credit Card Accounts" is amended and
restated as follows:

                                    "(iii) no more than five (5) Business Days
                  from invoice date in the case of Accounts which arise from
                  Sony private label credit cards, and no more than two (2)
                  Business Days from invoice date in all other cases;"

                  3.4      Seasonal Borrowing Base Adjustment. Section 2.6 is
amended by substituting "September 23" in lieu of each reference to "October 1"
therein, and by substituting "December 12" in lieu of the reference to "December
20" therein.

                  3.5      Minimum Availability. Section 9.22 shall be amended
and restated as follows:

                                    9.22     Minimum Availability. Borrower
                  shall maintain Availability of not less than the following at
                  all times during each of the following periods:



               Period                     Minimum Availability
               ------                     --------------------
                                       
From the date of the Fourth                    $ 6,500,000
Amendment through August 14, 2003

August 15, 2003 through September 14,          $ 6,750,000
2003

September 15, 2003 through October             $ 7,000,000
14, 2003

October 15, 2003 through November              $ 7,250,000
14, 2003

November 15, 2003 and at all times             $ 7,500,000
thereafter


                  3.6      Minimum EBITDA Covenant. Section 9.30 is hereby
deleted.

                  3.7      Amendment to Notice Addresses. The notice addresses
in Section 15.8 shall be amended and restated as follows:

                                       4


                  If to the Administrative Agent or to the Bank:

                           Bank of America, N.A.
                           55 S. Lake Avenue, Suite 900
                           Pasadena, CA 91101
                           Attn: John McNamara
                           Telecopy Number: 626-397-1273

                  If to the Documentation Agent:

                           General Electric Capital Corporation
                           Corporate Financial Services
                           800 Connecticut Avenue, 2 North
                           Norwalk, Connecticut 06854
                           Attention: Account Manager (Good Guys)
                           Telecopy No.: (203) 852-3670

                           with copies to:

                           Winston & Strawn
                           101 California Street, Suite 3900
                           San Francisco, California 94111
                           Attention: Hill Blackett, III, Esq.
                           Telecopy No.: (415) 591-1400

                           and

                           General Electric Capital Corporation
                           201 High Ridge Road
                           Stamford, Connecticut 06927-5100
                           Attention: Corporate Counsel
                           Telecopy No.: (203) 316-7889

                  If to the Borrower:

                           Good Guys California, Inc.
                           1600 Harbor Bay Parkway
                           Alameda, California 94502
                           Attention: Chief Financial Officer
                           Telecopy No.:(510) 747-6290

                           with copies to:

                           Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
                                a Professional Corporation
                           Three Embarcadero Center, 7th Floor
                           San Francisco, California 94111-4065
                           Attention: Richard W. Canady, Esq.
                           Telecopy No.: (415) 217-5910

                                       5


         4.       Consent to Acquisition of Online Venture Stock.
Notwithstanding anything contained in Section 9.10, Section 9.15 or Section 9.20
of the Loan Agreement, Co-Agents and Lenders, upon the effectiveness of the
Fourth Amendment, consent to Borrower's issuance of capital stock of Borrower to
the shareholders of the capital stock of Online Venture in connection with
Borrower's acquisition of all but not less than all of the outstanding capital
stock of Online Venture not already owned by Borrower, provided that (a) the
consideration given by Borrower for such capital stock of Online Venture shall
be limited to newly-issued capital stock of Borrower, (b) Borrower shall deliver
to Administrative Agent a pledge amendment to pledge all of the capital stock of
Online Venture in the manner and within the time provided in that certain Pledge
Agreement between Borrower and Administrative Agent dated as of August 16, 2001,
and (c) promptly upon consummation of such acquisition, Borrower shall deliver
to Administrative Agent copies of all documents pertaining to such acquisition.

         5.       Acknowledgments of Borrower.

                  5.1      Acknowledgment of Obligations. Borrower hereby
acknowledges, confirms and agrees that the Revolving Loans, together with
interest accrued and accruing thereon, and fees, costs, expenses and other
charges now or hereafter payable by Borrower to Lenders, are unconditionally
owing by Borrower to Lenders, without offset, defense or counterclaim of any
kind, nature or description whatsoever.

                  5.2      Acknowledgment of Security Interests. Borrower hereby
acknowledges, confirms and agrees that Co-Agents and Lenders have and shall
continue to have valid, enforceable and perfected first-priority liens upon and
security interests in the Collateral heretofore granted to Lenders pursuant to
the Loan Documents or otherwise granted to or held by Co-Agents and Lenders,
subject only to Permitted Liens.

                  5.3      Binding Effect of Documents. Borrower hereby
acknowledges, confirms and agrees that: (a) each of the Loan Documents to which
it is a party has been duly executed and delivered to Documentation Agent by
Borrower, and each is in full force and effect as of the date hereof, (b) the
agreements and obligations of Borrower contained in such documents and in this
Amendment constitute the legal, valid and binding Obligations of Borrower,
enforceable against it in accordance with their respective terms, and Borrower
has no valid defense to the enforcement of such Obligations, and (c) Co-Agents
and Lenders are and shall be entitled to the rights, remedies and benefits
provided for in the Loan Documents and applicable law.

         6.       Acknowledgment and Reaffirmation of Parent. Parent hereby
acknowledges that it has received and reviewed a copy of the Fourth Amendment
and consents to the terms and conditions of the Fourth Amendment. Parent hereby
ratifies and reaffirms each and every one of its obligations under the Parent
Guaranty, and confirms that such obligations are, and shall continue to be, in
full force and effect to the full extent provided therein without any defense,
claim, counterclaim, right of offset, recoupment or other defense to payment or
performance whatsoever, each of which is hereby expressly waived. Without
limiting the generality of the foregoing, Parent agrees and acknowledges that
the Parent Guaranty applies with full force and effect to the Loan Agreement as
amended by the Fourth Amendment and as previously amended.

                                       6


         7.       Commercial Tort Claims. Each of Borrower and Parent represents
that, as of the Fourth Amendment Closing Date, it does not have any Commercial
Tort Claims.

         8.       Conditions of Effectiveness. This Amendment shall become
effective upon satisfaction of each of the following conditions:

                           (a)      Documentation Agent shall have received
copies of this Amendment that bear the signatures of Borrower, Parent, GE
Capital and Bank;

                           (b)      Documentation Agent shall have received each
of the documents listed on the Third Addendum to Schedule of Documents attached
hereto as Schedule A that bears the signatures of the respective parties
thereto, each of which shall be in form and substance satisfactory to Lenders.

         9.       Release.

                  9.1      In consideration of the agreements of Co-Agents and
Lenders contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each of Borrower and
Parent, on behalf of itself and its successors, assigns, and other legal
representatives, effective as of the Fourth Amendment Closing Date, hereby
absolutely, unconditionally and irrevocably waives and releases any claim,
defense, demand, action or suit of any kind or nature whatsoever, known or
unknown, suspected or unsuspected, against the Co-Agents and Lenders, or any of
them, or their respective successors, assigns, or other legal representatives,
arising on or prior to the Fourth Amendment Closing Date in connection with the
Loan Agreement or any of the other Loan Documents, or any of the transactions
contemplated thereunder.

                  9.2      Each of Borrower and Parent understands, acknowledges
and agrees (i) that no fact, event, circumstance, evidence or transaction which
could now be asserted or which may hereafter be discovered shall affect in any
manner the final, absolute and unconditional nature of the release set forth
above, and (ii) that it is familiar with, and has been advised by its counsel
concerning, the provisions of Section 1542 of the California Civil Code, which
provides as follows:

         A general release does not extend to claims which the creditor does not
         know or suspect to exist in his favor at the time of executing the
         release, which if known by him must have materially affected his
         settlement with the debtor.

Each of Borrower and Parent expressly waives any and all rights under Section
1542 of the California Civil Code, and under any federal or state statute or law
of similar effect.

         10.      Representations and Warranties. Borrower hereby represents and
warrants that the representations and warranties contained in the Loan Agreement
were true and correct in all material respects when made and, except to the
extent (a) that a particular representation or warranty by its terms expressly
applies only to an earlier date, (b) Borrower has previously advised Co-Agents
in writing as contemplated under the Loan Agreement, or (c) amended by this
Amendment, are true and correct in all material respects as of the date hereof.
All

                                       7


representations and warranties contained in the Loan Agreement which expressly
applied to the Closing Date, as amended in part by Section 7 of the Second
Amendment, remain true and correct in all material respects as of the Fourth
Amendment Closing Date. The Loan Agreement shall continue in full force and
effect in accordance with the provisions thereof on the date hereof.

         11.      Entire Agreement. This Amendment, together with the Loan
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.

         12.      Miscellaneous.

                  12.1     Counterparts. This Amendment may be executed in
identical counterpart copies, each of which shall be an original, but all of
which shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile transmission
shall be effective as delivery of a manually executed counterpart of this
Amendment. Any Person delivering this Amendment by facsimile shall send the
original manually executed counterpart of this Amendment to Documentation Agent
promptly after such facsimile transmission.

                  12.2     Headings. Section headings used herein are for
convenience of reference only, are not part of this Amendment, and are not to be
taken into consideration in interpreting this Amendment.

                  12.3     Recitals. The recitals set forth at the beginning of
this Amendment are true and correct, and such recitals are incorporated into and
are a part of this Amendment.

                  12.4     Governing Law. This Amendment shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and performed in such state, without
regard to the principles thereof regarding conflict of laws.

                  12.5     No Waiver. Except as specifically set forth in
paragraph 3 of this Amendment, the execution, delivery and effectiveness of this
Amendment shall not (a) limit, impair, constitute a waiver of or otherwise
affect any right, power or remedy by Administrative Agent, Documentation Agent
or any Lender under the Loan Agreement or any other Loan Document, (b)
constitute a waiver of any provision in the Loan Agreement or in any of the
other Loan Documents, or (c) alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Loan Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.

                  12.6     Conflict of Terms. In the event of any inconsistency
between the provisions of this Amendment and any provision of the Loan
Agreement, the terms and provisions of this Amendment shall govern and control.

                                       8


                  IN WITNESS WHEREOF, the parties have entered into this
Amendment on the date first above written.

                                    "Borrower"

                                    GOOD GUYS CALIFORNIA, INC.

                                    By /s/ David A. Carter
                                       ------------------------------
                                       David A. Carter
                                       Chief Financial Officer

                                    "Parent"

                                    GOOD GUYS, INC.
                                    (executing for purposes of paragraphs 6, 7
                                    and 9 only)

                                    By /s/ David A. Carter
                                       ------------------------------
                                       David A. Carter
                                       Chief Financial Officer

                                    "Administrative Agent"

                                    BANK OF AMERICA, N.A.,
                                    as the Administrative Agent

                                    By /s/ John C. McNamara
                                       ------------------------------
                                       John C. McNamara
                                       Vice President

                                    "Documentation Agent"

                                    GENERAL ELECTRIC CAPITAL CORPORATION,
                                    as the Documentation Agent

                                    By /s/ Craig J. Winslow
                                       ------------------------------
                                       Craig J.Winslow
                                       Duly Authorized Signatory

                                       9


                                    "Lenders"

                                    BANK OF AMERICA, N.A., as a Lender

                                    By /s/  John C. McNamara
                                       ------------------------------
                                       John C. McNamara
                                       Vice President

                                    GENERAL ELECTRIC CAPITAL CORPORATION,
                                    as a Lender

                                    By /s/ Craig J. Winslow
                                       -----------------------------------------
                                       Craig J. Winslow
                                       Duly Authorized Signatory

                                       10

EX-10.37

                                                                   EXHIBIT 10.37

                 FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

                  THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 29th day of September, 2003, among the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), Bank of America, N.A. (in its individual capacity, the "Bank") with
an office at 55 South Lake Avenue Suite 900, Pasadena, California 91101, as
Administrative Agent for the Lenders (in its capacity as Administrative Agent,
the "Administrative Agent"), General Electric Capital Corporation (in its
individual capacity, "GE Capital") with an office at 350 South Beverly Drive
Suite 200, Beverly Hills, California 90212, as documentation agent for the
Lenders (in its capacity as documentation agent, the "Documentation Agent"),
Good Guys California, Inc. (formerly known as The Good Guys - California, Inc.),
a California corporation, with offices at 1600 Harbor Bay Parkway, Alameda,
California 94502 (the "Borrower"), and (for purposes of paragraphs 7, 8 and 10)
Good Guys, Inc., a Delaware corporation ("Parent"), with respect to that certain
Loan and Security Agreement, dated as of September 30, 1999 among the parties
hereto, as amended by that certain First Amendment to Loan and Security
Agreement dated as of August 16, 2001, by those certain letter amendments dated
as of March 27, 2002, and May 15, 2002, and as further amended by that certain
Second Amendment to Loan and Security Agreement dated as of May 22, 2001, that
certain Third Amendment to Loan and Security Agreement dated as of July 2, 2002,
and that certain Fourth Amendment to Loan and Security Agreement dated as of
July 8, 2003 (collectively, the "Loan Agreement"), and with reference to the
following facts:

                                    RECITALS

         A.       Pursuant to the Loan Agreement, Lenders agreed to make certain
financial accommodations to or for the benefit of Borrower upon the terms and
conditions contained therein. Unless otherwise defined in this Amendment, (i)
capitalized terms used herein shall have the meanings attributed to them in the
Loan Agreement, and (ii) references to sections shall refer to sections of the
Loan Agreement.

         B.       Borrower has requested Lenders' consent to Borrower's
obtaining up to five million dollars ($5 million) in unsecured subordinated debt
financing.

         C.       Lenders have agreed to consent to such subordinated financing
on the terms and conditions set forth in this Amendment.

                  NOW, THEREFORE, in consideration of the continued performance
by Borrower of its promises and obligations under the Loan Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby
agree as follows:

                                    AGREEMENT

         1.       ACKNOWLEDGMENT OF LOAN AGREEMENT AND OTHER LOAN DOCUMENTS.
Except as expressly modified by this Amendment, the obligations of Borrower
under the Loan Agreement and the other Loan Documents are hereby acknowledged,
confirmed and ratified by Borrower.



         2.       DEFINITIONS. Unless otherwise defined in this Amendment,
capitalized terms used herein have the meanings given to them in the Loan
Agreement. Unless otherwise indicated, all references to sections, schedules, or
exhibits shall mean sections, schedules, or exhibits of or to the Loan
Agreement.

         3.       AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement shall be
amended as follows:

                  3.1      NEW DEFINITIONS. New definitions are hereby added in
appropriate alphabetical order to read as follows:

                  "CompUSA" shall mean CompUSA Inc., a Delaware corporation.

                  "Fifth Amendment" shall mean the Fifth Amendment to Loan and
Security Agreement dated as of September 29, 2003.

                  "Fifth Amendment Closing Date" shall mean the date of the
effectiveness of the Fifth Amendment, as provided in paragraph 9 of the Fifth
Amendment.

                  "Intercreditor and Subordination Agreement" shall mean that
certain Intercreditor and Subordination Agreement dated as of September 29,
2003, between Administrative Agent and CompUSA.

                  "Merger Agreement" shall mean that certain Agreement and Plan
of Merger between Parent and CompUSA, dated as of September 29, 2003, in the
form delivered to Administrative Agent on or before the date of the Fifth
Amendment.

                  "Subordinated Debt" shall mean Debt owing by Borrower with
respect to the Subordinated Debt Documents.

                  "Subordinated Debt Documents" shall mean the Subordinated Note
and any other documents or instruments that from time to time evidence the
Subordinated Debt or secure or support payment or performance thereof.

                  "Subordinated Note" shall mean the Unsecured Subordinated
Convertible Promissory Note, dated September 29, 2003, from the Borrower to
CompUSA in the original principal amount of $5,000,000, in the form delivered to
Administrative Agent on or before the date of the Fifth Amendment.

                  3.2      CROSS-DEFAULT (SECTION 11.1(e)). Section 11.1(e)
shall be amended by deleting the initial phrase "default shall occur with
respect to any Funded Debt (other than the Obligations)" and substituting the
following in lieu thereof:

                  "any default shall occur:

                                    (i) under the Subordinated Debt Documents or
                           the Intercreditor and Subordination Agreement, or
                           otherwise with respect to the Subordinated Debt; or

                                       2


                                    (ii) with respect to any Funded Debt (other
                           than the Obligations or the Subordinated Debt)"

                  3.3      DEFAULT REGARDING MATURITY OF SUBORDINATED DEBT (NEW
SECTION 11.1(s)). Section 11.1 shall be amended by inserting the following as a
new Section 11.1(s):

                  "(s) Borrower has not, by or before thirty (30) calendar days
                  prior to the then-applicable "Maturity Date" of the
                  Subordinated Note (as such term is defined in the Subordinated
                  Note, including any extensions thereof) caused such Maturity
                  Date to be extended or further extended, as applicable, to a
                  date that is at least ninety (90) calendar days after the
                  Stated Maturity Date; provided that the failure to obtain an
                  extension of the Maturity Date shall not be an Event of
                  Default if (i) payment by the Borrower of the Subordinated
                  Note on such Maturity Date would not cause a Default or an
                  Event of Default to occur, (ii) Borrower's Availability for
                  each day during the two months preceding the thirtieth
                  calendar day prior to the Maturity Date was at least
                  $25,000,000, and (iii) Borrower's Availability for each of the
                  thirty calendar days prior to the Maturity Date is at least
                  $25,000,000 (in both (ii) and (iii), with trade payables being
                  paid currently, and expenses and liabilities being paid in the
                  ordinary course of business without acceleration of sales)."

         4.       CONSENT TO SUBORDINATED DEBT. Subject to all other provisions
of the Loan Agreement, upon the effectiveness of the Intercreditor and
Subordination Agreement and satisfaction of all of the other conditions of the
effectiveness of the Fifth Amendment, Co-Agents and Lenders consent, pursuant to
clause (e) of Section 9.13 of the Loan Agreement, to the terms and conditions of
the Subordinated Debt Documents and to Borrower's incurring the unsecured
indebtedness contemplated therein, and waive any Default or Event of Default
that may have occurred solely by reason of Borrower's negotiation of the
Subordinated Debt Documents; provided that Borrower shall use the proceeds of
such subordinated indebtedness to reduce the Revolving Loans and for working
capital in the ordinary course of its business. Co-Agents' and Lenders' do not
hereby consent to the granting of any Lien as security for the Subordinated
Debt.

         5.       CONSENT TO ENTRY INTO MERGER AGREEMENT. Subject to all other
provisions of the Loan Agreement and the other Loan Documents, upon the
effectiveness of the Fifth Amendment, Co-Agents and Lenders consent to Parent's
entry into the Merger Agreement, and waive any Default or Event of Default that
may have occurred solely by reason of Parent's negotiation of the Merger
Agreement; provided that Co-Agents and Lenders do not hereby waive the Event of
Default that would occur under Section 11.1(r) of the Loan Agreement upon the
occurrence of the Change of Control that would result from the transactions
contemplated by the Merger Agreement.

         6.       ACKNOWLEDGMENTS OF BORROWER.

                  6.1      ACKNOWLEDGMENT OF OBLIGATIONS. Borrower hereby
acknowledges, confirms and agrees that as of the close of business on September
24, 2003, Borrower was indebted to Lenders in respect of the Revolving Loans in
the approximate principal amount of $40,432,610. The Revolving Loans, together
with interest accrued and accruing thereon, and fees, costs, expenses and other
charges now or hereafter payable by Borrower to Lenders, are

                                       3


unconditionally owing by Borrower to Lenders, without offset, defense or
counterclaim of any kind, nature or description whatsoever.

                  6.2      ACKNOWLEDGMENT OF SECURITY INTERESTS. Borrower hereby
acknowledges, confirms and agrees that Co-Agents and Lenders have and shall
continue to have valid, enforceable and perfected first-priority liens upon and
security interests in the Collateral heretofore granted to Lenders pursuant to
the Loan Documents or otherwise granted to or held by Co-Agents and Lenders,
subject only to Permitted Liens.

                  6.3      BINDING EFFECT OF DOCUMENTS. Borrower hereby
acknowledges, confirms and agrees that: (a) each of the Loan Documents to which
it is a party has been duly executed and delivered to Documentation Agent by
Borrower, and each is in full force and effect as of the date hereof, (b) the
agreements and obligations of Borrower contained in such documents and in this
Amendment constitute the legal, valid and binding Obligations of Borrower,
enforceable against it in accordance with their respective terms, and Borrower
has no valid defense to the enforcement of such Obligations, and (c) Co-Agents
and Lenders are and shall be entitled to the rights, remedies and benefits
provided for in the Loan Documents and applicable law.

         7.       ACKNOWLEDGMENT AND REAFFIRMATION OF PARENT. Parent hereby
acknowledges that it has received and reviewed a copy of the Fifth Amendment and
consents to the terms and conditions of the Fifth Amendment. Parent hereby
ratifies and reaffirms each and every one of its obligations under the Parent
Guaranty, and confirms that such obligations are, and shall continue to be, in
full force and effect to the full extent provided therein without any defense,
claim, counterclaim, right of offset, recoupment or other defense to payment or
performance whatsoever, each of which is hereby expressly waived. Without
limiting the generality of the foregoing, Parent agrees and acknowledges that
the Parent Guaranty applies with full force and effect to the Loan Agreement as
amended by the Fifth Amendment and as previously amended.

         8.       COMMERCIAL TORT CLAIMS. Each of Borrower and Parent represents
that, as of the Fifth Amendment Closing Date, it does not have any Commercial
Tort Claims.

         9.       CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective upon satisfaction of each of the following conditions:

                           (a)      Documentation Agent shall have received
copies of this Amendment that bear the signatures of Borrower, Parent, GE
Capital and Bank;

                           (b)      Documentation Agent shall have received each
of the documents listed on the Fourth Addendum to Schedule of Documents attached
hereto as Schedule A that bears the signatures of the respective parties
thereto, each of which shall be in form and substance satisfactory to Lenders.

         10.      RELEASE.

                  10.1     In consideration of the agreements of Co-Agents and
Lenders contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each of Borrower and
Parent, on behalf of itself and its successors, assigns, and other legal
representatives, effective as of the Fifth Amendment Closing Date, hereby
absolutely, unconditionally and irrevocably waives and releases any claim,
defense,

                                       4


demand, action or suit of any kind or nature whatsoever, known or unknown,
suspected or unsuspected, against the Co-Agents and Lenders, or any of them, or
their respective successors, assigns, or other legal representatives, arising on
or prior to the Fifth Amendment Closing Date in connection with the Loan
Agreement or any of the other Loan Documents, or any of the transactions
contemplated thereunder.

                  10.2     Each of Borrower and Parent understands, acknowledges
and agrees (i) that no fact, event, circumstance, evidence or transaction which
could now be asserted or which may hereafter be discovered shall affect in any
manner the final, absolute and unconditional nature of the release set forth
above, and (ii) that it is familiar with, and has been advised by its counsel
concerning, the provisions of Section 1542 of the California Civil Code, which
provides as follows:

             A general release does not extend to claims which the creditor does
             not know or suspect to exist in his favor at the time of executing
             the release, which if known by him must have materially affected
             his settlement with the debtor.

Each of Borrower and Parent expressly waives any and all rights under Section
1542 of the California Civil Code, and under any federal or state statute or law
of similar effect.

         11.      REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that the representations and warranties contained in the Loan Agreement
were true and correct in all material respects when made and, except to the
extent (a) that a particular representation or warranty by its terms expressly
applies only to an earlier date, (b) Borrower has previously advised Co-Agents
in writing as contemplated under the Loan Agreement, or (c) amended by this
Amendment, are true and correct in all material respects as of the date hereof.
All representations and warranties contained in the Loan Agreement which
expressly applied to the Closing Date, as amended in part by Section 7 of the
Second Amendment, remain true and correct in all material respects as of the
Fifth Amendment Closing Date. The Loan Agreement shall continue in full force
and effect in accordance with the provisions thereof on the date hereof.

         12.      AMENDMENT FEE. In order to induce Agents and Lenders to enter
into this Amendment, and in consideration of the accommodations provided to
Borrower herein, Borrower shall pay to Administrative Agent, for the ratable
benefit of Lenders, the sum of $75,000 for this Amendment (the "Fifth Amendment
Fee") (which Fifth Amendment Fee will have been fully earned by Agents on the
Fifth Amendment Closing Date and shall not be in lieu of, but shall be in
addition to Agents' entitlement under the Loan Agreement to reimbursement of
fees, costs and expenses in connection with this Amendment, including the
reasonable fees, costs and expenses of counsel). Administrative Agent may
receive the Fifth Amendment Fee on behalf of Lenders by making one or more
Revolving Credit Advances in the aggregate amount thereof on or after the Fifth
Amendment Closing Date.

         13.      ENTIRE AGREEMENT. This Amendment, together with the Loan
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.

                                       5


         14.      MISCELLANEOUS.

                  14.1     COUNTERPARTS. This Amendment may be executed in
identical counterpart copies, each of which shall be an original, but all of
which shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile transmission
shall be effective as delivery of a manually executed counterpart of this
Amendment. Any Person delivering this Amendment by facsimile shall send the
original manually executed counterpart of this Amendment to Documentation Agent
promptly after such facsimile transmission.

                  14.2     HEADINGS. Section headings used herein are for
convenience of reference only, are not part of this Amendment, and are not to be
taken into consideration in interpreting this Amendment.

                  14.3     RECITALS. The recitals set forth at the beginning of
this Amendment are true and correct, and such recitals are incorporated into and
are a part of this Amendment.

                  14.4     GOVERNING LAW. This Amendment shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and performed in such state, without
regard to the principles thereof regarding conflict of laws.

                  14.5     NO WAIVER. Except as specifically set forth in
paragraphs 3, 4 and 5 of this Amendment, the execution, delivery and
effectiveness of this Amendment shall not (a) limit, impair, constitute a waiver
of or otherwise affect any right, power or remedy by Administrative Agent,
Documentation Agent or any Lender under the Loan Agreement or any other Loan
Document, (b) constitute a waiver of any provision in the Loan Agreement or in
any of the other Loan Documents, or (c) alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Loan Agreement, all of which are ratified and affirmed in all
respects and shall continue in full force and effect.

                  14.6     CONFLICT OF TERMS. In the event of any inconsistency
between the provisions of this Amendment and any provision of the Loan
Agreement, the terms and provisions of this Amendment shall govern and control.

                  IN WITNESS WHEREOF, the parties have entered into this
Amendment on the date first above written.

                                      "Borrower"

                                      GOOD GUYS CALIFORNIA, INC.

                                      By /s/  David A. Carter
                                         -------------------------
                                         David A. Carter
                                         Chief Financial Officer

                                       6


                         "Parent"

                         GOOD GUYS, INC.
                         (executing for purposes of paragraphs 7, 8 and 10 only)

                         By /s/ David A. Carter
                            -----------------------------------------
                            David A. Carter
                            Chief Financial Officer

                         "Administrative Agent"

                         BANK OF AMERICA, N.A.,
                         as the Administrative Agent

                         By /s/ Kevin R. Kelly
                            -----------------------------------------
                            Kevin R. Kelly
                            Senior Vice President

                         "Documentation Agent"

                         GENERAL ELECTRIC CAPITAL CORPORATION,
                         as the Documentation Agent

                         By /s/ Craig J. Winslow
                            -----------------------------------------
                            Craig J. Winslow
                            Duly Authorized Signatory

                         "Lenders"

                         BANK OF AMERICA, N.A., as a Lender

                         By /s/ Kevin R. Kelly
                            -----------------------------------------
                            Kevin R. Kelly
                            Senior Vice President

                         GENERAL ELECTRIC CAPITAL CORPORATION,
                         as a Lender

                         By /s/ Craig J. Winslow
                            -----------------------------------------
                            Craig J. Winslow
                            Duly Authorized Signatory

                                       7

EX-10.38

                                                                   EXHIBIT 10.38

                    INTERCREDITOR AND SUBORDINATION AGREEMENT

                  INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of
September 29, 2003 by and among CompUSA Inc., a Delaware corporation (the
"Subordinated Lender"; collectively, together with any other holders from time
to time of the Subordinated Obligations, the "Subordinated Lenders"), Good Guys
California, Inc., a California corporation (together with its successors and
assigns, the "Borrower"), Good Guys, Inc., a Delaware corporation, (together
with its successors and assigns, "Holdings") (Borrower, Holdings and the other
Credit Parties to the Senior Credit Agreement identified below may be referred
to herein collectively as the "Credit Parties" and individually as a "Credit
Party") and BANK OF AMERICA, N.A., a national banking association, as
administrative agent for the Lenders (the "Senior Lenders") from time to time
party to the Senior Credit Agreement (together with its successors and assigns,
the "Senior Agent").

                  The parties hereto hereby agree as follows:

                  1.       Definitions.

                  (a)      Unless otherwise defined herein, terms defined in the
Senior Credit Agreement and used herein shall have the meanings given to them in
the Senior Credit Agreement.

                  (b)      The following terms shall have the following
meanings:

                  "Agreement": this Intercreditor and Subordination Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.

                  "Blockage Notice": a written notice from the Senior Agent to
the Subordinated Lenders that (a) an Other Event of Default has occurred and is
continuing or (b) an Other Event of Default would occur if a scheduled interest
or principal payment were made under the Subordinated Note in accordance with
the terms thereof.

                  "Blockage Period": any period commencing on the date a
Blockage Notice is given and ending on the earlier to occur of: (a) the date
when (1) the Event of Default that was the basis for such notice has been cured
or waived or (2) the conditions shall have ceased to exist which would cause an
Event of Default to occur if a scheduled interest or principal payment were made
under the Subordinated Note in accordance with the terms thereof; and (b) 180
days after the date such Blockage Notice is given.

                  "Collateral": the collective reference to any and all property
from time to time subject to security interests to secure payment or performance
of the Senior Obligations or the Subordinated Obligations.

                  "Collateral Enforcement Action": shall mean any action by any
Subordinated Lender to (a) exercise or seek to exercise any rights or exercise
any remedies with respect to any Collateral, (b) institute any action or
proceeding with respect to such rights or remedies, including without
limitation, any action of foreclosure or (c) contest, protest or object to any
foreclosure proceeding, postpetition financing, use of



cash collateral or action brought by the Senior Agent or any Senior Lender or to
any other exercise by the Senior Agent or any Senior Lender of any rights and
remedies under any Senior Loan Documents.

                  "Collection Action": shall mean (a) to demand, sue for, take
or receive from or on behalf of any Credit Party or any guarantor of the
Subordinated Obligations, by set-off or in any other manner, the whole or any
part of any moneys which may now or hereafter be owing by any Credit Party with
respect to the Subordinated Obligations, (b) to initiate or participate with
others in any suit, action or proceeding against any Credit Party to (i) enforce
payment of or to collect the whole or any part of the Subordinated Obligations
or (ii) commence judicial enforcement of any of the rights and remedies under
the Subordinated Loan Documents or applicable law with respect to the
Subordinated Obligations or the Subordinated Loan Documents, including
initiating, participating in or commencing a case or proceeding referred to in
the definition of Insolvency Event, (c) to accelerate any Subordinated
Obligations, or (d) to exercise any put option or to cause any Credit Party to
honor any redemption or mandatory prepayment obligation under any Subordinated
Loan Document.

                  "Insolvency Event": (a) any Credit Party or any of its
Subsidiaries commencing any case, proceeding or other action (1) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, conservatorship or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (2) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or any Credit Party or any of its
Subsidiaries making a general assignment for the benefit of its creditors; or
(b) there being commenced against any Credit Party or any of its Subsidiaries
any case, proceeding or other action of a nature referred to in clause (a) above
which (1) results in the entry of an order for relief or any such adjudication
or appointment or (2) remains undismissed, undischarged or unbonded for a period
of 60 days; or (c) there being commenced against any Credit Party or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (d) any Credit Party or
any of its Subsidiaries taking any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(a), (b) or (c) above; or (e) any Credit Party or any of its Subsidiaries
generally not paying, or being unable to pay, or admitting in writing its
inability to pay, its debts as they become due.

                  "Other Event of Default": any Event of Default (other than a
Payment Event of Default) under the Senior Credit Agreement or any of the Senior
Loan Documents or any event the occurrence of which entitles the Senior Agent or
Senior Lenders to accelerate the maturity of any of the Senior Obligations.

                  "Net Sale Proceeds": the sum of cash proceeds received from
any sale of all or any portion of the Collateral, net of all commissions and
other fees and all other out-of-pocket costs and expenses whatsoever incurred by
the Credit Parties, the Senior Lenders and/or the Senior Agent in connection
with such sale, including without limitation, legal fees and appraisal costs.

                                       2


                  "Payment Event of Default": any default in the payment of the
Senior Obligations (whether upon maturity, mandatory prepayment, acceleration or
otherwise) beyond any applicable grace period with respect thereto.

                  "Permitted Securities": securities of any Credit Party or
other Person, the payment of which is subordinated, at least to the extent and
substantially on the terms set forth in this Agreement, to the prior payment in
full of all then outstanding Senior Obligations and to any securities issued in
respect of any Senior Obligations under any plan of partial or complete
liquidation, reorganization, readjustment, arrangement, composition or
extension.

                  "Senior Credit Agreement": the Loan and Security Agreement
dated as of September 30, 1999, as amended by that certain First Amendment to
Loan and Security Agreement dated as of August 16, 2001, by those certain letter
amendments dated as of March 27, 2002, and May 15, 2002, and as further amended
by that certain Second Amendment to Loan and Security Agreement dated as of May
22, 2001, that certain Third Amendment to Loan and Security Agreement dated as
of July 2, 2002, and that certain Fourth Amendment to Loan and Security
Agreement dated as of July 8, 2003, among the Borrower, the other Credit
Parties, the Senior Lenders, General Electric Capital Corporation as
documentation agent, and the Senior Agent, as the same may be further amended,
modified or supplemented from time to time, including, without limitation,
amendments, modifications, supplements and restatements thereof giving effect to
increases in the Senior Loans (including increases in the Borrowing Base or
other measurements of availability of the Senior Loans), renewals, extensions,
refundings, deferrals, restructurings, replacements or refinancings of, or
additions to, the arrangements provided in such Credit Agreement (whether
provided by the original Senior Agent or a successor Senior Agent or other
Lenders).

                  "Senior Loans": the loans made by the Senior Lenders to the
Borrower pursuant to the Senior Credit Agreement.

                  "Senior Loan Documents": the collective reference to the
Senior Credit Agreement, the Senior Notes, the Senior Security Documents and all
other documents that from time to time evidence the Senior Obligations or secure
payment or performance thereof, as modified from time to time.

                  "Senior Notes": the promissory notes of the Borrower
outstanding from time to time under the Senior Credit Agreement.

                  "Senior Obligations": the collective reference to the unpaid
principal of and interest on the Senior Notes and all other obligations and
liabilities of the Credit Parties to the Senior Lenders or the Senior Agent of
whatever kind or nature pursuant to, under or in connection with the Senior Loan
Documents (including, without limitation, indemnity obligations with respect to
claims asserted or threatened by third parties, interest accruing at the then
applicable rate provided in the Senior Credit Agreement after the maturity of
the Senior Loans and interest accruing at the then applicable rate provided in
the Senior Credit Agreement after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, whether
arising under, out of, or in connection with, the Senior Credit Agreement, the
Senior Notes, this Agreement, the other Senior Loan

                                       3


Documents or any other document made, delivered or given by any Credit Party, in
each case whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Senior Agent that are required to
be paid by Credit Parties pursuant to the terms of the Senior Credit Agreement
or this Agreement or any other Senior Loan Document).

                  "Senior Security Documents": the collective reference to all
documents and instruments, now existing or hereafter arising, which create or
purport to create a security interest in property to secure payment or
performance of the Senior Obligations.

                  "Subordinated Loan Documents: the collective reference to the
Subordinated Note and any other documents or instruments that from time to time
evidence the Subordinated Obligations or secure or support payment or
performance thereof.

                  "Subordinated Loan": the loans made by the Subordinated
Lenders pursuant to the Subordinated Loan Documents.

                  "Subordinated Note": the Unsecured Subordinated Convertible
Promissory Note, dated September 29, 2003, from the Borrower to Subordinated
Lender, in the original principal amount of $5,000,000.

                  "Subordinated Obligations": the collective reference to the
unpaid principal and interest on the Subordinated Note and all other obligations
and liabilities of any of the Credit Parties to the Subordinated Lenders
(including, without limitation, interest accruing at the then applicable rate
provided in the Subordinated Loan Documents after the maturity of the
Subordinated Loan and interest accruing at the then applicable rate provided in
the Subordinated Loan Documents after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Subordinated Loan Documents, the Subordinated Note, this Agreement, or any other
Subordinated Loan Document, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel
to the Subordinated Lenders that are required to be paid by any Credit Party
pursuant to the terms of this Agreement or any other Subordinated Loan
Document).

                  "Uniform Commercial Code": the Uniform Commercial Code as the
same may, from time to time, be enacted and in effect in the State of
California; provided, that to the extent that the Uniform Commercial Code is
used to define any term herein or in any Loan Document and such term is defined
differently in different Articles or Divisions of the Uniform Commercial Code,
the definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Senior Lenders' Lien on any Collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of California, the term "Uniform Commercial Code" shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for

                                       4


purposes of definitions related to such provisions.

                  (c)      The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
section and paragraph references are to this Agreement unless otherwise
specified.

                  (d)      The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

                  2.       Subordination.

                  (a)      Each Credit Party and each of the Subordinated
Lenders agrees, for itself and each future holder of the Subordinated
Obligations, that the Subordinated Obligations are expressly "subordinate and
junior in right of payment" (as that phrase is defined in paragraph 2(b)) to all
Senior Obligations.

                  (b)      "Subordinate and junior in right of payment" means
that: (1) no part of the Subordinated Obligations shall have any claim to the
assets of any Credit Party on a parity with or prior to the claim of the Senior
Obligations; and (2) without the express prior written consent of the Senior
Agent, no Subordinated Lender will take, demand or receive from any Credit
Party, and no Credit Party will make, give or permit, directly or indirectly, by
set-off, redemption, purchase or in any other manner, any payment of (of
whatever kind or nature, whether in cash, property, securities (other than
Permitted Securities) or otherwise) the Subordinated Obligations, including,
without limitation, any letter of credit or similar credit support facility to
support payment of the Subordinated Obligations, unless and until the Senior
Obligations have been paid in full and the obligation of Senior Agent and Senior
Lenders to extend credit to Borrower under the Senior Loan Documents shall have
been irrevocably terminated; provided, however, that at any time, except during
a Blockage Period or when a Payment Event of Default has occurred and is
continuing, the Borrower may make, and the Subordinated Lenders may receive,
regularly scheduled payments (not prepayments) on account of interest on the
Subordinated Note in accordance with the terms thereof determined on a
non-accelerated basis (without giving effect to any default rate of interest
thereunder) and principal payments when due (but no sooner than September 29,
2005) upon the "Maturity Date" of the Subordinated Note (as such term is defined
in the Subordinated Note). Notwithstanding clause (2), the Subordinated Lender
shall be entitled to accept and receive payment in full of the Subordinated
Obligations as a result of the refinancing of the Subordinated Obligations if
(i) such refinancing does not shorten the maturity date, increase the interest
rate or fees payable, or increase the principal amount applicable to the
Subordinated Obligations and (ii) the provider of such refinancing debt subjects
such debt to the terms of this Intercreditor and Subordination Agreement.

                  (c)      Upon the termination of any Blockage Period or if any
Payment Event of Default has been cured or waived or shall have ceased to exist,
the Subordinated Lenders' right to receive payments as provided in clause
2(b)(2) shall be reinstated and, subject to the limitations of clause 2(b)(2),
the Borrower may resume making such payments to the Subordinated Lenders
including any payments that were deferred as a result thereof.

                                       5


                  (d)      The expressions "prior payment in full," "payment in
full," "paid in full" and any other similar terms or phrases when used herein
with respect to the Senior Obligations shall mean the payment in full, in
immediately available funds, of all of the Senior Obligations.

                  3.       Additional Provisions Concerning Subordination.

                  (a)      The Subordinated Lenders and each Credit Party agree
that upon the occurrence of any Insolvency Event:

                           (1)      all Senior Obligations shall be paid in full
before any payment or distribution of whatever kind or nature is made with
respect to the Subordinated Obligations; provided, however, that Subordinated
Lenders may receive and retain any distributions on account of Subordinated
Obligations to the extent such distributions consist solely of Permitted
Securities; and

                           (2)      any payment or distribution of assets of any
Credit Party, whether in cash, property or securities (other than Permitted
Securities), to which any Subordinated Lender would be entitled except for the
provisions hereof, shall be paid or delivered by such Credit Party, or any
receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other
Person making such payment or distribution, directly to the Senior Agent, to the
extent necessary to pay in full all Senior Obligations, before any payment or
distribution of any kind or nature shall be made to any Subordinated Lender.

                  (b)      Upon the occurrence of any "Insolvency Event":

                           (1)      each Subordinated Lender irrevocably
authorizes and empowers the Senior Agent (A) to demand, sue for, collect and
receive every payment or distribution on account of the Subordinated Obligations
payable or deliverable in connection with such event or proceeding and give
acquittance therefor, (B) to file claims and proofs of claim in any statutory or
non-statutory proceeding and (C) to take such other actions, in its own name as
Senior Agent, or in the name of the Subordinated Lenders or otherwise, as the
Senior Agent may deem necessary or advisable for the enforcement of the
provisions of this Agreement; provided, however, that the foregoing
authorization and empowerment imposes no obligation on the Senior Agent to take
any such action;

                           (2)      each Subordinated Lender shall take such
action, duly and promptly, as the Senior Agent may request from time to time (A)
to collect the Subordinated Obligations for the account of the Senior Agent and
(B) to file appropriate proofs of claim in respect of the Subordinated
Obligations; and

                           (3)      each Subordinated Lender shall execute and
deliver such powers of attorney, assignments or proofs of claim or other
instruments as the Senior Agent may request to enable the Senior Agent to
enforce any and all claims in respect of the Subordinated Obligations and to
collect and receive any and all payments and distributions which may be payable
or deliverable at any time upon or in respect of the Subordinated Obligations.

                  (c)      If any payment or distribution, whether consisting of
money, property or securities (other than Permitted Securities), shall be
collected or received by any Subordinated Lender in respect of

                                       6


the Subordinated Obligations or the Collateral, except payments permitted to be
made at the time of payment or pursuant to a refinancing as provided in
paragraph 2(b), such Subordinated Lender shall forthwith deliver the same to the
Senior Agent, in the form received, duly endorsed to the Senior Agent, if
required, to be applied to the payment or prepayment of the Senior Obligations
until the Senior Obligations are paid in full. Until so delivered, such payment
or distribution shall be held in trust by such Subordinated Lender as the
property of the Senior Agent, segregated from other funds and property held by
such Subordinated Lender.

                  (d)      Until the Senior Obligations are paid in full in
cash, the Subordinated Lenders shall not take any Collection Action or
Collateral Enforcement Action with respect to the Subordinated Obligations,
except for a Collection Action as permitted in the following sentence. Upon the
earlier to occur of (A) acceleration of the Senior Obligations or (B) the
passage of 180 days from the delivery of notice to Senior Agent that a default
has occurred with respect to the Subordinated Obligations and such default shall
not have been cured or waived within such period, the Subordinated Lenders may,
upon five days' prior written notice to Senior Agent, accelerate the
Subordinated Obligations or take any other Collection Action (but not a
Collateral Enforcement Action) which is not in contravention of the provisions
of this Agreement; provided, however, that if following the acceleration of the
Senior Debt as described in clause (A) above, such acceleration is rescinded,
then all Collection Actions taken by the Subordinated Lenders shall likewise be
rescinded if such Collection Action is based solely on clause (A) above.
Notwithstanding the foregoing, until the Senior Obligations are paid in full in
cash and all lending commitments under the Senior Credit Agreement have been
terminated, the Subordinated Lenders shall not (nor shall any agent on their
behalf), without the prior written consent of the Senior Agent and the Senior
Lenders, take any Collateral Enforcement Action.

                  4.       Rights in Collateral.

                  (a)      Notwithstanding anything to the contrary contained in
the Senior Credit Agreement, any Senior Security Document, any other Senior Loan
Document or any Subordinated Security Document or other Subordinated Loan
Document and irrespective of:

                           (1)      the time, order or method of attachment or
perfection of the security interests created by any Senior Security Document or
any Subordinated Security Document;

                           (2)      the time or order of filing or recording of
financing statements or other documents filed or recorded to perfect security
interests in any Collateral;

                           (3)      anything contained in any filing or
agreement to which the Senior Agent or any Subordinated Lender now or hereafter
may be a party; and

                           (4)      the rules for determining perfection or
priority under the Uniform Commercial Code or any other law governing the
relative priorities of secured creditors, any security interest in any
Collateral pursuant to any Senior Security Document has and shall have priority,
to the extent of any unpaid Senior Obligations, over any security interest in
such Collateral pursuant to any Subordinated Security Document.

                                       7


                  (b)      So long as the Senior Obligations have not been paid
in full and any Senior Security Document remains in effect, whether or not any
Insolvency Event has occurred,

                           (1)      no Subordinated Lender will take any
Collateral Enforcement Action; and

                           (2)      the Senior Agent and any Senior Lender shall
have the exclusive right to enforce rights and exercise remedies with respect to
the Collateral and Senior Agent shall not be required to marshal any Collateral.

                  (c)      In exercising rights and remedies with respect to the
Collateral, the Senior Agent and Senior Lenders may enforce the provisions of
the Senior Security Documents and exercise remedies thereunder and under any
other Senior Loan Documents, all in such order and in such manner as it or they
may determine in the exercise of its or their sole business judgment. Such
exercise and enforcement shall include, without limitation, the rights to sell
or otherwise dispose of Collateral, to incur expenses in connection with such
sale or disposition and to exercise all the rights and remedies of a secured
lender under the Uniform Commercial Code of any applicable jurisdiction. In
conducting any public or private sale under the Uniform Commercial Code, the
Senior Agent shall give the Subordinated Lenders such notice of such sale as may
be required by the applicable Uniform Commercial Code; provided, however, that
10 days' notice shall be deemed to be commercially reasonable notice.

                  (d)      Any money, property or securities realized upon the
sale, disposition or other realization by the Senior Agent upon all or any part
of the Collateral, shall be applied by the Senior Agent in the following order:

                           (1)      First, to the payment in full of all costs
and expenses (including, without limitation, attorneys' fees and disbursements)
paid or incurred by the Senior Agent or the Senior Lenders in connection with
such realization on the Collateral or the protection of their rights and
interests therein;

                           (2)      Second, to the payment in full of all Senior
Obligations in such order as the Senior Agent may elect in its sole discretion;

                           (3)      Third, to the payment in full of all
Subordinated Obligations then due and which are secured by such Collateral,
which shall be paid to Subordinated Lender, for itself and as agent for any
other Subordinated Lenders; and

                           (4)      Fourth, to pay to the Borrower, or its
representative or as a court of competent jurisdiction may direct, any surplus
then remaining.

                  (e)      The Senior Agent's rights with respect to the
Collateral include the right to release any or all of the Collateral from the
Lien under any Senior Security Document or Subordinated Security Document in
connection with any sale of all or any portion of the Collateral. The
Subordinated Lenders are hereby deemed to have consented to such sale(s) under
the Subordinated Loan Documents. Concurrently with the execution of this
Agreement, and from time to time thereafter, the Subordinated Lenders shall
deliver to the Senior Agent such duly executed and undated Uniform Commercial
Code and, as applicable, intellectual property terminations, satisfactions and
discharges of mortgages (the term

                                       8


"mortgage" being deemed to include mortgage deeds, deeds of trust and other
similar instruments creating a lien on real property), termination statements
and partial release statements (in blank as to the assets being released), as
the Senior Agent may request with respect to the Subordinated Lenders' liens on
the Credit Parties' assets. If the Senior Agent shall determine, in connection
with any sale of Collateral, that the termination, satisfaction, discharge or
partial release of the Lien on all or any portion of the Collateral under any
Subordinated Security Document in connection with such sale is necessary or
advisable, the Senior Agent may deliver to the applicable purchaser at such sale
(or, upon the request of such purchaser, file) such previously delivered
termination, satisfaction, discharge or partial release documents, which partial
release documents the Senior Agent is hereby authorized to complete (whether one
or more and from time to time)) by inserting the description of the assets to be
released. The Subordinated Lenders shall execute such other release,
satisfaction, discharge and termination documents and instruments and shall take
such further actions as the Senior Agent shall request. Each Subordinated Lender
hereby irrevocably constitutes and appoints the Senior Agent and any officer or
Senior Agent, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Subordinated Lender and in the name of such Subordinated Lender or
in the Senior Agent's own name, from time to time in the Senior Agent's
discretion, for the purpose of carrying out the terms of this paragraph, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this paragraph, including, without limitation, any terminations of financing
statements, partial lien releases, mortgage satisfactions and discharges,
endorsements, assignments or other instruments of transfer, termination or
release, and, in addition, to take any and all other appropriate and
commercially reasonably action for the purpose of carrying out the terms of this
paragraph. Each Subordinated Lender hereby ratifies all that said attorneys
shall lawfully do or cause to be done pursuant to the power of attorney granted
in this paragraph. No person to whom this power of attorney is presented, as
authority for Senior Agent to take any action or actions contemplated hereby,
shall be required to inquire into or seek confirmation from any Subordinated
Lender as to the authority of Senior Agent to take any action described herein,
or as to the existence of or fulfillment of any condition to this power of
attorney, which is intended to grant to Senior Agent unconditionally the
authority to take and perform the actions contemplated herein. Each Subordinated
Lender irrevocably waives any right to commence any suit or action, in law or
equity, against any person or entity which acts in reliance upon or acknowledges
the authority granted under this power of attorney.

                  (f)      Notwithstanding anything contained herein, until all
Senior Obligations have been paid in full and the Senior Security Documents are
no longer are in effect, no Subordinated Lenders shall, without the prior
written consent of Senior Agent, permit to exist any security interest, charge,
encumbrance or other Lien on any Collateral or other property or assets of any
Credit Party to secure or provide for payment or performance of the Subordinated
Obligations, or exercise any right of set off or counterclaim which the
Subordinated Lenders may have with respect to any amounts payable or to be paid
by the Subordinated Lenders to any Credit Party.

                  5.       Consent of Subordinated Lenders.

                  (a)      Each Subordinated Lender consents that, without the
necessity of any reservation of rights against any Subordinated Lender, and
without notice to or further assent by any Subordinated Lender:

                                       9


                           (1)      any demand for payment of any Senior
Obligations made by the Senior Agent or any Senior Lender may be rescinded in
whole or in part by the Senior Agent or such Senior Lender, and any Senior
Obligation may be continued, and the Senior Obligations, or the liability of any
Credit Party or any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, or any
obligation or liability of any Credit Party or any other party under the Senior
Credit Agreement or any other agreement, may, from time to time, in whole or in
part, be renewed, extended, modified, accelerated, compromised, waived,
surrendered, or released by the Senior Agent; and

                           (2)      the Senior Credit Agreement, the Senior
Notes and any other Senior Loan Document may be amended, modified, extended,
supplemented, restated, refinanced, refunded, restructured or terminated, in
whole or in part, as the Senior Agent and Senior Lenders may deem advisable from
time to time, and any collateral security at any time held by the Senior Agent
or any Senior Lender for the payment of any of the Senior Obligations may be
sold, exchanged, waived, surrendered or released; in each case all without
notice to or further assent by any Subordinated Lender, which will remain bound
under this Agreement, and all without impairing, abridging, releasing or
affecting the subordination provided for herein.

                  (b)      Each Subordinated Lender waives any and all notice of
the creation, renewal, extension or accrual of any of the Senior Obligations and
notice of or proof of reliance by the Senior Agent upon this Agreement. The
Senior Obligations, and any of them, shall be deemed conclusively to have been
created, contracted or incurred in reliance upon this Agreement, and all
dealings between any Credit Party, on one hand, and the Senior Agent or any
Senior Lender, on the other hand, shall be deemed to have been consummated in
reliance upon this Agreement. Each Subordinated Lender acknowledges and agrees
that the Senior Lenders and the Senior Agent have relied upon the subordination
provided for herein in entering into the Senior Credit Agreement and in making
funds available to the Borrower thereunder. Each Subordinated Lender waives
notice of or proof of reliance on this Agreement and protest, demand for payment
and notice of default.

                  6.       Negative Covenants of the Subordinated Lenders. So
long as any of the Senior Obligations shall remain outstanding or the obligation
of Senior Agent or any Senior Lender to extend credit to Borrower remains in
effect, no Subordinated Lender shall, without the prior written consent of the
Senior Agent:

                  (a)      sell, assign, or otherwise transfer, in whole or in
part, the Subordinated Obligations or any interest therein to any other Person
(a "Transferee") or create, incur or suffer to exist any security interest,
lien, charge or other encumbrance whatsoever upon the Subordinated Obligations
in favor of any Transferee unless (1) such action is made expressly subject to
this Agreement and (2) the Transferee expressly acknowledges to the Senior
Agent, by a writing in form and substance reasonably satisfactory to the Senior
Agent, the subordination provided for herein and agrees to be bound by all of
the terms hereof; or

                                       10


                  (b)      permit any of the Subordinated Loan Documents to be
amended, modified or otherwise supplemented (including by way of changes to
definitions) in any manner which would have the effect of (A) increasing the
maximum principal amount of the Subordinated Obligations or rate of interest on
any of the Subordinated Obligations or fees payable in respect thereof, (B)
changing or adding or tightening any event of default or any covenant with
respect to the Subordinated Obligations, (C) changing any redemption or
prepayment provisions of the Subordinated Obligations, (D) altering the
subordination provisions with respect to the Subordinated Obligations,
including, without limitation, subordinating the Subordinated Obligations to any
other debt, (E) shortening the dates upon which payments of principal or
interest are due on any of the Subordinated Obligations, or (F) changing or
amending any other term of the Subordinated Loan Documents if such change or
amendment would increase the obligations of any Credit Party or confer
additional rights on the Subordinated Lenders or any other holder of the
Subordinated Obligations in a manner adverse (in the reasonable judgment of the
Senior Agent) to the Senior Agent or the Senior Lenders, and the parties hereto
agree that any such amendment shall be null and void ab initio and without legal
force and effect.

                  7.       Senior Obligations Unconditional. All rights and
interests of the Senior Agent hereunder, and all agreements and obligations of
the Subordinated Lenders and the Credit Parties hereunder, shall remain in full
force and effect irrespective of:

                  (a)      any lack of validity or enforceability of any Senior
Security Documents or any other Senior Loan Documents;

                  (b)      subject to paragraph 5(a), any change in the time,
manner or place of payment of, or in any other term of, all or any of the Senior
Obligations, or any amendment or waiver or other modification, whether by course
of conduct or otherwise, of the terms of the Senior Credit Agreement or any
other Senior Security Document;

                  (c)      subject to paragraph 5(a), any exchange, release or
non-perfection of any security interest in any Collateral, or any release,
amendment, waiver or other modification, whether in writing or by course of
conduct or otherwise, of all or any of the Senior Obligations or any guarantee
thereof; or

                  (d)      any other circumstances which otherwise might
constitute a defense available to, or a discharge of, any Credit Party in
respect of the Senior Obligations, or of any Subordinated Lender or any Credit
Party in respect of this Agreement.

                  8.       Representations and Warranties. Each Subordinated
Lender represents and warrants to the Senior Agent that:

                  (a)      its Subordinated Note (1) have been issued to it for
good and valuable consideration, (2) are owned by such Subordinated Lender free
and clear of any security interests, liens, charges or encumbrances whatsoever
arising from, through or under such Subordinated Lender, other than the interest
of the Senior Agent under this Agreement, (3) are payable solely and exclusively
to such Subordinated Lender and to no other Person and are payable without
deduction for any defense, offset or counterclaim, and (4) constitute the only
evidence of the obligations evidenced thereby;

                                       11


                  (b)      such Subordinated Lender has the corporate power and
authority and the legal right to execute and deliver and to perform its
obligations under this Agreement and has taken all necessary corporate action to
authorize its execution, delivery and performance of this Agreement;

                  (c)      this Agreement constitutes a legal, valid and binding
obligation of such Subordinated Lender;

                  (d)      the execution, delivery and performance of this
Agreement will not violate any provision of any requirement of law or
contractual obligation of such Subordinated Lender and will not result in the
creation or imposition of any Lien on any of the properties or revenues of such
Subordinated Lender pursuant to any requirement of law affecting or any
contractual obligation of such Subordinated Lender, except the interest of the
Senior Agent under this Agreement; and

                  (e)      no consent or authorization of, filing with, or other
act by or in respect of, any arbitrator or Governmental Authority and no consent
of any other Person (including, without limitation, any stockholder or creditor
of such Subordinated Lender), is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement, except for
any such consent, authorization, filing or other act that has been obtained or
made.

                  9.       Representation by Senior Agent. The Senior Lenders
and the Senior Agent have not made and do not hereby or otherwise make to the
Subordinated Lenders, any representations or warranties, express, or implied
other than the following: (a) the Senior Agent has the corporate power and
authority and the legal right to execute and deliver and to perform its
obligations under this Agreement and has taken all necessary corporate action to
authorize its execution, delivery and performance of this Agreement; and (b)
this Agreement constitutes a legal, valid and binding obligation of the Senior
Agent. Neither the Senior Lenders nor the Senior Agent assume any liability to
any Subordinated Lender with respect to: (a) the financial or other condition of
obligors under any instruments of guarantee with respect to the Senior
Obligations, (b) the enforceability, validity, value or collectibility of the
Senior Obligations or the Subordinated Obligations, any collateral therefor, or
any guarantee or security which may have been granted in connection with any of
the Senior Obligations or the Subordinated Obligations or (c) any Credit Party's
title or right to transfer any collateral or security.

                  10.      Waiver of Claims. To the maximum extent permitted by
law, each Subordinated Lender waives any claim it might have against the Senior
Agent with respect to, or arising out of, any action or failure to act or any
error of judgment, negligence, or mistake or oversight whatsoever on the part of
the Senior Agent or any Senior Lenders or their respective directors, officers,
employees or agents with respect to any exercise of rights or remedies under the
Senior Loan Documents or any transaction relating to the Collateral. Neither the
Senior Agent nor any Senior Lender, nor any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Credit Party or any Subordinated Lender or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof.

                                       12


                  11.      Provisions Applicable After Bankruptcy. The
provisions of this Agreement shall continue in full force and effect
notwithstanding the occurrence of any Insolvency Event. To the extent that any
Subordinated Lender has or acquires any rights under Section 362, 363 or 364 of
the Bankruptcy Code with respect to the Collateral, such Subordinated Lender
hereby agrees not to assert such rights without the prior written consent of the
Senior Agent; provided that, if requested by the Senior Agent, such Subordinated
Lender shall seek to exercise such rights in the manner requested by the Senior
Agent, including the rights in payments in respect of such rights. Without
limiting the generality of the foregoing sentence, to the extent that Senior
Agent or Senior Lenders consent to any Credit Party's use of cash collateral
under Section 363 of the Bankruptcy Code or Senior Agent or any Senior Lender
agrees to provide financing to Borrower under Section 364 of the Bankruptcy
Code, each Subordinated Lender hereby agrees not to impede, object to (on
grounds of lack of adequate protection, or otherwise), or otherwise interfere
with such use of cash collateral or financing. Each Subordinated Lender
specifically agrees that the Senior Agent and the Senior Lenders may consent to
any Credit Party's use of cash collateral or provide financing to any Credit
Party on such terms and conditions and in such amounts as the Senior Agent and
the Senior Lenders, in their sole discretion, may decide and that, in connection
with such cash collateral usage or such financing, any Credit Party (or a
trustee appointed for the estate of such Credit Party) may grant to the Senior
Agent and/or Senior Lenders liens and security interests upon all or any part of
the assets of the Borrower or other Credit Party, which liens and security
interests: (i) shall secure payments of all Senior Obligations (whether such
Senior Obligations arose prior to the filing of the bankruptcy petition or
thereafter); and (ii) shall be superior in priority to the liens on and security
interests in the assets of Borrower or other Credit Party held by the
Subordinated Lenders. Each Subordinated Lender (both in its capacity as a
Subordinated Lender and in its capacity (if any) as a party which may be
obligated to any Credit Party or any Credit Party's Affiliates with respect to
contracts which are part of the Senior Agent's or any Senior Lender's
Collateral) agrees not to initiate or prosecute or encourage any other Person to
initiate or prosecute any claim, action, objection or other proceeding (A)
challenging the enforceability of the claim of Senior Agent or any Senior
Lender, (B) challenging the enforceability of any liens or security interests in
any assets securing the Senior Obligations, or (C) asserting any claims which
any Credit Party may hold with respect to Senior Agent or any Senior Lender. All
allocations of payments among the Senior Agent, Senior Lenders and the
Subordinated Lender shall, subject to any court order, continue to be made after
the filing of a petition under the United States Bankruptcy Code, as amended
(the "Bankruptcy Code"), or any similar proceeding, on the same basis that the
payments were to be allocated prior to the date of such filing. Each
Subordinated Lender agrees that it will not object to or oppose a sale or other
disposition of any assets securing the Senior Obligations (or any portion
thereof) free and clear of its security interests, liens or other claims under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
if the Senior Agent or Senior Lenders have consented to such sale or disposition
of such assets. Each Subordinated Lender agrees not to assert any right it may
have to "adequate protection" of its interest in the Collateral in any
bankruptcy proceeding and agrees that it will not seek to have the automatic
stay lifted with respect to such security, without the prior written consent of
the Senior Agent and Senior Lenders. Each Subordinated Lender waives any claim
it may now or hereafter have against the Senior Agent or any Senior Lender
arising out of the election of Senior Agent or any Senior Lender, in any case
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, and/or out of any cash collateral arrangement, or
financing arrangement, or out of any grant of a security interest, under Section
363 or 364 of the Bankruptcy Code, with or by any Credit Party, as debtor in
possession (or with or by any trustee for any Credit Party). Each Subordinated
Lender agrees that it will not, in its capacity as a secured creditor: (a)
propose, vote to

                                       13


accept, or otherwise support confirmation of, a plan of reorganization opposed
by the Senior Agent or Senior Lenders, or (b) vote to reject, object to
confirmation of, or otherwise oppose confirmation of, a plan of reorganization
supported by the Senior Agent. The subordination and other provisions of this
Agreement shall be enforceable under Section 510(a) of the Bankruptcy Code.

                  12.      Further Assurances. The Subordinated Lenders and the
Borrower, at Borrower's expense and at any time from time to time, upon the
written request of the Senior Agent, will promptly and duly execute and deliver
such further instruments and documents and take such further actions as the
Senior Agent reasonably may request for the purposes of obtaining or preserving
the full benefits of this Agreement and of the rights and powers herein granted.

                  13.      Expenses.

                  (a)      Each Credit Party will pay or reimburse the Senior
Agent and the Senior Lenders and the Subordinated Lenders, upon demand, for all
of their respective costs and expenses in connection with the enforcement or
preservation of any rights under this Agreement, including, without limitation,
fees and disbursements of counsel to the Senior Agent, Senior Lenders and
Subordinated Lenders.

                  (b)      Each Credit Party will pay, indemnify, and hold the
Senior Agent and the Senior Lenders and the Subordinated Lenders harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions (whether sounding in contract, tort or on any other ground),
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of, or in any other way arising out of or relating to this
Agreement or any action taken or omitted to be taken by the Senior Agent, any
Senior Lender or Subordinated Lender with respect to any of the foregoing.

                  14.      Provisions Define Relative Rights. This Agreement is
intended solely for the purpose of defining the relative rights of the Senior
Agent on the one hand and the Subordinated Lenders on the other, and no other
Person shall have any right, benefit or other interest under this Agreement.
Except as expressly set forth in this Agreement, nothing herein shall: (a)
impair, as between any Credit Party and the Senior Lenders and any Credit Party
and any Subordinated Lender, the obligation of such Credit Party, which is
absolute and unconditional, to pay principal of, interest on and all other
portions of the Senior Obligations, on the one hand, and the Subordinated
Obligations and all other obligations of such Credit Party, if any, to any
Subordinated Lender, on the other hand, in each case in accordance with their
respective terms; or (b) affect the relative rights of the Senior Lenders or
Subordinated Lenders with respect to any other creditors of any Credit Party.

                  15.      Subrogation. Subject to the indefeasible payment in
full of all Senior Obligations and the termination of all commitments to lend by
the Senior Lenders under the Senior Credit Agreement, the Subordinated Lenders
shall be subrogated to the rights of the Senior Lenders to receive payments or
distributions of assets of any Credit Party applicable to the Senior Obligations
until the principal of, and interest and premium, if any, on, and all other
amounts payable in respect of the Subordinated Obligations shall be paid in
full. For purposes of such subrogation, no payment or distribution to the Senior
Lenders under the provisions hereof to which the Subordinated Lenders would have
been entitled but for the provisions of this Agreement, and no payment pursuant
to the provisions of this Agreement to the Senior

                                       14


Lenders by the Subordinated Lenders, as among any Credit Party and its creditors
other than the Senior Lenders, shall be deemed to be a payment by such Credit
Party to or on account of the Senior Obligations.

                  16.      Legend. Each Subordinated Lender and each Credit
Party will cause each of the Subordinated Note and each Subordinated Security
Document to bear upon its face a legend referring to this Agreement and
indicating that such documents are subordinated as provided herein, all in form
and substance satisfactory to the Senior Agent.

                  17.      Powers Coupled With An Interest. All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until the Senior Obligations are paid in full and
the obligation of the Senior Lenders to extend credit under the Senior Loan
Documents is irrevocably terminated.

                  18.      Notices. All notices, requests and demands to or upon
the Senior Agent or any Credit Party or any Subordinated Lender to be effective
shall be in writing (or by telex, fax or similar electronic transfer confirmed
in writing) and shall be deemed to have been duly given or made (1) when
delivered by hand or (2) if given by mail, when deposited in the mails by
certified mail, return receipt requested, or (3) if by telex, fax or similar
electronic transfer, when sent and receipt has been confirmed, addressed as
follows:

                  If to the Senior Agent:

                           Bank of America, N.A.
                           55 S. Lake Avenue, Suite 900
                           Pasadena, CA 91101
                           Attn: John McNamara
                           Telecopy Number: 616-397-1273

                           with copies to:

                           General Electric Capital Corporation
                           Corporate Financial Services
                           800 Connecticut Avenue, 2 North
                           Norwalk, Connecticut 06854
                           Attention: Account Manager (Good Guys)
                           Telecopy No.: (203) 852-3670

                           and

                           Winston & Strawn LLP
                           101 California Street, Suite 3900
                           San Francisco, California 94111
                           Attention: Hill Blackett, III, Esq.
                           Telecopy No.: 415-591-1400

                           and

                                       15


                           General Electric Capital Corporation
                           201 High Ridge Road
                           Stamford, Connecticut 06927-5100
                           Attention: Corporate Counsel
                           Telecopy No.: 203-316-7889

                  If to the Subordinated Lenders:

                           Grupo Sansborns, S.A. de C.V.
                           c/o Grupo Finan Inbursa
                           Paseo de Las Palmas 736
                           Mexico Col. Lomas de Chapultepec
                           Attention: Eduardo Valdes Acra
                           Javier Cervantes
                           Telecopy No.: 011-525-520-5326

                  With copies to:

                           Willkie Farr & Gallagher LLP
                           787 Seventh Avenue
                           Attention: Thomas. M. Cerabino, Esq.
                           New York, NY 10019-6099
                           Tel: (212) 728-8000
                           Telecopy No.: (212) 728-8111

                  If to the Borrower:

                           Good Guys California, Inc.
                           1600 Harbor Bay Parkway
                           Alameda, California 94502
                           Attention: Chief Financial Officer
                           Telecopy No.: 510-747-6290

                  With copies to:

                           Howard, Rice Nemerovski, Canady, Falk & Rabkin,
                                  A Professional Corporation
                           Three Embarcadero Center, 7th Floor
                           San Francisco, California 94111-4065
                           Attention: Richard W. Canady, Esq.
                           Telecopy No.: 415-217-5910

                                       16


                  The Senior Agent, the Credit Parties and any Subordinated
Lender may change their respective addresses and transmission numbers for
notices by notice in the manner provided in this paragraph.

                  19.      Default Notices. The Subordinated Lenders shall
provide the Senior Agent with written notice of any event of default with
respect to, or acceleration of, all or any part of the Subordinated Obligations
concurrently with the sending thereof to any Credit Party and promptly shall
notify the Senior Agent in the event a default which is the subject of such a
notice is cured or waived.

                  20.      Counterparts. This Agreement may be executed by one
or more of the parties on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Agreement signed by all the
parties shall be lodged with the Senior Agent.

                  21.      Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

                  22.      Integration. This Agreement represents the agreement
of the Senior Agent and the Subordinated Lenders with respect to the subject
matter hereof and there are no promises or representations by the Senior Agent
or any Subordinated Lender relative to the subject matter hereof not reflected
herein.

                  23.      Amendments in Writing; No Waiver: Cumulative
Remedies.

                  (a)      None of the terms or provisions of this Agreement may
be waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Senior Agent, each Credit Party and each Subordinated
Lender; provided that any provision of this Agreement may be waived by the
Senior Agent in a letter or agreement executed by the Senior Agent or by telex
or facsimile transmission from the Senior Agent.

                  (b)      No failure to exercise, nor any delay in exercising,
on the part of the Senior Agent or any Senior Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.

                  (c)      The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.

                  24.      Section Headings. The section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.

                                       17


                  25.      Successors and Assigns.

                  (a)      This Agreement shall be binding upon and shall inure
to the benefit of the Senior Agent, each Senior Lender, each Subordinated
Lender, each Credit Party and each of their respective heirs, administrators,
executors, successors and assigns.

                  (b)      Upon a successor Senior Agent becoming the Senior
Agent under the Senior Loan Documents or upon another lender (a "Refinancing
Lender") refinancing all, or with the prior written consent of the then existing
Senior Agent and Senior Lenders, any portion, of the Senior Obligations, such
successor Senior Agent or Refinancing Lender shall automatically be entitled to
all the rights and powers of the Senior Agent and the Senior Lenders hereunder
without the need for any further action on the part of any party hereto. In
further confirmation of the foregoing, each Subordinated Lender agrees that it
will, at the request of Senior Agent or any Senior Lender, enter into an
agreement, in the form of this Agreement, mutatis mutandis, to subordinate the
Subordinated Obligations and any security interests or liens it now or hereafter
has in or upon the Collateral, to the same extent as provided herein, to the
party refinancing all or a portion of the Senior Obligations.

                  26.      Invalidated Payments. To the extent that the Senior
Agent receives payments on, or proceeds of Collateral for, the Senior
Obligations which are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to any Credit Party, 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 Senior Obligations, or part thereof, intended to be
satisfied shall be revived and continue in full force and effect as if such
payments or proceeds had not been received by the Senior Agent.

                  27.      Specific Performance. The Senior Agent is hereby
authorized to demand specific performance of this Agreement at any time when any
Subordinated Lender shall have failed to comply with any of the provisions of
this Agreement applicable to such Subordinated Lender whether or not the Credit
Parties shall have complied with any of the provisions hereof applicable to any
Credit Party, and the Subordinated Lender hereby irrevocably waives any defense
based on the adequacy of a remedy at law which might be asserted as a bar to
such remedy of specific performance.

                  28.      GOVERNING LAW: CONSENT TO JURISDICTION AND VENUE.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH OF THE CREDIT PARTIES, THE
SUBORDINATED LENDERS AND THE SENIOR AGENT HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN california SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG THE CREDIT PARTIES, THE
SUBORDINATED LENDERS AND THE SENIOR AGENT PERTAINING TO THIS AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE SENIOR LOAN
DOCUMENTS,

                                       18


PROVIDED, THAT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF CALIFORNIA AND, PROVIDED,
FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE SENIOR AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SENIOR
OBLIGATIONS, OR TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN FAVOR OF THE
SENIOR AGENT. EACH OF THE CREDIT PARTIES AND THE SUBORDINATED LENDERS EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH OF THE CREDIT PARTIES AND THE SUBORDINATED
LENDERS HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH OF THE
CREDIT PARTIES AND THE SUBORDINATED LENDERS HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINTS AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO IT AT THE ADDRESS SET FORTH IN THE
SENIOR CREDIT AGREEMENT OR BENEATH ITS SIGNATURE LINE BELOW, AS THE CASE MAY BE,
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ANY
CREDIT PARTY'S OR ANY SUBORDINATED LENDER'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                  29.      MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE
PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE SENIOR LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

                  30.      Termination. Subject to the provisions of paragraphs
25(b) and 26, this Agreement shall terminate upon the indefeasible payment in
full of the Senior Obligations and the termination of all commitments to lend by
the Senior Lenders on a revolving basis under the Senior Credit Agreement.

                  31.      No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.

                  32.      Conversion. Nothing in this Agreement shall prevent
the Subordinated Lender from exercising at any time its rights under the
Subordinated Note to convert outstanding principal and accrued interest (or any
portion thereof) on the Subordinated Note into shares of common stock of
Holdings.

                                       19


                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.

BANK OF AMERICA, N.A.,
as Senior Agent

By  /s/ Kevin R. Kelly
    ------------------------------------
    Kevin R. Kelly
    Senior Vice President

GOOD GUYS CALIFORNIA, INC.

By: /s/  David A. Carter
    ------------------------------------
    David A. Carter
    Chief Financial Officer

GOOD GUYS, INC.

By: /s/  David A. Carter
    ------------------------------------
    David A. Carter
    Chief Financial Officer

COMPUSA INC.

By: /s/ Javier Larraza
    ------------------------------------
    Javier Larraza
    Executive Vice President/ Chief
     Financial Officer

APPROVED BY:

GENERAL ELECTRIC CAPITAL CORPORATION
as Documentation Agent and a Lender

By: /s/ Craig J. Winslow
    ------------------------------------
    Craig J. Winslow
    Duly Authorized Signatory

                                       20


                                 ACKNOWLEDGMENT

STATE OF

COUNTY OF       ss.:

         On _________ before me, the undersigned, personally appeared _________
_____________________________________________________________________________
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual(s) whose name(s) is (are) subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person on behalf of which the individual(s) acted,
executed the instrument, and that such individual made such appearance before
the undersigned in

(insert city or political subdivision and state or county or other place
acknowledgment taken).

                      _________________________________________________________
                      (signature and office of individual taking acknowledgment)

                                       21

EX-99.1

                                                                    EXHIBIT 99.1

                                                  For more information, contact:
                                                                 Jennifer Doidge
                                                                    415-318-4107
                                                           doidgej@fleishman.com

                   GOOD GUYS, INC. ANNOUNCES MERGER AGREEMENT
                                  WITH COMPUSA

         SAN FRANCISCO - September 29, 2003 - Good Guys (NASDAQ: GGUY) today
announced that it has entered into a definitive merger agreement with CompUSA.
Under the terms of the agreement, each outstanding share of Good Guys common
stock will be converted into $2.05 in cash. Good Guys will become a wholly-owned
subsidiary of CompUSA and will continue to operate under the Good Guys name.

         The merger agreement is subject to certain conditions, including
obtaining regulatory approvals and the approval of the holders of at least the
majority of the outstanding shares of common stock of Good Guys. The transaction
is expected to close prior to the end of Good Guys's fiscal year. Jefferies &
Company, Inc. acted as financial advisor to the Board of Directors of Good Guys.

         In connection with the transaction, CompUSA has invested $5,000,000 in
Good Guys in the form of a two-year unsecured subordinated convertible
promissory note, convertible into Good Guys common stock at the rate of $2.05
per share.

         "This transaction will allow our stockholders to receive a substantial
premium over recent trading prices of our stock," said Kenneth Weller, chairman
and chief executive officer of Good Guys. Mr. Weller also stated that, "the
impact of the economic environment on our industry, particularly in Northern
California, and the Company's need for additional capital to meet its
longer-term objectives, were key drivers of the decision to go forward with the
transaction." Mr. Weller



added, "Our combination with CompUSA should greatly strengthen the resources of
the Company and enhances the Company's prospects for future success."

         Good Guys will file a proxy statement with the Securities and Exchange
Commission for submission to its shareholders for use in connection with a
special meeting of shareholders that will be scheduled for the purpose of
approving the merger. That proxy statement will fully describe the merger and
should be carefully reviewed by shareholders.

         With fiscal 2003 sales of $750 million, Good Guys is one of the largest
specialty retailers of higher-end entertainment electronics in the nation. With
its differentiated product selection and knowledgeable team of product
specialists, Good Guys is dedicated to providing entertainment solutions to the
West Coast's early adopters and tech-savvy consumers. Founded in 1973, Good Guys
operates 71 stores in California, Nevada, Washington and Oregon. For more
information, visit www.goodguys.com.

To the extent this news release contains forward-looking statements, such
statements are subject to risks and uncertainties, including, but not limited
to, the successful implementation of the Company's current restructuring and
store closing program, increases in promotional activities of competitors,
changes in consumer buying attitudes, the presence or absence of new products or
product features in the Company's merchandise categories, changes in vendor
support for advertising and promotional programs, changes in the Company's
merchandise sales mix, the success of the Company's modified advertising
strategy, the outcome of the Company's lease renegotiation efforts, and economic
conditions.

                                      # # #

EX-99.2

                                                                    EXHIBIT 99.2

                                                  For more information, contact:
                                                                 Jennifer Doidge
                                                                    415-318-4107
                                                           doidgej@fleishman.com

              GOOD GUYS ANNOUNCES SECOND QUARTER FINANCIAL RESULTS

         SAN FRANCISCO - September 29, 2003 - Good Guys (NASDAQ: GGUY) today
announced financial results for the second fiscal quarter ended August 31.

         For the second quarter, Good Guys reported a net loss of $6.9 million,
or $0.25 per share, compared to a net loss of $1.8 million, or $0.07 per share,
in the same period last year. Gross profit margin for the quarter decreased to
26.8 percent from 28.6 percent in the same period last year, reflecting
continued promotional expenses and higher sell-through of discontinued products.

         As previously reported, net sales for the second quarter were $152.2
million compared to $177.5 million in the same period last year and comparable
store sales decreased 13 percent. Good Guys expects negative comparable store
sales to continue through the third quarter.

         "Good Guys continues to be impacted by the challenging economic
environment as evidenced in the lower sales volume and decline in store traffic
during the first half of the year," said Kenneth Weller, chairman and chief
executive officer, Good Guys. "Despite these challenges, Good Guys has taken
decisive actions to prepare for the holiday selling season and we believe our
performance in the second half of the year will reflect the results of
company-wide efforts to bring more qualified customers to our stores,
differentiate the customer experience and better align our sales, marketing and
merchandising functions."

         During the quarter, Good Guys continued to manage its merchandise
inventory levels to reflect current sales volume, and to better position its
inventory by improving gross margin return on investment (GMROI) through SKU
rationalization and more effective supply chain management.

         At the close of the second quarter, $12.8 million was available to
borrow under the company's credit facility, compared to $14.1 million at the
close of the prior year period. In addition, as part of its $100 million
revolving credit facility, the company has the ability to increase its borrowing
from October 1 through December 20 of each year to meet seasonal needs.



Good Guys Announces Second-Quarter Financial Results, Page 2

         For the six months, Good Guys reported a net loss of $15.3 million, or
$0.57 per share, compared to a net loss of $6.4 million, or $0.24 per share, in
the same period last year. The company reduced SG&A expenses for the six months
by more than $10 million, a decline of nearly 11 percent, over the same period
last year. Gross profit margin for the six months was 27.2 percent compared to
28.7 percent in the same period last year. For the six months, net sales were
$295.5 million compared to $348.5 million in the same period last year.
Comparable store sales for the six months declined 13 percent.

         Good Guys separately announced today that it has entered into a
definitive merger agreement with CompUSA. Under the terms of the agreement, each
outstanding share of Good Guys common stock will be converted into $2.05 in
cash. In connection with the transaction, CompUSA has also invested $5,000,000
in Good Guys in the form of a two-year unsecured subordinated convertible
promissory note, convertible into Good Guys common stock at a rate of $2.05 per
share.

         Good Guys will hold a conference call today at 1:30 p.m. Pacific
Daylight Time to discuss its second quarter financial results. Interested
parties are invited to listen to the call via a live webcast that can be found
in the "About Good Guys" section located at www.goodguys.com. The conference
call will be archived online for 30 days.

         With fiscal 2003 sales of $750 million, Good Guys is one of the largest
specialty retailers of higher-end entertainment electronics in the nation. With
its differentiated product selection and knowledgeable team of product
specialists, Good Guys is dedicated to providing entertainment solutions to the
West Coast's early adopters and tech-savvy consumers. Founded in 1973, Good Guys
operates 71 stores in California, Nevada, Washington and Oregon. For more
information, visit www.goodguys.com.

To the extent this news release contains forward-looking statements, such
statements are subject to risks and uncertainties, including, but not limited
to, the successful implementation of the Company's current restructuring and
store closing program, increases in promotional activities of competitors,
changes in consumer buying attitudes, the presence or absence of new products or
product features in the Company's merchandise categories, changes in vendor
support for advertising and promotional programs, changes in the Company's
merchandise sales mix, the success of the Company's modified advertising
strategy, the outcome of the Company's lease renegotiation efforts, and economic
conditions.

                               --tables attached--



Good Guys Announces Second-Quarter Financial Results, Page 3

                                    GOOD GUYS
                             SELECTED FINANCIAL DATA
                                   (UNAUDITED)



                                                   Three Months Ended             Six Months Ended
(Amounts in thousand, except per share data)  Aug 31, 2003    Aug 31, 2002   Aug 31, 2003  Aug 31, 2002
                                                                               
  Net sales                                    $ 152,172       $ 177,493       $ 295,524     $348,526
  Net loss                                     $  (6,910)      $  (1,798)      $ (15,322)    $ (6,385)

  Net loss per common share
            Basic                              $   (0.25)      $   (0.07)      $   (0.57)    $  (0.24)
            Diluted                            $   (0.25)      $   (0.07)      $   (0.57)    $  (0.24)
  Weighted average shares
            Basic                                 27,109          26,550          27,041       26,299
            Diluted                               27,109          26,550          27,041       26,299




Good Guys Announces Second-Quarter Financial Results, Page 4

                                    GOOD GUYS
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

(Amounts in thousands, except per share data)



                                           Three Months Ended                          Six Months Ended
                                  Aug 31, 2003          Aug 31, 2002          Aug 31, 2003          Aug 31, 2002

                                           % of                   % of                  % of                  % of
                                 Amount    Sales     Amount      Sales     Amount      Sales     Amount      Sales
                                 ------    -----     ------      -----     ------      -----     ------      -----
                                                                                     
Net sales                      $  152,172  100.0%   $ 177,493    100.0%   $ 295,524    100.0%   $ 348,526    100.0%
Cost of sales                    (111,390) (73.2%)   (126,788)   (71.4%)   (215,093)   (72.8%)   (248,575)   (71.3%)
                               ----------  -----    ---------    -----    ---------    -----    ---------    -----

Gross profit                       40,782   26.8%      50,705     28.6%      80,431     27.2%      99,951     28.7%

Selling, general and
 administrative expenses          (44,235) (29.0%)    (48,781)   (27.5%)    (89,148)   (30.2%)    (99,759)   (28.6%)
Depreciation and amortization      (2,446)  (1.6%)     (2,982)    (1.7%)     (4,970)    (1.7%)     (5,885)    (1.7%)
Store closure expenses               (423)  (0.3%)          -      0.0%        (423)    (0.1%)        700      0.2%
                               ----------  -----    ---------    -----    ---------    -----    ---------    -----

Loss from operations               (6,322)  (4.1%)     (1,058)    (0.6%)    (14,110)    (4.8%)     (4,993)    (1.4%)
Interest expense, net                (588)  (0.4%)       (740)    (0.4%)     (1,212)    (0.4%)     (1,392)    (0.4%)
                               ----------  -----    ---------    -----    ---------    -----    ---------    -----

Net loss                       $   (6,910)  (4.5%)  $  (1,798)    (1.0%)  $ (15,322)    (5.2%)  $  (6,385)    (1.8%)
                               ==========  =====    =========    =====    =========    =====    =========    =====

Net loss per common share
    Basic                      $    (0.25)          $   (0.07)            $   (0.57)            $   (0.24)
    Diluted                    $    (0.25)          $   (0.07)            $   (0.57)            $   (0.24)
Weighted average shares
    Basic                          27,109              26,550                27,041                26,299
    Diluted                        27,109              26,550                27,041                26,299




Good Guys Announces Second-Quarter Financial Results, Page 5

                                 GOOD GUYS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

(Amounts in thousands, except per share data)



                                                                   Aug 31, 2003    Aug 31, 2002  Feb 28, 2003
                                                                                        
ASSETS

CURRENT ASSETS

       Cash and cash equivalents                                     $   4,422       $  3,890     $     733
       Accounts receivable, net                                         19,436         25,190        16,324
       Merchandise inventories                                          88,688        108,348       100,867
       Prepaid expenses                                                  9,350          8,207         9,794
                                                                     ---------       --------     ---------
                   Total current assets                                121,896        145,635       127,718

PROPERTY AND EQUIPMENT

       Leasehold improvements                                           66,551         66,198        66,179
       Furniture, fixtures, and equipment                               78,079         75,377        77,034
       Construction in progress                                            920          1,654           942
                                                                     ---------       --------     ---------
       Total property and equipment, at cost                           145,550        143,229       144,155
       Less accumulated depreciation and amortization                 (107,295)       (97,143)     (102,154)
                                                                     ---------       --------     ---------
                   Property and equipment, net                          38,255         46,086        42,001

OTHER ASSETS                                                                78            647           686
                                                                     ---------       --------     ---------

                   TOTAL ASSETS                                      $ 160,229       $192,368     $ 170,405
                                                                     =========       ========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

       Accounts payable                                              $  35,469       $ 39,883     $  25,601
       Accrued expenses and other liabilities:
         Payroll                                                         6,973         10,159         7,418
         Sales taxes                                                     3,534          4,323         3,401
         Store closure                                                   5,408          9,037         6,297
         Extended service plan                                           2,299          5,727           288
         Other                                                          20,263         18,495        16,230
                                                                     ---------       --------     ---------
                   Total current liabilities                            73,946         87,624        59,235

REVOLVING CREDIT DEBT                                                   40,000         51,422        50,099

SHAREHOLDERS' EQUITY

         Common stock, $.001 par value:
           Issued and outstanding                                           27             27            27
         Additional paid-in capital                                    111,952        111,104       111,418
         Retained deficit                                              (65,696)       (57,809)      (50,374)
                                                                     ---------       --------     ---------
                   Total shareholders' equity                           46,283         53,322        61,071
                   Total Liabilities and Shareholders' Equity        $ 160,229       $192,368     $ 170,405
                                                                     =========       ========     =========
                                                        ###