Document:

Exhibit 4.1

 

FIRST AMENDMENT TO CREDIT AGREEMENT

 

This FIRST
AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), made and entered
into as of October 7, 2002, is by and between Best Buy Co., Inc., a Minnesota
corporation (the “Company”), the banks which are signatories hereto
(individually, each a “Bank” and collectively, the “Banks”) and U.S. Bank
National Association, a national banking association, as agent for the banks
party to the Credit Agreement (in such capacity, the “Agent”).

 

RECITALS

 

1.             The banks party thereto, Company,
and the Agent entered into an Amended and Restated Credit Agreement dated as of
March 21, 2002 (the “Credit Agreement”); and

 

2.             The Company desires to amend
certain provisions of the Credit Agreement, and the Banks and the Agent have
agreed to make such amendments, subject to the terms and conditions set forth
in this Amendment.

 

AGREEMENT

 

NOW, THEREFORE,
for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby covenant and agree to be bound
as follows:

 

Section 1.               Capitalized Terms.  Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.

 

Section 2.               Amendments.  The Credit Agreement is hereby amended as
follows:

 

2.1              Defined Terms.  Section 1.1 of the Credit Agreement is
amended by deleting the definitions of “Cash Flow Leverage Ratio”, “Earnings
Before Interest, Income Taxes and Depreciation” and “Interest Coverage Ratio”
as they appear therein and by inserting the following defined terms therein in
the appropriate alphabetical order:

 

“Cash Flow Leverage Ratio”: 
at any date of determination, the ratio of (a) the Interest-bearing
Indebtedness of the Company and its Subsidiaries, plus eight times Rental and
Lease Expense for the Measurement Period ended on such date, to (b) the sum for
the Measurement Period ending on such date of (i) Earnings Before Interest,
Income Taxes, Depreciation and Amortization and (ii) Rental and Lease Expense,
in all cases determined in accordance with GAAP and as set forth in the
Company’s financial statements delivered hereunder.

 

 

“Earnings Before Interest, Income Taxes, Depreciation and
Amortization”:  for any period of determination,
the consolidated net income of the Company and its Subsidiaries before
deductions for income taxes, Net Interest Expense, depreciation and
amortization, all as determined in accordance with GAAP, excluding therefrom
(a) nonoperating gains (including, without limitation, extraordinary or
unusual gains, gains from discontinuance of operations, gains arising from the
sale of assets and other nonrecurring gains) of the Company and its
Subsidiaries during the applicable period and (b) similar nonoperating
losses (including, without limitation, losses arising from the sale of assets
and other nonrecurring losses) of the Company and its Subsidiaries during such
period.

 

“Interest Coverage Ratio”: for any Measurement Period, the ratio
of (a) the sum of (i) Earnings Before Interest, Income Taxes, Depreciation and
Amortization plus (ii) Rental and Lease Expense to (b) the sum of
(y) Net Interest plus (z) Rental and Lease Expense.

 

2.2              Permitted Liens.  Section 5.12(h) of the Credit Agreement is
deleted in its entirety.

 

2.3              Schedule 5.13(k).  Schedule 5.13(k) of the Credit Agreement is
hereby amended and restated to read as set forth in Exhibit A hereto, which
Exhibit A is hereby made a part of the Credit Agreement as Schedule 5.13(k)
thereto.

 

Section 3.               Effectiveness of Amendments.  The amendments contained in this Amendment
shall become effective as of September 30, 2002 upon delivery by the Company
of, and compliance by the Company with, the following:

 

3.1              This Amendment
duly executed by the Company, the Agent, and the Majority Banks.

 

3.2              A consent of each
Guarantor in the form of Exhibit B attached to this Amendment, duly executed by
such Guarantor.

 

3.3              The Company shall
have satisfied such other conditions as specified by the Banks, including payment
of all unpaid legal fees and expenses incurred by the Agent through the date of
this Amendment in connection with the Credit Agreement and this Amendment.

 

Each Bank consents to the
execution, delivery and performance by the Agent of the letter dated as of
October 1, 2002 given by the Agent in favor of Company and HBSC Bank Canada
relating to the Indebtedness described on Exhibit A hereto and acknowledges
receipt of copies of the Canadian Loan Documents (as defined therein).

 

Section 4.               Representations, Warranties, Authority, No
Adverse Claim.

 

4.1              Reassertion of Representations and Warranties, No
Default.  The Company
hereby represents that on and as of the date hereof and after giving effect to
this Amendment (a) all of the representations and warranties contained in
the Credit

 

2

 

Agreement are
true, correct and complete in all respects as of the date hereof as though made
on and as of such date, except for changes permitted by the terms of the Credit
Agreement, and (b) there will exist no Default or Event of Default under the
Credit Agreement as amended by this Amendment on such date which has not been
waived by the Banks.

 

4.2           Authority, Validity, No Conflict, No Consent Required.  The Company represents and
warrants that the Company has the power and legal right and authority to enter
into this Amendment and has duly authorized as appropriate the execution and
delivery of this Amendment and other agreements and documents executed and
delivered by the Company in connection herewith or therewith by proper
corporate authority, and neither this Amendment nor the agreements contained
herein contravenes or constitutes a default under any agreement, instrument or
indenture to which the Company is a party or a signatory or a provision of the
Company’s Articles of Incorporation, Bylaws or any other agreement or
requirement of law, or result in the imposition of any Lien on any of its
property under any agreement binding on or applicable to the Company or any of its
property except, if any, in favor of the Banks.  The Company represents and warrants that this Amendment
constitutes the legal, valid, and binding obligations of the Company,
enforceable against the Company in accordance with its terms, subject to limitations
as to enforceability which might result from bankruptcy, insolvency,
moratorium, and other similar laws affecting Creditors’ rights generally and
general principles of equity.  The
Company represents and warrants that no consent, approval or authorization of
or registration or declaration with any person, including but not limited to
any governmental authority, is required in connection with the execution and
delivery by the Company of this Amendment or other agreements and documents
executed and delivered by the Company in connection therewith or the
performance of obligations of the Company therein described, except for those
which the Company has obtained or provided and as to which the Company has
delivered certified copies of documents evidencing each such action to the
Agent.

 

4.3           No Adverse Claim. The Company warrants,
acknowledges and agrees that no events have been taken place and no
circumstances exist at the date hereof which would give the Company a basis to
assert a defense, offset or counterclaim to any claim of the Banks with respect
to the Obligations.

 

4.4           Affirmation of Credit Agreement, Further References.  The Banks and the Company each acknowledge
and affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the
Credit Agreement, except as amended by this Amendment, shall remain unmodified
and in full force and effect.  All
references in any document or instrument to the Credit Agreement are hereby
amended and shall refer to the Credit Agreement as amended by this
Amendment.   The Company confirms to the
Banks that all of the terms, conditions, provisions, agreements, requirements,
promises, obligations, duties, covenants and representations of the Company
under any and all other documents and agreements entered into with respect to
the obligations under the Credit Agreement are incorporated herein by reference
and are hereby ratified and affirmed in all respects by the Company.

 

3

 

4.5           Resolution and Incumbency Certificate.  Within 30 days of the date of this
Amendment, the Company will furnish to the Agent a copy of the resolutions of
the Board of Directors of the Company ratifying the execution, delivery and
performance of this Amendment certified as true and accurate by its Secretary
or Assistant Secretary, along with a certification by such Secretary or
Assistant Secretary (i) certifying that there has been no amendment to the
Articles of Incorporation or Bylaws of the Company since true and accurate
copies of the same were delivered to the Agent with a certificate of the
Secretary of the Company dated March 21, 2002, and (ii) identifying each
officer of the Company authorized to execute this Amendment and any other
instrument or agreement executed by the Company in connection with this
Amendment, and certifying as to specimens of such officer’s signature and
such  officer’s incumbency in such
offices as such officer holds.

 

Section 5.             Merger and Integration, Superseding Effect.  This Amendment, from and after the date
hereof, embodies the entire agreement and understanding between the parties
hereto and supersedes and has merged into this Amendment all prior oral and
written agreements on the same subjects by and between the parties hereto with
the effect that this Amendment, shall control with respect to the specific
subjects hereof and thereof.

 

Section 6.             Severability.  Whenever possible, each provision of this
Amendment and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective, valid and enforceable under the applicable law of
any jurisdiction, but, if any provision of this Amendment or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto shall be held to be prohibited, invalid or unenforceable
under the applicable law, such provision shall be ineffective in such
jurisdiction only to the extent of such prohibition, invalidity or
unenforceability, without invalidating or rendering unenforceable the remainder
of such provision or the remaining provisions of this Amendment or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto in such jurisdiction, or affecting the effectiveness,
validity or enforceability of such provision in any other jurisdiction.

 

Section 7.               Successors.  This Amendment shall be binding upon the
Company and the Banks and their respective successors and assigns, and shall
inure to the benefit of the Company and the Banks and the successors and
assigns of the Banks.

 

Section 8.               Legal Expenses.  As provided in Section 8.03 of the Credit
Agreement, the Company agrees to reimburse the Agent, upon execution of this
Amendment, for all reasonable out-of-pocket expenses (including attorney’ fees
and legal expenses of Dorsey & Whitney LLP, counsel for the Agent) incurred
in connection with the Credit Agreement, including in connection with the
negotiation, preparation and execution of this Amendment and all other
documents negotiated, prepared and executed in connection with this Amendment
and in enforcing the obligations of the Company under this Amendment and to pay
and save the Agent harmless from all liability for, any stamp or other taxes
which may be payable with respect to the execution or delivery of this
Amendment, which obligations of the Company shall survive any termination of
the Credit Agreement.

 

4

 

Section 9.               Headings.  The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.

 

Section 10.             Counterparts.  This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts
shall be regarded as one and the same document.

 

Section 11.             Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

 

 

THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.

 

5

 

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

 

 

	
   

  	
  BEST BUY
  CO., INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Ryan D.
  Robinson

  	
   

  
	
   

  	
   
  Its

  	
  VP Finance

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION, as

  Agent and as a Bank

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Sam
  Pepper

  	
   

  
	
   

  	
    Its 

  	
  Vice
  President

  	
   

  
						

 

S-1

 

	
   

  	
  WACHOVIA
  BANK, NATIONAL

  
	
   

  	
  ASSOCIATION,
  f/k/a First Union National Bank

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Mark S.
  Supple

  	
   

  
	
   

  	
    Its

  	
  Vice
  President

  	
   

  

 

[Signature page to First Amendment to Credit Agreement]

 

S-2

 

	
   

  	
  BANK ONE, NA
  (MAIN CHICAGO OFFICE)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Vincent
  R. Henchek

  	
   

  
	
   

  	
   
  Its

  	
  Director

  	
   

  

 

[Signature page to First Amendment to Credit Agreement]

 

S-3

 

	
   

  	
  WELLS FARGO
  BANK, NATIONAL

  ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Scott D.
  Bjelde

  	
   

  
	
   

  	
   
  Its

  	
  Vice President and Senior Banker

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/
  Christopher A. Cudak

  	
   

  
	
   

  	
    Its 

  	
  Vice
  President

  	
   

  
					

 

[Signature page to First Amendment to Credit Agreement]

 

S-4

 

	
   

  	
  THE BANK OF
  TOKYO-MITSUBISHI, LTD.,

  CHICAGO BRANCH

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Patrick
  McCue

  	
   

  
	
   

  	
    Its

  	
  Vice President & Manager

  	
   

  

 

[Signature page to First Amendment to Credit Agreement]

 

S-5

 

	
   

  	
  CREDIT
  SUISSE FIRST BOSTON,

  CAYMAN ISLANDS BRANCH

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Bill
  O’Daly

  	
   

  
	
   

  	
   
  Its

  	
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/
  Cassandra Droogan

  	
   

  
	
   

  	
    Its 

  	
  Associate

  	
   

  
					

 

[Signature page to First Amendment to Credit Agreement]

 

S-6

 

	
   

  	
  FLEET
  NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Kathleen
  A. Dimock

  	
   

  
	
   

  	
   
  Its

  	
  Director

  	
   

  
					

 

[Signature page to First Amendment to Credit Agreement]

 

S-7

 

	
   

  	
  THE BANK OF
  NOVA SCOTIA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Keith
  Rauschenberger

  	
   

  
	
   

  	
   
  Its

  	
  Director

  	
   

  

 

[Signature page to First Amendment to Credit Agreement]

 

S-8

 

	
   

  	
  MERRILL
  LYNCH CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Stephanie Vallillo

  	
   

  
	
   

  	
   
  Its

  	
  Vice President

  	
   

  

 

[Signature page to First Amendment to Credit Agreement]

 

S-9

 

EXHIBIT A

TO FIRST AMENDMENT

TO CREDIT AGREEMENT

 

 

Schedule 5.13(k)

 

FUTURE SHOP INDEBTEDNESS

 

Best Buy Canada Ltd. Magasins
Best Buy Ltee. has a CDN$68,000,000 unsecured revolving operating loan facility
from HSBC Canada.

 

A-1

 

EXHIBIT B

TO FIRST AMENDMENT

TO CREDIT AGREEMENT

 

CONSENT OF GUARANTORS

 

Each of the
undersigned have guaranteed payment and performance of the obligations of BEST
BUY CO., INC., a Minnesota corporation (the “Company”), to U.S. Bank National
Association, as agent (the “Agent”) and as a Bank, and certain other Banks (the
“Banks”) under that certain Amended and Restated Credit Agreement dated as of
March 21, 2002, between the Company and the Banks ( “Credit Agreement”),
pursuant to the terms of separate Guaranties executed by the undersigned in
favor of the Banks and dated as of March 21, 2002 (as amended, collectively,
the “Guaranties” and each individually, a “Guaranty”).

 

Each of the
undersigned acknowledges receipt of a copy of the proposed First Amendment to
Credit Agreement, dated concurrently herewith (the “First Amendment”).

 

Each of the
undersigned confirms, agrees and acknowledges that the Amendment shall in no
way impair or limit the rights of the Agent and the Banks under its Guaranty
and that obligations of the Company under the Credit Agreement, as amended by
the First Amendment, constitute “Obligations” as defined in its Guaranty.

 

Each of the
undersigned confirms that, by its Guaranty, and subject to the terms and
conditions of its Guaranty, the undersigned continues to guaranty payment and
performance of the obligations of the Company to the Banks under the Credit
Agreement, as amended by the First Amendment. 
The undersigned hereby confirms that its Guaranty remains in full force
and effect, enforceable against the undersigned by the Banks, in accordance
with its terms.

 

 

	
  Dated as of October 7, 2002

  	
  BBC PROPERTY
  CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Ryan D.
  Robinson

  	
   

  
	
   

  	
  Its

  	
  VP Finance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BEST BUY STORES, L.P.

  	
   

  
	
   

  	
  By:

  	
  BBC Property Co.

  	
   

  
	
   

  	
  Its

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Ryan D.
  Robinson

  	
   

  
	
   

  	
  Its

  	
  VP Finance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BEST BUY INVESTMENT CO.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Ryan D.
  Robinson

  	
   

  
	
   

  	
  Its

  	
  VP Finance

  	
   

  

 

B-1Exhibit 4.2

 

September 13, 2002

 

Best Buy Canada Ltd.

8800 Glenlyon Parkway

Burnaby, British Columbia

V5J 5K3

 

Attention:                                         Kevin
Layden

President and Chief Operating Officer

 

Dear Sirs:

 

On the basis of the financial statements and other information provided
by Best Buy Canada Ltd. Magasins Best Buy Ltée. (formerly known as Future Shop
Ltd. Future Shop Ltée.) in connection with your request for continued
financing, HSBC Bank Canada (the “Bank”) has authorized and hereby offers to
make available the following credit facilities (collectively, the “Loans”)
on the terms and conditions indicated below:

 

1.                                       Borrower:

 

Best Buy Canada Ltd. Magasins Best Buy Ltée (the “Borrower”)

 

2.                                       Guarantors:

 

2.1.                              Best
Buy Co., Inc. (“Best Buy Co.”)

 

2.2.                              Best
Buy Stores, L.P. (“Stores L.P.”)

 

3.                                       Credit Facilities:

 

3.1.                              The
existing Operating Loan and Bulge Facility (each as defined in the offer letter
dated August 15, 2000, as amended or supplemented by offer letters dated
May 7, 2001, October 26, 2001 and November 28, 2001 (collectively, the “Prior Offer Letter”)) and the outstanding
term loan with an unpaid balance of CDN
$11,660,000 (the “Term Loan”)  shall be replaced with a committed
364 day revolving operating loan in the principal amount of CDN $50,000,000 (the “Operating Loan”), which Operating Loan
shall be available on the terms and conditions set out herein for a 364 day
term (the “Operating Term”)
commencing on the date of acceptance of this Offer Letter by the Borrower and
which shall, if the Borrower so elects, include a bank guarantee and letter of
credit facility in the principal amount of up to CDN $10,000,000 (the “Documentary
Credit Sub-Facility”),

 

 

it being understood that, without limiting any of the other terms and
conditions of this Offer Letter, including, without limitation, the Margin
Requirements set out below, the maximum principal amount available to the
Borrower under the Operating Loan, including the face amount of any outstanding
Letters of Credit or Bankers’ Acceptances issued by the Bank shall not at any
time exceed CDN $50,000,000;

 

3.2.                              The
existing F/X Facility (as defined in the Prior Offer Letter) shall be replaced
with a demand foreign exchange contract line of credit (the “F/X Facility”) under which the Aggregate
F/X Credit Risk (as defined below) shall at no time exceed CDN $5,000,000 (the “F/X Credit Limit”).

 

3.3.                              A
new CDN $13,000,000 electronic
funds transfer line (the “EFT Limit”)
shall be available independent and exclusive from the Operating Loan;

 

3.4.                              The
CDN $15,000,000 Bulge Facility,
the Term Loan (under which the amount of CDN
$11,660,000 is outstanding as at September 13, 2002)  and
the Swap Facility (all as described in the Prior Offer Letter) shall be fully
repaid and cancelled.

 

4.                                       Definitions and Interpretation:

 

The capitalized terms used in this Offer Letter shall have the meanings
given to such terms either in the body of this Offer Letter or at the end of
Schedule “A” attached hereto (“Schedule “A””), whichever is applicable, and Schedule “A”, any additional
schedules and all of the provisions thereof are hereby incorporated into and
shall form an integral part of this Offer Letter.

 

5.                                       Purpose:

 

5.1.                              The
Operating Loan shall be used to assist in financing the general corporate
purposes of the Borrower and to repay in full the Term Loan and the Swap
Facility;

 

5.2.                              The
F/X Facility shall be used to assist the Borrower in hedging against currency
fluctuations.  In particular, the F/X
Facility shall be used to enable the Borrower to enter into forward exchange
contracts with the Bank for the purchase or sale of U.S. Dollars (or other
major currencies approved by the Bank) having terms to maturity of up to one
year (any one such forward exchange contract being hereinafter referred to as
a “F/X Contract”); and

 

5.3.                              The
EFT Limit will be used to facilitate the Borrower making its bi-weekly payroll
obligations to its employees.

 

2

 

6.                                       Availability:

 

6.1.                              So
long as there is no Event of Default (as defined below) and subject to the
Margin Requirements (as defined below) and upon satisfaction of the Conditions
Precedent specified below, the Operating Loan shall, at the Borrower’s option,
be made available by way of:

 

6.1.1                                  direct
advances, in either Canadian Dollars or U.S. Dollars, or any combination
thereof, by way of current account overdraft;

 

6.1.2                                  Bankers’
Acceptances in face amounts of not less than CDN
$500,000 and in integral multiples of CDN $100,000 and otherwise pursuant to section 4 of Schedule
“A”; and

 

6.1.3                                  Canadian
Dollar or U.S. Dollar Letters of Credit (as defined in Schedule “A”) issued
under the Documentary Credit Sub-Facility,

 

or any combination thereof.

 

6.2.                              Upon
satisfaction of the Conditions Precedent set out below, the F/X Facility shall
be made available to the Borrower by way of the Bank entering into F/X
Contracts with and at the request of the Borrower, provided that the Aggregate
F/X Credit Risk applicable to all F/X Contracts entered into by the Bank and in
effect at any given time shall not exceed the F/X Credit Limit specified under
the heading “Credit Facilities” above, namely, CDN $5,000,000.  For
the purposes of this Offer Letter, “Aggregate
F/X Credit Risk” means the aggregate of the F/X Credit Risk Values
applicable to all F/X Contracts entered into by the Bank and remaining in
effect at any given time; “F/X Credit Risk
Value” means the value obtained when the face value of a given F/X
Contract (converted to Canadian Dollars, where applicable, in accordance with
the Bank’s standard rates of conversion) is multiplied by the F/X Credit Risk
Factor assigned by the Bank to such F/X Contract; “F/X Credit Risk Factor” means the foreign exchange credit risk
factor with respect to any particular F/X Contract, expressed as a percentage,
as determined by the Bank from time to time in its absolute discretion, based
upon the term to maturity of the applicable F/X Contract and the Bank’s
assessment of the risk associated with the market for the subject
currency(ies).

 

For clarification purposes:

 

6.2.1                                  based
on the F/X Credit Risk Factors utilized by the Bank and the F/X Credit Limit
applicable to the F/X Facility, the Borrower would at the date hereof be
permitted to enter into 12-month U.S. Dollar F/X Contracts having an aggregate
value of up to approximately US $28,000,000, provided that the aggregate value
of the F/X Contracts which the Borrower may be entitled to enter into at any
given time will

 

3

 

vary based upon the length of the term of the individual F/X
Contracts and the F/X Credit Risk Factors applicable thereto, which F/X Credit
Risk Factors may be varied by the Bank from time to time, in its absolute
discretion; and

 

6.2.2                                  as
at September 10, 2002, the F/X Credit Risk Factor is 29% and the conversion rate
for purposes of determining the value of the U.S. Dollar F/X Contracts is 1.6.

 

7.                                       Margin Requirements:

 

In addition to the loan limits specified under the heading Credit
Facilities above, the amounts available to the Borrower under the Loans shall
be limited by the following margin requirements (the “Margin Requirements”).

 

The aggregate of:

 

7.1.                              100%
of the Canadian Dollar advances outstanding under the Operating Loan;

 

7.2.                              the
Canadian Dollar Equivalent of 100% of the U.S. Dollar advances outstanding
under the Operating Loan;

 

7.3.                              100%
of the face amounts of all Canadian Dollar Banker’s Acceptances made available
and outstanding under the Operating Loan;

 

7.4.                              100%
of the face amounts of all Canadian Dollar Letters of Credit issued and
outstanding under the Documentary Credit Sub-Facility; and

 

7.5.                              the
Canadian Dollar Equivalent of the face amounts of 100% of the U.S. Dollar
Letters of Credit issued and outstanding under the Documentary Credit
Sub-Facility;

 

shall at no time exceed the aggregate of:

 

7.6.                              50%
of Acceptable Inventory; and

 

7.7.                              75%
of Acceptable Receivables.

 

8.                                       Repayment:

 

All amounts outstanding under the Loans, including the liabilities of
the Bank under any Letters of Credit issued and outstanding under the
Documentary Credit Sub-Facility, any Bankers’ Acceptances issued and
outstanding under the Operating Loan, any F/X Contracts entered into and
outstanding under the F/X Facility and any amounts outstanding under the EFT
Limit, shall, at the option of the Bank, immediately come due and be payable
upon the occurrence of an Event of Default (as defined below) provided that:

 

4

 

8.1.                              all
amounts outstanding under the Operating Loan shall be repaid by no later than
the date on which the Operating Term expires;

 

8.2.                              all
amounts advanced by the Bank as a result of any demand for payment under any
Letter of Credit issued under the Documentary Credit Sub-Facility shall be
repaid forthwith upon demand by the Bank;

 

8.3.                              all
amounts advanced by the Bank upon the maturity of any Bankers’ Acceptance shall
be repaid forthwith upon demand by the Bank;

 

8.4.                              any
and all liabilities of or losses suffered by the Bank in connection with any
F/X Contract shall be paid to the Bank by the Borrower on demand, provided that
unless and until otherwise demanded, the Borrower shall fulfill all of its
obligations under all F/X Contracts as and when they become due;

 

8.5.                              all
amounts outstanding under the EFT Limit shall be repaid by no later than the
date on which the Operating Term expires; and

 

8.6.                              interest
on the Loans shall be payable as hereinafter set out.

 

9.                                       Interest and Fees:

 

9.1.                              Accrued
interest on the daily balance of the principal advanced under the Loans and
remaining unpaid from time to time, including, without limitation, all direct
advances and amounts outstanding as a result of unpaid liabilities pursuant to
paragraphs 8.1 through 8.4 inclusive above, shall be payable on the last day of
each month at a rate equal to the Bank’s Prime Rate plus one quarter of one
percent (0.25%) per annum, in the case of monies advanced in Canadian Dollars,
and the Bank’s U.S. Base Rate plus one quarter of one percent (0.25%) per
annum, in the case of monies advanced in U.S. Dollars, calculated monthly from
the date of advance, both before and after demand, default and judgment, until
actual payment.  By accepting this Offer
Letter, the Borrower acknowledges that the Bank’s Prime Rate was four and
one-half of one percent (4.5%) per annum and that the “Bank’s U.S. Base Rate”
was five and one-quarter of one percent (5.25%) per annum, in each case as at
September 10, 2002.  A certificate of a
Vice-President or Assistant Vice-President of the Bank shall be, absent
manifest error, conclusive evidence of the Bank’s Prime Rate or the Bank’s U.S.
Base Rate from time to time;

 

9.2.                              The
Borrower shall pay to the Bank:

 

9.2.1                                  at
the time of issuance by the Bank of each Letter of Credit under the Documentary
Credit Sub-Facility, the Bank’s prevailing fees in respect thereof which, in
any event, shall be not less than 1.25% per annum of the face amount of the
Letter of Credit calculated over the term thereof;

 

5

 

9.2.2                                  at
the time of presentation for acceptance of each Bankers’ Acceptance, a stamping
fee of 1.50% per annum of the face amount of each Bankers’ Acceptance
calculated over the term thereof;

 

9.2.3                                  a
monthly standby fee equal to 0.125% per annum of that portion of the Operating
Loan which remains un-utilized on a daily basis, such fee to be calculated
daily and payable on the last day of each month during the Operating Term;

 

9.2.4                                  a
fee of 0.10% of the principal amount authorized and available under the
Operating Loan upon the annual renewal of the Loans; and

 

9.2.5                                  the
Bank’s prevailing activity fees existing from time to time in respect of such
matters as extensions of review dates due to delay in delivery of financial
information, late management information systems reporting, and the Bank’s
additional requirements such as interim applications;

 

Notwithstanding anything to the contrary contained herein, the Bank
may, at its discretion, make an advance under the Operating Loan, or make a
reduction from an advance otherwise requested under the Operating Loan, to pay
any interest or fees which have become due and payable under the terms of this
Offer Letter.

 

10.                                 Loan Documents:

 

The Loans and the Borrower’s liabilities and obligations hereunder
shall be evidenced and supported by the following documents (the “Loan
Documents”) completed in a form and content satisfactory to the
Bank’s solicitors:

 

10.1.                        line
of credit by way of current account overdraft agreement for execution by the
Borrower in the principal amount of CDN
$50,000,000;

 

10.2.                        agreement
for U.S. Dollar line of credit by way of account overdraft for execution by the
Borrower in the principal amount of the United States Dollar Equivalent of CDN $50,000,000;

 

10.3.                        Depository
Bills Agreement in respect of Bankers’ Acceptances for execution by the
Borrower;

 

10.4.                        Power
of Attorney in respect of Bankers’ Acceptances for execution by the Borrower;

 

10.5.                        Application
and indemnity agreements for execution by the Borrower in respect of the
issuance of Letters of Credit under the Documentary Credit Sub-Facility;

 

10.6.                        Forward
exchange contract agreement for execution by the Borrower in respect of the F/X
Contracts entered into under the F/X Facility;

 

6

 

10.7.                        unlimited
guarantee of indebtedness and obligations of the Borrower to the Bank for
execution by Best Buy Co.;

 

10.8.                        assignment
and postponement agreement in respect of any shareholder or other loans or
indebtedness made to the Borrower by Best Buy Co. (excluding trade debt as
therein defined).  For purposes of this
agreement, “trade debt” shall include license fees, royalties, expense
reimbursements, capital purchases and inventory purchases;

 

10.9.                        unlimited
guarantee of indebtedness and obligations of the Borrower to the Bank for
execution by Stores L.P.;

 

10.10.                  confirmation
of placement by the Borrower of an all risk insurance policy (including
extended coverage from earthquake and flood endorsements) on all buildings,
improvements, equipment, inventory and all other tangible assets owned by the
Borrower, which policy includes business interruption and public liability
insurance in amounts and from an insurer or insurers satisfactory to the Bank;

 

10.11.                  subordination
agreement (the “FSAI Subordination Agreement”)
with respect to any present or future shareholder or other loans (excluding
royalties and services and supply debt as described in the agreement) made to
the Borrower by Future Shop Acquisition Inc. which FSAI Subordination Agreement
shall permit interest only payments due and owing by the Borrower to Future
Shop Acquisition Inc. for so long as no Event of Default has occurred or
providing the making of any such interest payments will not create an Event of
Default;

 

10.12.                  such
supporting certificates, opinions and other documentation as the Bank and its solicitors
may reasonably require.

 

11.                                 Release of Security

 

Upon satisfaction of the conditions precedent set forth in section 13
below, any security interests granted by the Borrower to the Bank prior to the
date of this Offer Letter (the “Prior Security Documents”) shall be
released and any assets covered thereby re-conveyed by the Bank to the Borrower
and any registrations or filings made with respect to the Prior Security
Documents shall also be discharged by the Bank, all at the Borrower’s cost.

 

12.                                 Conditions of Loans:

 

12.1.                        The
following covenants, terms and conditions shall apply so long as the Borrower
is indebted to the Bank:

 

12.1.1                            The
Borrower shall maintain the Margin Requirements specified above;

 

7

 

12.1.2                            The
Borrower shall not, without the prior written consent of the Bank:

 

12.1.2.1                                             declare
or pay dividends on any class or kind of its shares, repurchase or redeem any
of its shares, reduce its capital in any way whatsoever or repay shareholder
advances (except for the repayment of shareholder advances, interest thereon
and trade debt contemplated by the FSAI Subordination Agreement);

 

12.1.2.2                                             except
in the ordinary course of the Borrower’s business, pay remuneration of any
kind, including salaries, management fees and bonuses, to any shareholder of
the Borrower or any Affiliate of any shareholder of the Borrower if the payment
of such remuneration causes the Borrower to record a pre-tax operating loss or
causes the Borrower to be in breach of any Financial Covenants;

 

12.1.2.3                                             grant
or allow any Lien or other encumbrance, whether fixed or floating, to be
registered against or exist on any of the assets of the Borrower except as
specifically provided herein and in particular without limiting the generality
of the foregoing, shall not grant a trust deed or other instrument in favour of
a trustee, other than Existing Liens and  Purchase
Money Mortgages to a maximum aggregate amount of CDN $15,000,000;

 

12.1.2.4                                             become
guarantor or endorser or otherwise become liable upon any note or other
obligation other than in the normal course of the Borrower’s business, unless
the Borrower is required to deliver a guarantee of the indebtedness of Best Buy
Co. to U.S. Bank National Association pursuant to the terms of the U.S. Credit
Agreement;

 

12.1.2.5                                             permit
minimum cash flow ratio as calculated at the end of each fiscal quarter to be
less than 1.0:1.0, calculated in accordance with Canadian GAAP.  For purposes of this Offer Letter, the
minimum cash flow ratio shall mean the quotient arrived at from time to time
when dividing the aggregate of:

 

12.1.2.5.1                                    the
Borrower’s net income plus the aggregate of taxes, depreciation,
rental and lease payments, and cash investment in the Borrower made by Best Buy
Co.,

 

by:

 

8

 

12.1.2.5.2                                    capital
expenditures incurred by the Borrower, plus

 

12.1.2.5.3                                    building,
property, rental and lease expenses of the Borrower, plus

 

12.1.2.5.4                                    principal
repayment obligations (excluding repayment of the Term Loan), plus

 

12.1.2.5.5                                    cash
interest expense, including inter-company debt

 

such minimum cash flow ratio to be calculated quarterly on a trailing
12 month basis based upon the Borrower’s quarterly unaudited financial
statements;

 

12.1.2.6                                             consolidate,
amalgamate or merge with any other Person, enter into any corporate
reorganization or other transaction intended to effect or otherwise permit a
material change in its existing organizational documents, liquidate, wind-up or
dissolve itself; or

 

12.1.2.7                                             make
any Investments in joint ventures, partnerships, Subsidiaries or other business
ventures, unless such joint venture, partnership, Subsidiary or other business
venture is engaged in activities substantially similar or complementary to the
business activities of the Borrower as at the date hereof.

 

12.1.3                            The
Consolidated Net Worth (of Best Buy Co.) shall not at any time be less than US $2,000,000,000  minus the
aggregate amount (not to exceed US $1,000,000,000) paid by Best Buy Co. in cash
after the date of execution and delivery of the U.S. Credit Agreement to
repurchase shares in Best Buy Co.’s common stock pursuant to Best Buy Co.’s
stock repurchase programs;

 

12.1.4                            The
Cash Flow Leverage Ratio (of Best Buy Co.) shall not (a) at the end of any
fiscal year of the Best Buy Co. exceed 3.00 to 1.00 and (b) at the end of each
fiscal quarter of Best Buy Co. (other than the last fiscal quarter) during any
such fiscal year exceed 3.25 to 1.00;

 

12.1.5                            The
Interest Coverage Ratio (of Best Buy Co.), as at the end of any fiscal quarter
for the Measurement Period ending on that date, shall not be less than 3.00 to
1.00;

 

12.1.6                            No
Change of Control shall occur;

 

9

 

12.2.                        The
Borrower and Best Buy Co. shall cause each Subsidiary that becomes a Restricted
Subsidiary (as such terms are defined in the U.S. Credit Agreement) to
immediately thereafter execute and deliver to the Bank a guarantee of the
indebtedness and obligations of the Borrower to the Bank, under which the
quantum of liability shall be unlimited or in such lesser amount as determined
by the Bank in consultation with its solicitors;

 

13.                                 Financial Statements, Reports and Notices:

 

The Borrower and Best Buy Co. shall from time to time deliver or cause
to be delivered to the Bank the following:

 

13.1.                        monthly,
within 45 days of each calendar month end, a written inventory and receivables
statement setting forth the value of the Borrower’s accounts receivable and
inventory as of the end of such calendar month, with the value of Acceptable
Receivables and Acceptable Inventory listed separately; notwithstanding the
delivery by the Borrower of the foregoing statement, the Bank may, from time to
time and at any time, require the Borrower to additionally provide the Bank
with:

 

13.1.1                            internally
prepared financial statements for the Borrower, including a balance sheet and
income statement, in a form and containing information satisfactory to the
Bank;

 

13.1.2                            list
of accounts receivable of the Borrower; and

 

13.1.3                            declaration
of inventory of the Borrower in accordance with the Bank’s format, together
with any supporting data that the Bank may reasonably require;

 

13.2.                        quarterly,
within 45 days of each calendar quarter year end:

 

13.2.1                            internally
prepared financial statements for the Borrower, including a balance sheet,
income statement and cash flow statement for the Borrower, in a form and
containing information satisfactory to the Bank;

 

13.2.2                            internally
prepared financial statements for Best Buy Co.; and

 

13.2.3                            compliance
certificate from a senior officer of the Borrower in a form acceptable to the
Bank, setting forth the manner in which the Borrower has calculated its minimum
cash flow and its compliance with paragraph 12.1.2.5;

 

13.3.                        annually,
within 120 days of Best Buy Co.’s fiscal year end:

 

10

 

13.3.1                            aged
list of accounts receivable of the Borrower with those accounts outstanding for
over 60 days and any holdback monies being listed separately;

 

13.3.2                            unaudited
financial statements in respect of the Borrower, including a balance sheet,
income statement and comparison to plan, by an accountant acceptable to the
Bank, acting reasonably, in accordance with Canadian GAAP;

 

13.3.3                            pro
forma financial statements, budget and financial projections in respect of the
Borrower for the following fiscal year, which shall include, without
limitation, a capital expenditures budget for the Borrower; and

 

13.3.4                            audited
Consolidated Financial Statements in respect of Best Buy Co. by an accountant
acceptable to the Bank in accordance with US GAAP;

 

13.4.                        all
financial statements and information required to be delivered by Best Buy Co.
and Stores L.P. to U.S. Bank National Association pursuant to the terms of the
U.S. Credit Agreement; and

 

13.5.                        all
additional financial statements and information as and when reasonably
requested by the Bank.

 

Best Buy Co.
shall from time to time deliver or cause to be delivered to the Bank the
following promptly after any officer of Best Buy Co. or any Subsidiary becomes
aware of the same (all capitalized terms shall have the definitions ascribed to
them in the U.S. Credit Agreement.  For
example, the Company means Best Buy Co.):

 

13.6.                        any
Event of Default or Unmatured Event of Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken with
respect thereto;

 

13.7.                        the
filing or commencement of, or receipt of notice of intention of any person to
file or commence, any action, suit or proceeding, whether at law or in equity
or by or before any Governmental Authority, against the Company or any
Subsidiary which has had or would likely have a Material Adverse Effect on the
Company;

 

13.8.                        any
development affecting or relating to the Company or any Subsidiary, including
without limitation any development in litigation, that in the reasonable
judgment of the Company has had, or would likely have, a Material Adverse
Effect on the Company;

 

13.9.                        the
issuance by any Governmental Authority of any injunction, order, decision or
other restraint prohibiting, or having the effect of prohibiting, the Loans or
Letters of Credit, or the initiation of any litigation or similar proceeding
seeking any such injunction, order or other restraint;

 

11

 

13.10.                  the
occurrence of any Reportable Event with respect to any Plan and the action
which is proposed to be taken with respect thereto, together with a copy of the
notice of such Reportable Event to the PBGC;

 

13.11.                  any
violation as to any environmental matter by the Company or any Subsidiary or
the commencement of any judicial or administrative proceeding relating to
health, safety or environmental matters (i) in which an adverse determination
or result could result in the revocation of or have a material adverse effect
on any operating permits, air emission permits, water discharge permits,
hazardous waste permits or other permits held by the Company or any Subsidiary
which are material to the operations of the Company or such Subsidiary, or (ii)
which will or threatens to impose a material liability on the Company or such
Subsidiary to any Person or which will require a material expenditure by the
Company or such Subsidiary to cure any alleged problem or violation; or

 

13.12.                  the
issuance of any Governmental Authority of any injunction, order or decision, or
the entry by the Company or any Subsidiary into an agreement with any
Governmental Agency, materially restricting the business of the Company or any
Subsidiary or concerning any material business practice of the Company or any
Subsidiary.

 

14.                                 Lapse, Cancellation, Annual Review:

 

This Offer Letter shall lapse and all obligations of the Bank hereunder
and in respect of the Loans shall cease, all at the option of the Bank, if
there has been, in the opinion of the Bank, a material adverse change in risk
or in the financial condition of the Borrower, Best Buy Co. or Stores L.P. or
if the conditions precedent hereunder have not been met by October 31, 2002.  The Bank shall have the option to at any
time, acting reasonably, conduct corporate, personal property registry and
Priority Claims searches in respect of the Borrower in such jurisdictions as
the Bank deems necessary.  Upon the
occurrence of an Event of Default, any unadvanced portion of the Loans shall be
immediately cancelled and the Borrower shall, in respect of each, Letter of
Credit and Bankers’ Acceptance issued under the Loans within 15 days from the
date demand is made, either:

 

14.1.                        pay
to the Bank the face amount of the applicable Letter of Credit or Bankers’
Acceptance, as the case may be; or

 

14.2.                        pledge
in favour of and on terms and conditions acceptable to the Bank, as continuing
security for its contingent obligations and liabilities to the Bank in respect
of the applicable Letter of Credit or Bankers’ Acceptance, as the case may be,
cash collateral or a deposit instrument or other liquid collateral security in
a form acceptable to the Bank in an amount equal to the face amount of the
applicable, Letter of Credit or Bankers’ Acceptance.

 

12

 

15.                                 Earlier Offer Letters:

 

This
Offer Letter shall stand in substitution for and replacement of all previous
offer letters issued by the Bank in favour of the Borrower (including the Prior
Offer Letter) and the terms and conditions set forth herein shall govern the
Loans exclusively and shall supersede the terms and conditions contained in any
earlier offer letters issued by the Bank to the Borrower or to any other parties.

 

This offer may be accepted by the Borrower, and acknowledged by each of
the Guarantors, by signing, dating and returning to the Bank by 5:00 p.m.
on September 13, 2002 the enclosed copy of this letter executed by the Borrower
and each of the Guarantors.  The Bank
has instructed its solicitors to commence preparation of the Loan Documents.

 

Yours very truly,

HSBC BANK CANADA

 

	
  By:

  	
  /s/ Bruce Clarke

  	
   

  	
  By:

  	
  /s/ Kerry Hutchinson

  	
   

  
	
   

  	
  Bruce Clarke

  	
   

  	
  Kerry Hutchinson

  
	
   

  	
  Vice President

  	
   

  	
  Senior Account Manager

  
	
   

  	
  Commercial Financial Services

  	
   

  	
   

  

 

• • • • • • •

 

AGREED TO AND ACCEPTED THIS 13 DAY OF September 2002.

 

THE BORROWER:

 

BEST BUY CANADA LTD. MAGASINS BEST BUY LTÉE.

 

	
  Per:

  	
  /s/ Kevin
  Layden

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Per:

  	
   

  	
   

  

 

13

 

ACKNOWLEDGED AND AGREED TO THIS
                  
DAY OF
                  ,
2002.

 

THE GUARANTORS:

 

	
  BEST BUY CO., INC.

  	
  BEST BUY STORES, L.P by its general

  partner

  
	
   

  	
  BBC

  	
  PROPERTY

  	
  CO.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Per:

  	
  /s/ Darren R. Jackson

  	
   

  	
  Per:

  	
  /s/ Darren R. Jackson

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  	
   

  
							

 

14

 

SCHEDULE
“A” TO OFFER LETTER

FROM HSBC BANK CANADA

TO BEST BUY CANADA LTD.  MAGASINS BEST BUY LTÉE.

DATED SEPTEMBER 13, 2002

 

1.                                       Representations
and Warranties:

 

Each of the Borrower and the Guarantors represents and warrants to the
Bank that:

 

1.1.                              each
of the Borrower and Best Buy Co. has been duly incorporated and organized, is
properly constituted, is in good standing and is entitled to conduct its
business in all jurisdictions in which it carries on business or has assets;

 

1.2.                              Stores
L.P. has been duly established, is properly constituted, is in good standing
and is entitled to conduct its business in all jurisdictions in which it
carries on business or has assets;

 

1.3.                              the
execution of the Offer Letter and the Loan Documents and the incurring of
liability and indebtedness to the Bank does not and will not contravene:

 

1.3.1                                  any
Legal Requirement applicable to the Borrower or the Guarantors; or

 

1.3.2                                  any
provision contained in any other loan or credit agreement or borrowing
instrument or contract to which the Borrower or either of the Guarantors is a
party;

 

1.4.                              all
necessary Legal Requirements have been met and all other authorizations,
approvals, consents and orders have been obtained with respect to the Loans and
the execution and delivery of the Offer Letter and the Loan Documents;

 

1.5.                              all
financial and other information provided to the Bank in connection with the
Loans is true and accurate in all material respects, and each of the Borrower
and the Guarantors acknowledges that the offer of credit contained in the Offer
Letter is made in reliance on the truth and accuracy of this information and
the above representations and warranties; and

 

1.6.                              attached
as Schedule “B” hereto is a true, accurate and comprehensive corporate
structural chart in respect of the Borrower, Best Buy Co., and their
Affiliates;

 

1.7.                              the
Offer Letter and each of the Loan Documents have been or will be, upon
execution thereof, duly and validly authorized, execute and delivered by each
of the Borrower and the Guarantors;

 

1.8.                              The
Offer Letter and each of the Loan Documents constitutes, or when executed and
delivered will constitute, a legal, valid and binding obligation of each of the
Borrower and the Guarantors enforceable against each such party in accordance
with its terms, subject to:

 

 

1.8.1                                  bankruptcy,
insolvency and other laws affecting the rights of creditors generally; and

 

1.8.2                                  the
discretionary nature of equitable remedies;

 

1.9.                              Neither
the execution and delivery of the Offer Letter or any of the Loan Documents or
any other document contemplated thereby by the Borrower or the Guarantors which
is or will be a party thereto, nor the observance or performance of the
obligations arising thereunder in accordance therewith does or will:

 

1.9.1                                  violate
or conflict with the organization documents of the Borrower or the Guarantors
or with any agreements to which the Borrower or either of the Guarantors is a
party thereto;

 

1.9.2                                  conflict
with or violate any Legal Requirement applicable to the Borrower or the
Guarantors or their businesses; or

 

1.9.3                                  result
in any breach of, or constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, acceleration or cancellation of any
agreements to which the Borrower or either of the Guarantors is a party, or
result in the creation of any Lien on any of the Property.

 

2.                                       Interest, Fees and Payment:

 

2.1.                              Interest
on the daily balance of principal advanced under the Loans and remaining unpaid
from time to time shall be payable by the Borrower as set out in the Offer
Letter both before and after demand, default and judgment;

 

2.2.                              In
the case of interest based on the Bank’s Prime Rate and the Bank’s U.S. Base
Rate, interest shall be compounded and payable on the last day of each month;

 

2.3.                              If
the Borrower repays any portion of the Loans made available by way of a
Bankers’ Acceptance on a date other than the maturity date for such Banker’s
Acceptance, whether as a result of a demand for repayment by the Bank or
otherwise, it shall also concurrently pay to the Bank the applicable
Compensating Amount;

 

2.4.                              Interest
based on the Bank’s U.S. Base Rate shall be computed on the basis of a year of
360 days and for actual days that the amounts are outstanding under the Loans
on this basis.  For the purpose of the Interest Act
(Canada), the annual rate of interest to which interest computed on the basis
of a year of 360 days is equivalent is the rate of interest as provided in the
Offer Letter multiplied by the number of days in such year and divided by 360;

 

2.5.                              Upon
the maturity of a Bankers’ Acceptance, unless another interest rate option is
selected by the Borrower, interest shall accrue at the applicable rate in the
Offer Letter based on the Bank’s Prime Rate or the Bank’s U.S. Base Rate, as
the case 

 

2

 

may be, depending on whether the funds are outstanding in
Canadian or U.S. Dollars;

 

2.6.                              The
fees collected by the Bank in connection with the Loans, or any of them, shall
be its property as consideration for the time, effort and expense incurred by
it in the review of documents and financial statements, and the Borrower
acknowledges and agrees that the determination of these costs is not feasible
and that the fees set out in the Offer Letter represent a reasonable estimate
of such-costs;

 

2.7.                              All
payments by the Borrower to the Bank shall be made at the address of the branch
of the Bank issuing the Offer Letter or at such other place as the Bank may
specify in writing from time to time. 
Any payment delivered or made to the Bank by 1:00 p.m. local time at the
place where such payment is to be made shall be credited as of that day, but if
made afterwards shall be credited as of the next day on which the said branch
is open for business;

 

2.8.                              The
obligation of the Borrower to make all payments under the Offer Letter and the
Loan Documents shall be absolute and unconditional and shall not be limited or
affected by any circumstance, including, without limitation:

 

2.8.1                                  any
set-off, compensation, counterclaim, recoupment, defence or other right which
the Borrower may have against the Bank or anyone else for any reason whatsoever;
or

 

2.8.2                                  any
insolvency, bankruptcy, reorganization or similar proceedings by or against the
Borrower.

 

3.                                       Conditions of Credit:

 

In addition to the conditions set out in the Offer Letter, the
following covenants shall apply until the Loans are repaid in full and
cancelled:

 

3.1.                              The
Borrower shall maintain its corporate status and operate its business in
accordance with sound business practice and in compliance in all material
respects with all Legal Requirements;

 

3.2.                              The
Borrower shall maintain or cause to be maintained insurance on all of the
Property used in connection with the Business with financially sound and
reputable insurance companies or associations, including all-risk property
insurance, comprehensive general liability insurance and business interruption
insurance, in amounts, with deductibles or retentions, and against risks that
would be maintained by a prudent owner carrying on a similar business in a
similar location, and shall furnish to the Bank, on written request, satisfactory
evidence of the insurance carried by it;

 

3.3.                              The
Borrower shall:

 

3

 

3.3.1                                  pay
all Taxes in respect of itself or its Property, as they become due and payable,
unless they are being contested in good faith by appropriate proceedings and
adequate provision has been made for the payment of any such contested amount;

 

3.3.2                                  withhold
from each payment made to any of its past or present employees, officers or
directors, and to any non-resident of Canada, the amount of all Taxes and other
deductions required to be withheld therefrom and pay the same to the
appropriate tax authority within the time required under any applicable Legal
Requirements;

 

3.3.3                                  collect
from all Persons the amount of all Taxes required to be collected from them and
remit the same to the proper tax or other receiving officers within the time
required under any applicable Legal Requirements;

 

3.4.                              All
financial terms and covenants shall be determined in accordance with, Canadian
GAAP in the case of financial terms and covenants that are exclusive to the
Borrower, and US GAAP in the case of financial terms and covenants that apply
to the Guarantors;

 

3.5.                              If
the amount outstanding under any Loan in Canadian Dollars plus the Canadian
Dollar Equivalent of the amount outstanding under any Loan in a currency other
than Canadian dollars at any time exceeds the amount authorized under that Loan
as provided under the heading “Credit Facilities” in the Offer Letter, the Bank
may, from time to time, in its sole discretion:

 

3.5.1                                  limit
the further utilization of that Loan;

 

3.5.2                                  convert
all or part of the amount outstanding under that Loan to Canadian Dollars in
which event, interest shall accrue and be paid on such converted amounts at the
rate set out in the Offer Letter for Canadian dollar advances accruing interest
with reference to the Bank’s Prime Rate;

 

3.5.3                                  require
the Borrower to pay down the excess;

 

3.6.                              Any
amount payable by the Borrower to the Bank under the Offer Letter or the Loan
Documents may be debited to any account of the Borrower with the Bank;

 

3.7.                              The
Borrower shall indemnify the Bank against any loss incurred by it as a result
of any judgment or order being given or made for the payment of any amount due
under the Offer Letter or the Loan Documents, where:

 

3.7.1                                  such
judgment or order is expressed and paid in a currency (the “Judgment Currency”) other than the currency
of an outstanding loan (the “Loan
Currency”); and

 

4

 

3.7.2                                  there
is a variation between:

 

3.7.2.1                                                   the
rate of exchange at which the Loan Currency amount is converted into the
Judgment Currency for the purposes of such judgment or order; and

 

3.7.2.2                                                   the
rate of exchange at which the Bank is able to purchase the Loan Currency with
the amount of the Judgment Currency then actually received by the Bank.

 

The foregoing indemnity shall constitute a separate and independent
obligation of the Borrower and shall apply irrespective of any indulgence
granted to the Borrower from time to time, and shall continue in full force and
effect notwithstanding any such judgment or order as aforesaid.  The term “rate of exchange”, shall include
any premiums and costs of exchange payable in connection with the purchase of,
or conversion into, the relevant currency.

 

3.8.                              Each
payment to be made in favour of the Bank in respect of any of the Loans shall
be made free and clear and without deduction for or on account of Tax.  If any payment made in respect of any of the
Loans is required to be made subject to the deduction or withholding of Tax,
the sum payable to the Bank with respect to which such deduction or withholding
is required to be made shall be increased to the extent necessary to ensure
that, after the making of such deduction or withholding, the Bank receives and
retains (free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have received and so
retained had such deduction or withholding not have been made or required to have
been made.  If the Bank is required by
law to make any payment on account of Tax (not being a Tax on net income) on or
in relation to any amount received or receivable hereunder or otherwise in
connection with the Loans, the Borrower shall promptly indemnify the Bank
against such payment, together with any interest, penalties and expenses
payable or incurred in connection therewith.

 

4.                                       Bankers’ Acceptances:

 

4.1.                              Upon
satisfaction of the Conditions Precedent set out in this Offer Letter and the
additional conditions contemplated in this Schedule “A”, the Borrower may, by
delivering to the Bank notice in form and substance satisfactory to the Bank
(the “Required Notice”), make availments of the
Operating Loan by way of or convert existing advances remaining outstanding
under the Operating Loan into Bankers’ Acceptances, subject to the following
terms and conditions.

 

4.2.                              The
Bank will not be obligated to make funds available by way of Banker’s
Acceptances:

 

4.2.1                                  unless
the Borrower has provided the Bank with the Required Notice;

 

5

 

4.2.2                                  unless
such Banker’s Acceptance is in a minimum face amount of $500,000 or any greater
amount and in integral multiples of $100,000;

 

4.2.3                                  which
are for a term of other than 30, 60, 90, or 180 days or which mature on a day:

 

4.2.3.1                                                   which
is not a Business Day; or

 

4.2.3.2                                                   which
is a date subsequent to the date of maturity or expiry of the Operating Loan
under which the subject Bankers’ Acceptance is to be created;

 

requested by the Borrower in relation to an
original advance under the Operating Loan (as opposed to a Bankers’ Acceptance
which the Bank is requested to accept in respect of the conversion of advances
previously made by the Bank and remaining outstanding under the Operating Loans
or the conversion of an existing Bankers’ Acceptance to a new Bankers’
Acceptance);

 

4.2.4                                  if
an Event of Default has occurred, or if the Bank has made demand for payment of
any of the Loans; or

 

4.2.5                                  if
the Bank has, by at least one Business Day prior to the proposed acceptance
date for the Bankers’ Acceptance, advised the Borrower that, because general
market conditions have caused it to become impracticable to do so, the Bank is
no longer making funds available by way of Bankers’ Acceptances in the ordinary
course of its business.

 

4.3.                              Each
Bankers’ Acceptance shall be deemed to be an availment of the Operating Loan
under which such Bankers’ Acceptance is created for the term of such Bankers’
Acceptance in an amount equal to the face amount thereof.

 

4.4.                              The
Borrower will pay to the Bank at the time of acceptance of each Bankers’
Acceptance under the Operating Loan, a stamping fee equal to 1.50% of the face
amount thereof, such fees will be calculated on the basis of a year of 365 days
(or 366 days, in the case of a leap year), provided that where the term of such
Bankers’ Acceptance is greater or less than one year, then such annual fee will
be prorated according to the ratio that the number of days from the date on
which the applicable Bankers’ Acceptance is accepted to the date on which such
Bankers’ Acceptance matures (inclusive of both such days), bears to 365 days
(or 366 days, in the case of a leap year);

 

4.5.                              The
Borrower will also pay to the Bank in respect of each Bankers’ Acceptance its
prevailing fees and charges for issuing the same and effecting payment
thereunder, and will pay on request all other out-of-pocket disbursements or
costs incurred by the Bank in relation to the issuance of, or payment pursuant
to each Bankers’ Acceptance.

 

6

 

4.6.                              All
Bankers’ Acceptances will be issued on and subject to the terms and conditions
set forth in the Bank’s standard forms relating thereto and issued on such
other terms and conditions as are acceptable to the Bank, acting
reasonably.  The issuance and
availability of Bankers’ Acceptances will be subject to such practices,
policies, and procedures as the Bank may impose or dictate from time to time.  Upon request by the Bank, acting reasonably,
the Borrower will forthwith execute and deliver, or cause to be executed and
delivered, the Bank’s standard forms and all such ancillary or related
documents and instruments as the Bank may reasonably require in respect of the
creation of and terms and conditions applicable to Bankers’ Acceptances.

 

4.7.                              Each
Bankers’ Acceptance processed will be a valid and binding obligation of the
Borrower.

 

4.8.                              If
requested by the Borrower, the Bank will make arrangements for the sale of the
Bankers’ Acceptances in Canada.  The
Bank may, at its sole discretion, purchase all or any of the Bankers’
Acceptances.

 

4.9.                              Unless
on or before the date that any moneys become payable by the Bank pursuant to
any Bankers’ Acceptance, the Borrower has paid to the Bank funds in the amount
becoming so payable, the said amount will be deemed to be an advance on that
date by the Bank to the Borrower under the Operating Loan as the case may be.

 

4.10.                        Upon
demand for payment being made under any one or more of the Loans, or upon the
occurrence of an Event of Default, the Bank will not make funds available by
way of Bankers’ Acceptances and the face amount of any Bankers’ Acceptances
which have not yet matured or become due will thereupon be deemed to have been
advanced by the Bank to the Borrower.

 

4.11.                        Amounts
advanced by the Bank to the Borrower or deemed to have been advanced under
paragraph 4.9 or 4.10 will be charged against the Operating Loan, will bear
interest at the rate of interest payable under the Operating Loan as the case
may be, calculated and payable at the times and in the manner specified under
the heading “Repayment” in this Offer Letter.

 

4.12.                        The
Borrower will not claim any days of grace or require any presentation, demand,
protest, or other notice of any kind whatsoever in respect of any Bankers’
Acceptance, all of which are hereby expressly waived.

 

4.13.                        If
the Borrower repays any amount drawn by way of Bankers’ Acceptance on a date
other than the maturity date for such Bankers’ Acceptance, whether as a result
of a demand for payment by the Bank or otherwise, it shall also concurrently
pay to the Bank the applicable Compensating Amount.

 

4.14.                        If
upon the maturity of a Banker’s Acceptance, the Borrower fails to convert such
maturing Bankers’ Acceptance into a new Bankers’ Acceptance in accordance with
the terms and conditions hereof and the Required Notice, interest shall 

 

7

 

accrue on the amount advanced by the Bank on the maturity of such Bankers’ Acceptance at the rate
based on the Bank’s Prime Rate specified in the Offer Letter.

 

5.                                       Events of Default:

 

For the purposes of this Offer Letter, any one or more of the following
events shall be an “Event of Default” (whether such Event of Default shall be
voluntary or involuntary or be effected by operation of law or pursuant to or
in compliance with any judgments, decree or order of any court or other rule or
regulation of any administrative or governmental body):

 

5.1.                              if
the Borrower makes default in any payment within 3 days of the due date of
principal, interest or other moneys payable by it hereunder or under any of the
Loan Documents, or if the Borrower or either of the Guarantors is in default 30
days after receiving written notice thereof by the Bank in the performance or
observance of something required to be done or some covenant or condition
required to be observed or performed herein, or under any other Loan Document;
or

 

5.2.                              if
an Event of Default (as defined in the U.S. Credit Agreement) occurs under the
terms of the U.S. Credit Agreement as amended, supplemented or replaced from
time to time provided that if any amendments, supplements or replacements are
made to the U.S. Credit Agreement and to the Events of Default defined
thereunder, then the Event of Default shall only be deemed to be amended for
purposes of this Offer Letter if the amended Events of Default are more onerous
on Best Buy Co. than those presently set forth in the U.S. Credit Agreement; or

 

5.3.                              if
any representation or warranty given by the Borrower or by any director or
officer of the Borrower is untrue in any material respect; or

 

5.4.                              if
a bankruptcy petition is filed or presented against the Borrower or the
Borrower commits or threatens to commit any act of bankruptcy, makes an assignment
for the benefit of its creditors, is declared bankrupt, makes a proposal or
otherwise takes advantage of provisions for relief under the Bankruptcy
and Insolvency Act (Canada), the Companies Creditors’ Arrangement Act
(Canada) or similar legislation in any jurisdiction; or

 

5.5.                              there
is instituted by or against the Borrower any formal or informal proceeding for
the dissolution or liquidation or winding-up of the affairs of, the Borrower,
which proceeding is consented to or acquiesced in by the Borrower or shall not
have been dismissed within 30 days; or

 

5.6.                              the
Borrower ceases to carry on business or makes or agrees to make a bulk sale of
assets or commits an act of bankruptcy; or

 

5.7.                              a
receiver, receiver and manager, receiver-manager or any person with like powers
of all or a substantial part of the Property is appointed; or

 

8

 

5.8.                              a
distress or analogous process is levied upon all or substantially all of the
Property or any part thereof and the same shall not have been vacated or stayed
within 30 days after the issuance thereof; or

 

5.9.                              an
order is made or an effective resolution is passed for winding-up the Borrower;
or

 

5.10.                        the
Borrower enters into any reconstruction, reorganization, amalgamation, merger
or other similar arrangement with any other person; or

 

5.11.                        if
in the opinion of the Bank, acting reasonably, there is a Change of Control; or

 

5.12.                        any
certificate, statement, representation, warranty or audit report herewith,
heretofore or hereafter furnished by or on behalf of the Borrower to the Bank,
whether in connection with the Offer Letter, the Loan Documents or otherwise,
and whether furnished as an inducement to the Bank to extend any credit to or
to enter into the Offer Letter, the Loan Documents or otherwise:

 

5.12.1                            proves
to have been false in any material respect at the time as of which the facts
therein set forth were stated or certified; or

 

5.12.2                            proves
to have omitted any substantial contingent or unliquidated liability or claim
against the Borrower, the existence of which would materially adversely affect
the business of the Borrower;

 

or, on or before the date of execution of this Offer Letter or the Loan
Documents, there shall have been any material adverse change in any of the
facts disclosed by any such certificate, statement, representation, warranty or
audit report, which change shall not have been disclosed to the Bank at or
prior to the time of such execution.

 

6.                                       General:

 

6.1.                              Conditions Precedent
- It shall be a condition precedent to the availability of the Loans that the
Bank shall have received:

 

6.1.1                                  the
Loan Documents identified above, completed in form and content satisfactory to
the Bank’s solicitors;

 

6.1.2                                  a
fully executed intercreditor agreement among the Bank, U.S. Bank National
Association (as agent under the U.S. Credit Agreement), the Borrower and Best
Buy Co. in form and content satisfactory to the Bank and its solicitors;

 

6.1.3                                  confirmation
that the insurance contemplated under the heading “Loan Documents” above has
been renewed on terms and conditions acceptable to the Bank;

 

9

 

6.1.4                                  evidence satisfactory to the Bank that the Borrower is in compliance in all material
respects with all of the covenants, representations and warranties set out in
this Offer Letter and the Loan Documents; and

 

6.1.5                                  executed
copies of the U.S. Credit Agreement and the Indentures governing the
Convertible Debentures;

 

6.2.                              Currency - In the Offer Letter, words
or figures expressed in dollars or the symbol for dollars without any other
indication mean Canadian Dollars; provided that:

 

6.2.1                                  all
advances made available by the Bank under the Loans shall be repaid in the
currency in which they are denominated;

 

6.2.2                                  interest
on advances made under the Loans in Canadian Dollars, stamping fees with
respect to Canadian Dollar Bankers’ Acceptances and fees with respect to
Canadian dollar bank guarantees or Letters of Credit shall be payable in
Canadian Dollars; and

 

6.2.3                                  interest
on U.S. Dollar advances, stamping fees with respect to U.S. Dollars Bankers’
Acceptances and fees with respect to U.S. Dollar bank guarantees or Letters of
Credit shall be payable in U.S. Dollars;

 

6.3.                              Premises Visits - The Bank shall have the right
to inspect the Borrower’s business premises at all reasonable times, and in any
event not less than quarterly; or

 

6.4.                              Credit Reporting - The Borrower consents to
the obtaining from any credit reporting agency or from any person all
information that the Bank may require at any time.  The Bank agrees not to disclose any information (the “Non-Public Financial Information”)
concerning the Borrower to any credit grantor with whom the Borrower has
financial relations or to any credit reporting agency other than information,
including consolidated financial statements for the Borrower which is
ordinarily available to the Borrower’s shareholders.  Notwithstanding the foregoing, if the Bank by inadvertence or
otherwise discloses the Non-Public Financial Information to any such credit
grantor or credit reporting agency, the Bank shall not be liable to the
Borrower in any way whatsoever.

 

6.5.                              Non-Merger and Conflict
- None of the execution, delivery or, where applicable, registration of the
Loan Documents or the disbursement of funds under the Loans will in any way
merge or extinguish the terms and conditions of the Offer Letter, which terms
and conditions will continue in full force and effect.  In the event of any inconsistency or
conflict between any provision contained in the Offer Letter and any provision
contained in any of the Loan Documents, the provisions of the Offer Letter
shall prevail, but the omission from the Offer Letter of any provision
contained in any of the Loan Documents shall not be considered to be an
inconsistency or conflict for the purposes hereof.

 

10

 

6.6.                              Assignment -
The Borrower shall not be entitled to assign any of the rights and benefits
conferred by the Offer Letter.  The
Offer Letter and the Loan Documents may be freely assigned by the Bank, in
whole or in part, without the consent of the Borrower.

 

6.7.                              Waiver - Failure by the Bank to
insist upon strict performance by the Borrower of any obligation or covenant
under the Offer Letter or any of the Loan Documents or to exercise any option
or right herein or therein shall not be a waiver or relinquishment for the
future of such obligation or covenant, option or right, but the same shall
remain in full force and effect and the Bank shall have the right to insist
upon the strict performance by the Borrower of any and all of the terms and
provisions of the Offer Letter and the Loan Documents.

 

6.8.                              Variation - No term or requirement of
the Offer Letter or any of the Loan Documents may be waived or varied orally or
by any course of conduct of any officer, employee, or agent of the Bank.  Any amendment to the Offer Letter or any of
the Loan Documents must be in writing and signed by a duly authorized officer
of the Bank.

 

6.9.                              Indemnification and Confidentiality
- The Offer Letter is delivered to the Borrower on the understanding that
neither the Offer Letter nor its substance shall be disclosed publicly or
privately except to counsel, accountants, employees and agents of the Borrower
who are specifically involve in the transaction contemplated therein.  Without limiting the generality of the
foregoing, no such person shall use or refer to the Bank’s name in any
disclosure made in connection with any of the transactions contemplated under
the Offer Letter without the Bank’s prior written consent.

 

6.10.                        Time of Essence - Time shall be of the
essence of the Offer Letter.

 

6.11.                        each
of the Borrower and Best Buy Co. shall promptly notify the Bank of the
occurrence of any Event of Default or the occurrence of any event, with the
giving of notice, lapse of time, or both, would constitute an Event of Default.

 

6.12.                        Legal and Other Expenses
- The Borrower shall pay all reasonable legal fees and disbursements in respect
of the Loans, the preparation and issuance of the Offer Letter and the Loan
Documents, the enforcement and preservation of the Bank’s rights and remedies,
all appraisals, insurance consultation, and similar fees, and all other fees
and disbursements of the Bank, whether or not the documentation is completed or
any funds are advanced under the Loans.

 

6.13.                        Notice

 

Any notice required to be given hereunder or under any other Loan
Document shall be in writing and may effectively be given by a party hereto by
delivery of such notice to the other party at the address below or at such
other address as 

 

11

 

either party may in writing notify the other party or by facsimile
transmission and confirmed in writing to:

 

In the case of the Bank:

 

to the address
or telecopier number

of the
Lending Branch set out on the

first
page hereof

 

Attention:  Senior Vice President & Branch Manager

Telecopier No. 604-641-1808

 

In the case of the Borrower:

 

Best Buy Canada Ltd. 

8800 Glenlyon Parkway

Burnaby, British Columbia

V5J 5K3

 

Attention:                                         Kevin
Layden

President & Chief Operating Officer

Telecopier No.                  
(604) 412-5240

 

Notice shall be deemed to have been received by a party within 3
Business Days of delivery to the applicable address contemplated above.  Notices by facsimile transmission shall be
deemed to have been given upon receipt thereof at the address indicated above.

 

6.14.                        Governing Law – This Offer Letter shall be
governed by and construed in accordance with the laws of the Province of
British Columbia and the laws of Canada applicable therein.

 

6.15.                        Counterparts and Telecopy - This
offer letter may be signed in counterparts and by telecopy, each of which
counterparts shall be deemed to be an original, and all such counterparts and
telecopies together shall constitute one and the same instrument.

 

6.16.                        Bank’s Solicitors - Legal
work and documentation is to be performed on behalf of the Bank by Messrs.
Lawson Lundell, Barristers and Solicitors, 1600 Cathedral Place, 925 West
Georgia Street, Vancouver, British Columbia.

 

7.                                       Definitions and Interpretation:

 

In the attached Offer Letter the following terms shall have the
following meanings:

 

7.1.                              “Acceptable Inventory” means the value based
on the lower of cost and fair market value (as reasonably determined by the
Bank or its agents) of all materials owned by the Borrower for resale or for
the production of goods for resale, 

 

12

 

excluding work in process and such materials of the Borrower
which are financed by other Persons, and from which the Priority Claims shall
be deducted from Acceptable Inventory. 
As at the date of this Offer Letter (and without limiting the Bank’s
right at any time to deduct further Priority Claims), it is the Bank’s
intention to deduct those Priority Claims accorded to suppliers of inventory
pursuant to section 81 of the Bankruptcy and Insolvency Act (Canada), as
amended;

 

7.2.                              “Acceptable Receivables” means the aggregate
of accounts receivable of the Borrower from customers approved by the Bank from
which shall be excluded all accounts receivable:

 

7.2.1                                  which
have been outstanding or not more than 60 days;

 

7.2.2                                  from
Affiliates of the Borrower;

 

7.2.3                                  which
are disputed by the Borrower’s customers or a subject to set-off;

 

7.2.4                                  from
customers from whom other accounts receivable remain outstanding for in excess
of 60 days;

 

7.2.5                                  accounts
receivable from customers resident in the United States,

 

from which Priority Claims shall be deducted from Acceptable
Receivables.  As at the date of this
Offer Letter (and without limiting the Bank’s right to at any time deduct
further Priority Claims), it is the Bank’s intention to deduct those Priority
Claims arising under the Employment Standards Act (British
Columbia), Excise
Tax Act (Canada), Income Tax Act (Canada)  and
Social
Service Tax Act (British Columbia)  (and the corresponding
legislation in the Province of Quebec);

 

7.3.                              “Affiliate” means any party that would,
pursuant to the Income Tax Act (Canada), as amended, supplemented or
replaced from time to time, not be considered to be dealing at “arms length”
with the party in question and any partnership or other organization in which
the Borrower or the Guarantors or any of their Affiliates has the right to make
or control management decisions and shall include any Affiliate of any such
Affiliate;

 

7.4.                              “Bank’s Prime Rate” means the floating
annual rate of interest established and recorded as such by the Bank from time
to time as a reference rate for purposes of determining floating rates of interest
it will charge on loans denominated in Canadian Dollars and made in Canada;

 

7.5.                              “Bank’s U.S. Base Rate” means the floating
annual rate of interest established and recorded as such by the Bank from time
to time as a reference rate for the purposes of determining rates of interest
it will charge on loans denominated in U.S. Dollars made in Canada based on a
year of 360 days;

 

13

 

7.6.                              “Bankers’ Acceptance” means a depository
bill as defined in the Depository Bills and Notes Act (Canada) in
Canadian Dollars that is in the form of an order signed by the Borrower and
accepted by a Lender pursuant to this Agreement or, for Lenders not
participating in clearing services contemplated in that Act, a draft or bill of
exchange in Canadian Dollars that is drawn by the Borrower and accepted by a
Lender pursuant to this Agreement. 
Orders that become depository bills, drafts and bills of exchange are
sometimes collectively referred to in this Agreement as “orders.”  Any depository bill may be made payable to
“CDS & Co.” and deposited with The Canadian Depository for Securities
Limited;

 

7.7.                              “Business Day” means a day upon which the
branch of Bank issuing the Offer Letter is open for business;

 

7.8.                              “Canadian Dollar Equivalent” means at any
time on any date in relation to any amount in a currency other than Canadian
dollars, the amount of Canadian dollars required for the Borrower to purchase
that amount of such other currency at the spot rate of exchange quoted by the
Bank at or about 10:30 a.m. (local Vancouver time) on such date, including all
premiums and costs of exchange;

 

7.9.                              “Canadian Dollars” and “CDN$” each mean lawful currency of Canada;

 

7.10.                        “Canadian GAAP” means Canadian generally
accepted accounting principles, including such principles recommended by the
Canadian Institute of Chartered Accountants as contained in the “CICA
Handbook”, as the same may be amended, replaced or restated from time to time,
and, in the absence of a specific recommendation contained in the “CICA
Handbook”, such accounting principles generally accepted in practice in Canada;

 

7.11.                        “Capital Stock” means, with respect to any
Person, any and all present and future shares, partnership or other interests,
participations or other equivalent rights in the person’s capital, however
designated and whether voting or non-voting;

 

7.12.                        “Cash Flow Leverage Ratio” means at any date
of determination, the ratio of (a) the Interest-bearing Indebtedness of Best
Buy Co. and its Subsidiaries, plus eight times Rental and Lease Expense for the
Measurement Period ending on such date, to (b) the sum for the Measurement
Period ending on such date of (i) Earnings Before Interest, Income Taxes,
Depreciation and Amortization and (ii) Rental and Lease Expense, in all cases
determined in accordance with US GAAP and as set forth in Best Buy Co.’s
consolidated financial statements delivered hereunder;

 

7.13.                        “Change of Control” means the acquisition of
Capital Stock by any Person or group of Persons, beneficially or otherwise
(whether by purchase, exchange, merger, consolidation or otherwise), directly
or indirectly, in one transaction or in a series of related transactions which
Person or group of Persons then on account of such acquisition, legally,
beneficially or otherwise owns or holds directly or indirectly 50% or more of
the Capital Stock of any of the Borrower or the Guarantors;

 

14

 

7.14.                        “Compensating Amount” means an amount
determined by the Bank to be the net cost, if any, incurred by the Bank as a
direct result of the payment of any amount owing in respect of a Banker’s
Acceptance on any date other than the date of maturity for such Banker’s
Acceptance, including, without limitation, the loss or expense sustained or
incurred by the Bank relating to such payment. 
A certificate of a manager or account manager of the Bank shall, absent
manifest error, be conclusive evidence of the Compensating Amount from time to
time;

 

7.15.                        “Consolidated Financial Statements” means
the consolidated financial statements prepared in respect of Best Buy Co. (and
including the Borrower) in accordance with generally accepted accounting
principles applied on a consistent basis;

 

7.16.                        “Consolidated Net Worth” means as of any date
of determination, the sum of the amounts set forth on the consolidated balance
sheet of Best Buy Co. as the sum of the common stock, preferred stock,
additional paid-in capital and retained earnings of Best Buy Co. (excluding
treasury stock);

 

7.17.                        “Convertible Debentures” means the
US$336,000,000 senior unsecured convertible debentures (issued in 2001) and the
US$402,000,000 subordinated convertible debentures (issued in 2002) issued by
Best Buy Co.;

 

7.18.                        “Draft” means a commercial draft of the Bank
in a form approved by the Bank made by the Borrower in accordance with the
provisions of the Offer Letter;

 

7.19.                        “Earnings Before Interest, Income Taxes, Depreciation
and Amortization” means for any period of determination, the
consolidated net income of Best Buy Co. and its Subsidiaries before deductions
for income taxes, Net Interest Expense, depreciation and amortization, all as
determined in accordance with US GAAP, excluding therefrom (a) non-operating
gains (including, without limitation, extraordinary or unusual gains, gains
from discontinuance of operations, gains arising from the sale of assets and
other nonrecurring gains) of Best Buy Co. and its Subsidiaries during the
applicable period and (b) similar non-operating losses (including, without limitation,
losses arising from the sale of assets and other nonrecurring losses) of Best
Buy Co. and its Subsidiaries during such period;

 

7.20.                        “Existing Liens” means those Liens described
in Schedule “C” attached hereto;

 

7.21.                        “Financial Covenants” means any of the
financial ratios or calculations to be made or maintained by the Borrower or
the Guarantors pursuant to this Offer Letter, including without limitation, the
calculations and ratios required to be made or maintained in accordance with
paragraphs 12.1.2.5, 12.1.3, 12.1.4 and 12.1.5 of the Offer Letter;

 

7.22.                        “Government Authority” means any government
legislature, regulatory authority, agency, commission, board or court or other
law, regulation or rule

 

15

 

making entity having or purporting to have jurisdiction on
behalf of any nation, state, country or other subdivision;

 

7.23.                        “Guarantee” means with respect to any Person
at the time of any determination, without duplication, any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the “primary obligor”) in
any manner, whether directly or otherwise: (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any direct or
indirect security therefor, (b) to purchase property, securities, or services
for the purpose of assuring the owner of such Indebtedness of the payment of
such Indebtedness, (c) to maintain working capital, equity capital, or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or otherwise to protect the owner thereof
against loss in respect thereof, or (d) entered into for the purpose of
assuring in any manner the owner of such Indebtedness of the payment of such
Indebtedness or to protect the owner against loss in respect thereof; provided,
that the term “Guarantee” shall not include endorsements for collection or
deposit in the ordinary course of business;

 

7.24.                        “Guarantors” means together Best Buy Co. and
Stores L.P.;

 

7.25.                        “Indebtedness” with respect to any Person at
the time of any determination, without duplication, all obligations, contingent
or otherwise, of such Person which in conformity with US GAAP should be
classified upon the balance sheet of such Person as liabilities, but in any
event shall include:  (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations
of such Person upon which interest charges are customarily paid or accrued, (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (e) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, (f) all obligations of others secured by any Lien on property owned
or acquired by such Person, whether or not the obligations secured thereby have
been assumed, (g) all capitalized lease obligations of such Person, (h) all
obligations of such Person in respect of interest rate protection agreements,
(i) all obligations of such Person, actual or contingent, as an account party
in respect of letters of credit or bankers’ acceptances, (j) all obligations of
any partnership or joint venture as to which such Person is or may become
personally liable, and (k) all Guarantees by such Person of Indebtedness of
others.  For clarification purposes,
Indebtedness of the Borrower shall include the Indebtedness arising from this
Offer Letter;

 

7.26.                        “Interest Coverage Ratio” means for any
Measurement Period, the ratio of (a) the sum of Best Buy Co.’s (i) Earnings
Before Interest, Incomes Taxes, Depreciation and Amortization plus (ii) Rental
and Lease Expense to (b) the sum of (i) Net Interest Expense, plus (ii)
Rental and Lease Expense;

 

16

 

 

7.27.                        “Interest Expense” means for any period of
determination, the aggregate consolidated amount, without duplication, of
interest paid, accrued (including without limitation, payment in kind interest)
or scheduled to be paid in respect of any consolidated Indebtedness of Best Buy
Co. and its Subsidiaries, including (a) all but the principal component of
payments in respect of conditional sale contracts, capitalized leases and other
title retention agreements, and (b) net costs (income) under interest rate
protection agreements, in each case determined in accordance with US GAAP;

 

7.28.                        “Interest Income” means for any period of
determination, the aggregate consolidated amount, without duplication, of
interest received, accrued (including without limitation, payment in kind
interest) or scheduled to be received by Best Buy Co. and its Subsidiaries,
including (a) all but the principal component of payments in respect of
conditional sale contracts, capitalized leases and other title retention agreements,
and (b) net income (costs) under interest rate protection agreements, in each
case determined in accordance with US GAAP;

 

7.29.                        “Interest-bearing Indebtedness” means at the
time of any determination, all of the Indebtedness of Best Buy Co. and its Subsidiaries
(a) for borrowed money or (b) to third party financers to finance the purchase
of inventory, to the extent not paid before interest begins to accrue;

 

7.30.                        “Investments” means all investments, in cash
or by delivery of property, made directly or indirectly in any property or
assets or in any Persons, whether by acquisition of shares of capital stock,
Indebtedness or other obligations or securities or by loan, advance, capital
contribution or otherwise;

 

7.31.                        “Letter of Credit” means a bank guarantee,
standby letter of credit or commercial letter of credit in a form satisfactory
to the Bank issued by the Bank at the request of any of the Borrowers in favour
of the third party to secure the payment or performance of an obligation of the
Borrowers or any of them to the third party;

 

7.32.                        “Legal Requirement” means all laws,
statutes, codes, ordinances, orders, awards, judgments, decrees, injunctions,
rules, regulations, authorizations, consents, approvals, orders, permits,
franchises, licences, directions and requirements of all Governmental
Authorities;

 

7.33.                        “Lien” means, with respect to any item of
Property, any security interest, mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, easement (other
than any easement not materially impairing usefulness or marketability),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such item of
Property (including, without limitation, any conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing);

 

17

 

7.34.                        “Measurement Period” means each period of
four fiscal quarters ending on the last day of a fiscal quarter of Best Buy
Co.;

 

7.35.                        “Net Interest Expense” means for any period
of determination, Interest Expense minus Interest Income.

 

7.36.                        “Offer  Letter”
means the letter from the Bank to the Borrower to which this Schedule “A” is
attached, together with this Schedule “A”, and includes all amendments,
supplements and replacements thereof;

 

7.37.                        “Persons” means any individual, partnership,
limited partnership, joint venture, syndicate, sole proprietorship, company or
corporation with or without share capital, unincorporated association, trust,
trustee, executor, administrator or other legal personal representative,
regulatory body or agency, government or governmental agency, authority or
entity however designated or constituted;

 

7.38.                        “Priority Claims” means the aggregate of any
mortgage, security interest, encumbrance, hypothecation, assignment, Lien or
other claim over any item of Property which, in the opinion of the Bank or its
solicitors, rank in priority to any claim in or to the Property that the Bank
may have pursuant to the Loan Documents or otherwise pursuant to any Government
Authority;

 

7.39.                        “Property” means all or any undertaking,
property and assets of the Borrower or the Guarantors;

 

7.40.                        “Purchase Money Mortgage” means any Lien,
including a lease, created, issued or assumed by the Borrower to secure
indebtedness as part of, or issued or incurred to provide funds to pay and not
exceeding 100% of the unpaid purchase price (including instalment) of any
Property, if the Lien is limited to the Property acquired and is created,
issued or assumed substantially concurrently with the acquisition of the
Property or in connection with the refinancing of an existing Purchase Money
Mortgage, if the principal amount has not increased and the Lien continues to
be limited to that Property;

 

7.41.                        “Rental and Lease Expense” means for any
period of determination, the aggregate consolidated amount, without duplication
of all amounts paid or accrued by Best Buy Co. or any Subsidiary under all
capital leases and other leases of real or personal property, including net
costs (income) under interest rate protection agreements with respect to such
amounts, but excluding any portion of such amounts included in calculating Net
Interest Expense of Best Buy Co. for such period, in each case determined in
accordance with US GAAP;

 

7.42.                        “Stock” means all shares, options, warrants,
equity interests, equity participations, or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited partnership or
equivalent entity whether voting or nonvoting or participating or
non-participating

 

18

 

7.43.                        “Subsidiary” means with respect to any
Person, any corporation, partnership, trust or other Person of which more than
50% of the outstanding capital stock (or similar interests) having ordinary
voting power to elect a majority of the board of directors of such corporation
(or similar governing body) (irrespective of whether or not, at the time,
capital stock of or other similar interests shall or might have voting power
upon the occurrence of any contingency) is at the time directly or indirectly
owned by such Person, by such Person and one or more other Subsidiaries of such
Person;

 

7.44.                        “Taxes” includes all present and future
taxes, rates, levies or assessments (ordinary or extraordinary), imposts, stamp
taxes, royalties, duties, fees, dues, deductions, withholdings, sales taxes or
charges, added value charges, charges or taxes on capital or reserves, levied,
assessed or imposed by any government or governmental authority, and any
restrictions or conditions resulting in a tax and all penalty, interest and
other payments on or in respect thereof;

 

7.45.                        “U.S. Credit Agreement” means the amended
and restated credit agreement dated as of March 21, 2002 by and between Best
Buy Co., the lenders from time to time party thereto and  U.S. Bank National Association, as agent for
the lenders party thereto.

 

7.46.                        “U.S. Dollar Equivalent” means - at any time
on any date in relation to any amount in a currency other than U.S. Dollars,
the amount of U.S. Dollars required for the Borrower to purchase that amount of
such other currency at the spot rate of exchange quoted by the Bank at or about
10:30 a.m. (local Vancouver time) on such date, including all premiums and
costs of exchange;

 

7.47.                        “U.S.  Dollars”
and “U.S. $” each mean lawful
currency of the United States of America; and

 

7.48.                        “US GAAP” means generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of March 21, 2002.

 

19

 

SCHEDULE “B” TO OFFER
LETTER

FROM HSBC BANK CANADA

TO BEST BUY CANADA LTD.  MAGASINS BEST BUY LTÉE.

DATED SEPTEMBER 13, 2002

 

Best
Buy Co., Inc. & Directly Owned Subsidiaries Graphic

 

 

 

BBC Property Co. & BBC
Investment Co. Subsidiaries

Graphic

 

 

2

 

Musicland
Stores Corporation & Subsidiaries Graphic 

 

 

3

 

Best
Buy Concepts, Inc. & Subsidiaries Graphic

 

 

4

 

Best Buy Canada Ltd. (fka
Future Shop Ltd., & Subsidiaries Graphic)

 

 

5

 

SCHEDULE
“C” TO OFFER LETTER

FROM HSBC BANK CANADA

TO BEST BUY CANADA LTD.  MAGASINS BEST BUY LTÉE.

DATED SEPTEMBER 13, 2002

 

Existing Liens

 

1.                                       Priority claims accorded to suppliers of
inventory pursuant to section 81 of the Bankruptcy and Insolvency Act (Canada).

 

2.                                       Security granted to specific vendors:

 

(a)                                  IBM – Security
granted on inventory financed by them, which secured indebtedness will not
exceed Cdn.$18,500,000.

 

3.                                       Security granted to others:

 

(a)                                  Canadian Imperial
Bank of Commerce has a priority agreement on a pledge of bank balances in the
amount of $800,000, provided in connection with purchasing card facilities.

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