10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 25, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-9595 BEST BUY CO., INC. (Exact Name of Registrant as Specified in Charter) MINNESOTA 41-0907483 (State of Incorporation) (I.R.S. Employer Identification Number) 7075 Flying Cloud Drive EDEN PRAIRIE, MINNESOTA 55344 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 612-947-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE 8-5/8% SENIOR SUBORDINATED NOTES, DUE 2000 NEW YORK STOCK EXCHANGE 9% SUBORDINATED EXTENDIBLE NOTES, DUE 1997 NEW YORK STOCK EXCHANGE 6-1/2% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The aggregate market value of voting stock held by non-affiliates of the Registrant on May 3, 1995, was approximately $884,961,396. On that date, there were 42,566,390 shares of Common Stock issued and outstanding. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended February 25, 1995 ("Annual Report") are incorporated by reference into Part II. Portions of the Registrant's Proxy Statement dated May 17, 1995 for the regular meeting of shareholders to be held June 21, 1995 ("Proxy Statement") are incorporated by reference into Part III. PART I Item 1. BUSINESS General Best Buy Co., Inc. (the "Company" or "Best Buy"), is one of the nation's fastest growing specialty retailers. The Company offers a wide selection of name brand consumer electronics, home office equipment, entertainment software and appliances. The Company commenced business in 1966 as an audio component systems retailer, and in the early 1980s, with the introduction of the video cassette recorder, expanded into video products. In 1983, the Company changed its marketing strategy to use mass merchandising techniques for a wider variety of products, and began to operate its stores with a "superstore" format. In 1989, Best Buy dramatically changed its method of retailing by introducing its "Concept II" store format, a self-service, non-commissioned, discount style sales environment designed to give the customer more control over the purchasing process. The Company determined that an increasing number of customers had become knowledgeable enough to select products without the assistance of a commissioned salesperson and preferred to make purchases in a more convenient and customer friendly manner. With its innovative retail format, the Company has moved into a leading position nationally in all of its principal product categories except appliances. During the past year, the Company developed a strategy to further enhance its store format. The strategy, known as "Concept III", features a larger, redesigned store format created to produce a more informative and exciting shopping experience for the customer. Through focus group interviews and other research, the Company determined that customers wanted more product information and a larger product selection. In order to meet these evolving consumer preferences, the Company developed interactive Answer Centers featuring touch screen monitors from which customers and sales personnel can immediately access product information. Additionally, the enhanced store format features more hands-on demonstrations allowing customers to, among other things, experience audio and video products such as "surround sound" systems and sample featured compact discs at approximately 100 private listening stations. Finally, these larger stores, generally 45,000 square feet with some as large as 58,000 square feet, accommodate a larger product selection intended to be as good as or better than the largest selection offered by most of Best Buy's competitors in each of its principal product categories. Management continues to evaluate and refine the content and features of these Concept III stores to maximize the revenue and operating profit while providing customers with the most desirable shopping experience. The stores to be opened in fiscal 1996 will incorporate many of the Concept III features when opened and are designed to accommodate all features. The Company will continue to refine the touch screen Answer Center kiosks in the coming year. -2- In the last three fiscal years the Company has nearly tripled the number of stores it operates and, as of February 25, 1995, was operating 204 stores from coast to coast. The Company anticipates opening a total of 47 stores in fiscal 1996, including seven stores in the Miami market. By the end of fiscal 1996, the Company expects to operate 251 stores. Business Strategy The Company's business strategy is to offer consumers an enjoyable and convenient shopping experience while maximizing the Company's profitability. Best Buy believes it offers consumers meaningful advantages in store environment, product value, selection and service. An objective of this strategy has been to achieve a dominant share of the markets Best Buy serves. The Company currently holds a leading, and in some cases dominant, share in its markets. The Company's recently introduced Concept III store format uses interactive technology to enhance the customer's shopping experience. As part of its overall strategy, the Company: * Offers a self-service, discount style store format, featuring easy to locate product groupings, emphasizing customer choice and product information and providing assistance from non-commissioned product specialists and, in Concept III stores, interactive product displays and information. * Provides a large selection of brand name products comparable to retailers that specialize in the Company's principal product categories and seeks to ensure a high level of product availability for customers. * Seeks to provide customers with the best product value available in the market area through active comparison shopping programs, daily price changes, lowest price guarantees and special promotions, including interest-free financing, extended warranties generally priced below the competitors and home delivery. * Provides a variety of services not offered by certain competitors, including convenient financing programs, product delivery and installation, computer training and post-sale services including repair and warranty services and computer upgrades. * Locates stores at sites that are easily accessible from major highways and thoroughfares and seeks to create sufficient concentrations of stores in major markets to maximize the leverage on fixed costs including advertising and operations management. -3- * Controls costs and enhances operating efficiency by centrally controlling all buying, merchandising and distribution, and vertically integrating certain support functions such as advertising. Best Buy's store format is a key component of its business strategy. The Company believes that because customers are familiar with most of the products the Company sells and are accustomed to discount shopping formats, they increasingly resist efforts to direct their choice of product and appreciate controlling the purchase decision. Best Buy continuously evaluates the retail environment and regularly uses focus groups to assess customer preferences. Through these processes, Best Buy concluded that customers want access to more product information in order to be more confident about their purchase decisions. As a result, Best Buy's new Concept III store format features interactive product displays and information including, in selected locations, Answer Centers enabling customers to immediately access product information from touch screen monitors that display informative and entertaining full motion videos. All Concept III stores contain a demonstration area for television "surround sound" systems so that customers can see for themselves how different configurations of audio components enhance sound quality; a simulated, life-size car display that demonstrates differences in car stereo sound resulting from different speaker configurations; a speaker room with a 100 disc CD changer allowing customers to compare speaker quality while listening to their choice of music; approximately 100 private listening posts where customers can sample featured music software; and a "Fun & Games" area where customers and their children can try the latest video games. Best Buy believes that these features further differentiate it from competing retailers and should also provide an advantage for the Company relative to potential future competitors such as catalog and on-line services and television shopping networks. The Company's stores are in large, open buildings with high ceilings. Most of Best Buy's existing stores contain approximately 36,000 to 45,000 square feet. The Concept III stores feature specialty areas such as larger viewing rooms for large screen and projection televisions, larger speaker rooms, a separate department for movie videos, a working kitchen for appliance demonstrations and a larger, consolidated accessories department. To accommodate an expanding product selection, as well as these specialty features, approximately half of the stores which the Company plans to open in fiscal 1996 will have approximately 45,000 square feet, with the remaining stores having approximately 58,000 square feet. Best Buy's merchandising strategy differs from most other retailers selling comparable merchandise. Best Buy's merchandise is displayed at eye level next to signs identifying the products' major features, with the boxed products available above or below -4- the display model. The Company's salaried product specialists, who are knowledgeable about the operation and features of the merchandise on display, are dedicated to a particular product area for customers who desire assistance. This convenient, self service format allows the customer to carry merchandise directly to the check-out lanes, pay for it and leave the store thus avoiding the time-consuming process used at traditional superstores and catalog showrooms. Certain of the Company's competitors with the traditional superstore format use commissioned sales staffs and have only display models on the selling floor with boxed merchandise stored in a back room. This traditional superstore design allows sales personnel to direct the customer to products selected by the salesperson. At these stores, a salesperson typically will promote products yielding the greatest sales commissions. In addition, unlike Best Buy, these traditional superstores generally stress the sale of extended service plans and have trained their sales staffs to maximize the sale of these plans. The Company offers extended service plans, generally at lower prices than its competitors. The Company believes that its advertising strategy has greatly contributed to its overall success. Best Buy spends approximately 3% of store sales on advertising, including the distribution of about 18 million newspaper inserts weekly. The Company has vertically integrated advertising and promotion capabilities and operates its own in-house advertising agency. This capability allows the Company to respond rapidly to competitors in a cost effective manner. In many of its markets, the Company is able to secure and deliver merchandise to its stores and to create, produce and run an advertisement all within a period of less than one week. Print advertising consists of four-color weekly inserts of up to 20 pages that emphasize a variety of product categories and feature extensive name brand selection and price range. The Company also produces all of its television and radio commercials, each with a specific marketing message. Television commercials and radio spots account for approximately 35% of total advertising expenditures. The Company is reimbursed by vendors for a substantial portion of advertising expenditures through cooperative advertising arrangements. Product service and repair are important aspects of Best Buy's marketing strategy, providing the opportunity to differentiate itself from warehouse clubs and other discount stores which generally provide no such services. Virtually all products sold by the Company carry manufacturers' warranties. The Company offers to service and repair almost all of the products it sells, except major appliances in certain markets, and has been designated by most of its suppliers as an authorized service center. The Company contracts with outside factory service organizations to service and repair major appliances and is expanding its own in-home appliance repair service. In addition, the Company -5- conducts computer software training classes at selected stores and makes its technical support staff available to assist customers with the custom configuration of personal computers and peripheral products. The Company also delivers and installs major appliances and large electronics products and installs car stereos, cellular phones and car security systems. Product Selection and Merchandising Best Buy provides a broad selection of name brand models within each product line in order to provide customers with greater choice. The Company currently offers approximately 4,000 products, exclusive of entertainment software titles and accessories, in its four principal product categories. In addition, the Company continues to expand its selection of accessories, which typically yield a higher margin than most of the Company's other products. The Company believes that this expanded assortment of accessories will build customer traffic for its other products. The Company also aggressively promotes and displays a large selection of lower priced, high volume items, such as blank audio and video tapes, portable audio equipment and photographic equipment. The home office category, Best Buy's largest product category, includes personal computers and related peripheral equipment, telephones, cellular phones, answering machines, fax machines, copiers and calculators. The Company was among the first consumer electronics retailers to carry an extensive assortment of personal computer products and related software. The Company believes that it is well positioned to withstand increased competition in the retail market for personal computer products, traditionally low margin items, due to its early entry and experience in the market, its broad product lines, including those that generate higher profit margins, and its relatively low cost structure. In addition, the Company believes that the related services it offers, such as computer training, configuration, maintenance and upgrade, are distinct advantages compared to other discount and mail order computer retailers. The Company also believes that changing technology will continue to be the primary factor in the growth in sales of personal computers and related products in the future. The Company's home office products category includes brand names such as Acer, Apple, AT&T, Canon, Compaq, Epson, Hewlett Packard, IBM, Motorola, NEC, Packard Bell, Panasonic, Sharp and Toshiba. Best Buy's second largest product category is consumer electronics, consisting of video and audio equipment. Video products include televisions, video cassette recorders, camcorders and the new satellite dishes that receive direct broadcast satellite television. Audio products include audio components, audio systems, portable audio equipment, car stereos and security systems. The Company has recently expanded its product selection in consumer electronics by offering higher end products and components that have greater appeal to audio and video enthusiasts. -6- Further, the Company anticipates that with the availability of better picture and sound quality through direct broadcast satellite, it will have more opportunities to sell higher end equipment such as home theaters, "surround sound" systems and in-wall components. The Company sells consumer electronics with brand names such as Aiwa, Bose, Cambridge Soundworks, General Electric, Infinity, JBL, JVC, Magnavox, Panasonic, Pioneer, RCA, Sanyo, Samsung, Sharp, Sony, Technics and Toshiba. Best Buy's entertainment software category includes compact discs, pre-recorded audio and video cassettes and computer software. The Company is one of the few large consumer electronics retailers that sells a broad selection of entertainment software in all of its stores. The Company offers from 25,000 to 60,000 titles in its stores with as many as 80,000 titles in its largest Concept III stores. In addition, Best Buy customizes a portion of the music software assortment for a particular store. The Company believes that it has substantially increased customer traffic by offering this wide and customized assortment of entertainment software. The major appliance category includes microwave ovens, washing machines, dryers, air conditioners, dishwashers, refrigerators, freezers, ranges and vacuum cleaners. Products in this category include brand names such as Eureka, Frigidaire, Hoover, Maytag, Roper, Sharp, and White-Westinghouse. The Company also sells cameras and other photographic equipment, easy to assemble furniture designed for use with computer and audio/video equipment and a broad selection of accessories. The Company continues to evaluate compatible products to maximize the profit from the available space in the larger stores. The following table sets forth the approximate percentages of store sales from each of Best Buy's principal product lines. Fiscal Years Ended ------------------------------------------------------- February 27, 1993 February 26, 1994 February 25, 1995 ----------------- ----------------- ----------------- Home Office 27% 35% 37% Consumer Electronics: Video 26 22 20 Audio 20 16 14 Entertainment Software 9 12 14 Major Appliances 11 9 8 Other (1) 7 6 7 ---- ---- ---- Total 100% 100% 100% ---- ---- ---- ---- ---- ---- (1) Includes photographic equipment, blank audio and video tapes, video games, furniture and accessories and extended service plans. -7- Store Locations and Expansion The Company's expansion strategy generally has been to enter major metropolitan areas with the simultaneous opening of several stores and then to expand into contiguous non-metropolitan markets. Currently, approximately half of the Company's stores are in non-metropolitan markets. The entry into a new market is preceded by a detailed market analysis which includes a review of competitors, demographics and economic data. Best Buy's store location strategy enables it to increase the effectiveness of advertising expenditures and to create a high level of consumer awareness. In addition, the clustering of stores allows the Company to maintain more effective management control, enhance asset utilization, and utilize its distribution facilities more efficiently. When entering a major metropolitan market, the Company establishes a district office, service center and major appliance warehouse. Each new store requires approximately $3.0 to $3.6 million of working capital, depending on the size of the store, for merchandise inventory (net of vendor financing), leasehold improvements, fixtures and equipment. Pre-opening costs of approximately $200,000 per store are incurred in hiring and training new employees and in advertising and are expensed in the year the store is opened. Best Buy is continuing its national market expansion. The Company believes it has the necessary distribution and management information systems as well as management experience and depth to support its expansion plans. During fiscal 1995, the Company opened 53 stores, a 35% increase in its store base. The Company also expanded or relocated 30 stores to larger facilities. The Company expects to open 47 new stores in fiscal 1996 including entry into Miami with seven stores. The Company also expects to continue developing the new markets entered in fiscal 1995 with the planned addition of ten to twelve stores in the Los Angeles market and additional stores in the Baltimore/Washington D.C. market. To further implement the Concept III store format, the Company also plans to reposition another 20 stores in fiscal 1996. The following table presents the number and location of stores operated by the Company at the end of each of the last three fiscal years and the number of stores the Company expects to open during the current fiscal year. -8- Number of Stores Expected Expected Number of At Fiscal Year End Store Openings Stores at End ------------------ 1993 1994 1995 Fiscal 1996 Of Fiscal 1996 ---- ---- ---- ----------- -------------- Texas 26 28 32 2 34 Illinois 20 30 31 1 32 California -- -- 7 12 19 Ohio -- 2 12 6 18 Michigan -- 10 14 2 16 Minnesota 14 15 15 - 15 Florida -- -- 3 9 12 Wisconsin 11 11 11 - 11 Georgia -- 7 9 1 10 Missouri 10 10 10 - 10 Indiana 7 7 8 - 8 Maryland -- -- 4 4 8 Arizona -- 6 7 - 7 Colorado 6 6 6 1 7 North Carolina -- -- 3 4 7 Virginia -- -- 5 1 6 Iowa 5 5 5 - 5 Kansas 3 4 5 - 5 South Carolina -- -- 3 1 4 Arkansas 1 2 3 -- 3 Nebraska 3 3 3 -- 3 Oklahoma 3 3 3 - 3 Kentucky -- -- 1 - 1 Nevada -- -- 1 - 1 New Mexico 1 1 1 - 1 North Dakota -- -- 1 - 1 South Dakota 1 1 1 - 1 To be determinted - - - 3 3 -- -- -- -- -- Total 111 151 204 47 251 --- --- --- -- --- --- --- --- -- --- Suppliers, Purchasing and Distribution The Company's marketing strategy depends, in part, upon its ability to offer a wide selection of name brand products to its customers and is, therefore, dependent upon satisfactory and stable supplier relationships. In fiscal 1995, Best Buy's 25 largest suppliers accounted for approximately 70% of the merchandise purchased by the Company, with five suppliers, Acer, Hewlett-Packard, Packard Bell, Phillips Consumer Electronics, and Sony, accounting for approximately 31% of the Company's total purchases. The loss of or disruption of supply, including disruptions in supply due to manufacturers' product quality issues, from any one of these major suppliers could have a material adverse effect on the Company's sales. Certain suppliers have, at times, limited or discontinued their supply of products to the Company. While Whirlpool and Dell Computer changed their channels of distribution during the past year and the Company no longer carries these brand names, the Company's operations have not been materially adversely impacted by the loss of supply from these or any other supplier. Best Buy has no long term written contracts with its major suppliers but has not received any indication that any other suppliers will discontinue selling merchandise to the Company. The -9- Company has not experienced difficulty in maintaining satisfactory sources of supply, and management expects that adequate sources of supply will continue to exist for the types of merchandise sold in its stores. Best Buy's centralized buying staff purchases substantially all of the Company's merchandise. The buying staff is responsible for overall inventory management, including promotion planning, pricing and replenishment of store inventory. Generally, with the exception of certain entertainment software, there are no agreements with suppliers for the return of unsold inventory. Merchandise remaining at the time of new product introduction is generally sold on a close-out basis. Revenues from the sale of close-out merchandise have been insignificant. The Company has made product availability a high priority and has made significant investments in facilities, personnel and systems to assure that its in-stock position will be among the highest in the industry. The Company utilizes an automatic replenishment system for restocking its stores and is able to deliver products to its stores as required. Replenishment of store inventories is based on inventory levels, historical and projected sales trends, promotions and seasonality. The Company utilizes an extensive merchandise planning and daily inventory monitoring system to manage inventory turns. The majority of the Company's merchandise, except for major appliances, is shipped directly from manufacturers to the Company's distribution centers in California, Minnesota, Oklahoma and Virginia. During the last twelve months, the Company increased its permanent distribution space from approximately 500,000 square feet to over 1,800,000 square feet. In addition, the Company recently opened a dedicated distribution center for entertainment software in Minnesota and installed a state-of-the-art sortation system for music software. The Company is currently constructing a fifth distribution center in Findlay, Ohio. This facility will be approximately 780,000 square feet and is expected to open in August 1995. Major appliances are shipped to satellite warehouses in each of the Company's major markets. In order to respond to the need to meet release dates for certain computer products and entertainment software titles, the Company has increased the volume of merchandise shipped directly to the stores from manufacturers and distributors. The Company is, however, still dependent upon the distribution centers for inventory storage and shipment of most merchandise to stores. The Company primarily uses contract carriers to ship merchandise from its distribution centers to its stores. The Company believes that its distribution centers can most effectively service stores within a 600 to 700 mile radius and that its six distribution centers will accommodate the Company's expansion plans for the next year. The Company plans to continue investing in new systems and purchasing material handling equipment to reduce labor costs, improve accuracy in filling orders and enhance space utilization. -10- Management Information Systems Best Buy has invested significant resources to develop proprietary software that provides daily information on sales, gross margins and inventory levels by store and by stockkeeping unit. These systems allow the Company to compare current performance against historical performance and the current year's budget. The systems have been designed to integrate all major aspects of the Company's business including sales, warehousing, distribution, purchasing, inventory control, merchandise planning and replenishment, as well as various financial systems. Best Buy uses point-of-sale bar code scanning from which sales information is polled at the end of each day. The Company's MIS group, in conjunction with the advertising department, has also developed the proprietary technology to be used in the touch screen Answer Centers. The Company uses EDI (Electronic Data Interchange) with selected suppliers for the more efficient transmittal of purchase orders, shipping notices and invoices. The Company believes that the systems it has developed have the ability to continue to improve customer service, operational efficiency, and management's ability to monitor critical performance factors. The systems have been designed to support the growth and expansion of the Company for the foreseeable future. Best Buy is continuing to make investments in designing new systems, modifying existing systems and increasing processing capacity, particularly with respect to distribution, inventory management and store operations. Store Operations Best Buy has developed a standardized and detailed system for operating its stores. The system includes procedures for inventory management, transaction processing, customer relations, store administration and merchandise display. The Company's store operations are organized into three regions. Each region is divided into districts and is under the supervision of a senior vice president who oversees the operation through several regional managers, each of whom has responsibility for a number of districts within the region. District managers monitor store operations closely and meet regularly with store managers to discuss merchandising and new product introductions, sales promotions, customer feedback and requests, store operating performance and other matters. Similar meetings are conducted at the corporate level with regional management. Each district also has a loss prevention manager, with product security controllers employed at each store to control inventory shrinkage. Advertising, pricing and inventory policies are controlled at corporate headquarters. The Company's training, consumer affairs, human resources and store merchandising functions are also centralized at corporate headquarters. The Company's stores are open seven days and six evenings a week. A store is typically staffed by one manager, two or three assistant managers, and an average staff ranging from 70 to 140 -11- persons depending on store size. Approximately 60% of a store's staff, which includes product specialists and a support staff of cashiers and customer service and stock handling employees, is employed on a part-time basis. Store managers are paid a salary and have the opportunity to earn bonuses if their stores exceed sales and gross margin quotas, meet certain budget criteria in controlling expenses, and achieve certain administrative goals. The Company has an extensive in-house education program to train new employees, keep current employees informed of changes and modifications to its operating procedures and demonstrate new products. The training program includes classes for employees and the use of detailed store manuals and training video tapes produced in-house. Best Buy also provides its store personnel with in-store training in the demonstration and operation of the Company's merchandise, which is enhanced using tests that are administered through the Company's mainframe computer system. The Company also conducts a six-week course of classroom instruction combined with on-the-job training for future management candidates. In fiscal 1996, the Company will introduce a new training program known as Career Path 2000. This program is designed to provide clearly defined steps to improve employee product and store operation knowledge and will enable employees to improve their overall performance and customer service and to plan a career path with the Company. The Company's policy is to staff store management positions with personnel promoted from within each store and to staff new stores from its pool of trained managers. However, as Best Buy expands into new markets, it also recruits local management personnel who have valuable knowledge about the new market. Credit Policy Approximately 35% of store revenues are paid for in cash, with the remaining 65% paid for by either major credit cards or the Best Buy private label credit card. The Company has significantly expanded the use of special financing offers and considers them an important part of its marketing strategy. Generally, the special financing offers allow customers to defer all payments interest-free for 90 days or six months, depending on the price of the product, or to defer interest payments for one year on the purchase of selected products. The special financing offers are provided to customers who qualify for Best Buy's private label credit card. The private label credit card allows these customers to obtain financing on purchases of merchandise at Best Buy stores through arrangements between the Company and independent banks and consumer credit programs. The Company is generally able to qualify a new customer for credit on the spot, typically in less than five minutes. Receivables from private label credit card sales are sold, without recourse to the Company, to unaffiliated third party institutions. The Company receives payment from these institutions within 2 to 3 days following the sale. -12- Competition Retailing in each of the Company's product categories is highly competitive. While overall consumer electronics sales have grown relatively slowly in recent years, the concentration of sales among the top retailers in the industry has increased significantly. The industry's consolidation has been evidenced in the previous two years by the liquidation of Highland Superstores, the closing of 97 Silo stores in many of the markets where the Company competes and the closing of 110 McDuff/Video Concepts (owned by Tandy Corp.) stores in states such as Texas, Colorado and Missouri. The relatively slow industry sales growth is due to market saturation for many consumer electronics products and the general absence of new products in that market. Growth of sales nationally in the home office product category has increased significantly and the Company now competes with an increasing number of retailers and alternative channels of distribution. In addition, the Company believes that consumers have become more knowledgeable and value conscious, thereby putting pressure on profit margins. Management believes that its store format distinguishes the Company from most of its competitors by offering customers a friendlier and less pressured shopping experience. In addition, the Company competes by aggressively advertising and emphasizing product selection, low prices and service. Best Buy competes in most of its markets against Sears and Montgomery Ward and in an increasing number of markets against Circuit City and Incredible Universe (owned by Tandy Corp.). It also competes against computer superstores such as Computer City (owned by Tandy Corp.) and CompUSA and entertainment software superstores operated by Musicland, Tower Records and Blockbuster Entertainment. Certain of these competitors have significantly greater financial resources than the Company. The Company also competes against independent dealers, discount stores, wholesale clubs, office products superstores and mass merchandisers. As of February 25, 1995, approximately 60% of the Company's stores compete with Circuit City. Employees As of February 25, 1995, the Company employed approximately 25,300 persons, of whom 13,500 were part-time employees. The Company has never experienced a strike or work stoppage, and management believes that its employee relations are good. There are currently no collective bargaining agreements covering any of the Company's employees. -13- Item 2. PROPERTIES The Company's stores, most of which are leased, include sales space, inventory storage, management offices and employee areas. All of the leases provide for a fixed minimum rent with scheduled escalation dates and amounts. Leases for 11 of the stores have a percentage rent provision equal to from .75% to 4% of gross sales at each location in excess of certain specified sales amounts. Currently, percentage rent is paid for only eight stores. The initial terms of the leases range from 5 to 25 years and generally allow the Company to renew for up to three additional five-year terms. The terms of a majority of the leases, including renewal options, extend beyond the year 2020. The Company leases a 425,000 square foot distribution center in Bloomington, Minnesota, and a 440,000 square foot distribution center in Ardmore, Oklahoma. During fiscal 1995, the Company added a 700,000 square feet distribution center in Staunton, Virginia, a 310,000 square feet distribution center in Ontario, California, and a 240,000 square feet software distribution center in Edina, Minnesota. The Company is constructing a 780,000 square feet distribution facility in Findlay, Ohio, that is expected to open in August 1995. The Company also operates leased satellite warehouses for major appliances in all of its major markets and uses a satellite warehouse operated by a third party in Kansas City. The Company's corporate offices are located in a 260,000 square foot facility it owns in Eden Prairie, Minnesota. Item 3. LEGAL PROCEEDINGS The Company is a named defendant in a lawsuit against the Company and certain officers filed in the United States District Court for the District of Minnesota. The plaintiffs purport to represent a class consisting of all persons who purchased Best Buy Common Stock during the period from September 20, 1994 through December 1, 1994. The complaint alleges various violations of federal securities laws and seeks damages in an unspecified amount. The matter is in the early stages of discovery. The Company believes that the complaint is without merit, intends to pursue a vigorous defense of the action and believes that the ultimate resolution of the case will not have a material effect on its business or financial position. -14- THE EXECUTIVE OFFICERS OF THE REGISTRANT ARE AS FOLLOWS:
Years with the Name Age Position With Company Company ---- --- --------------------- ------- Richard M. Schulze 54 Founder, Chairman, Chief Executive Officer and Director 28 Bradbury H. Anderson 46 President, Chief Operating Officer and Director 21 Allen U. Lenzmeier 51 Executive Vice President and Chief Financial Officer 10 Wade R. Fenn 36 Senior Vice President - Sales 14 George S. Fouts 57 Senior Vice President - Sales 8 Kenneth R. Weller 46 Senior Vice President - Sales 1 Steven R. Anderson 48 Senior Vice President - MIS and Chief Information Officer 8 Julie M. Engel 34 Senior Vice President - Advertising 13 Robert C. Fox 44 Senior Vice President - Finance and Treasurer 9 James P. Mixon 50 Senior Vice President - Distribution and Transportation 1 Lee H. Schoenfeld 42 Senior Vice President - Marketing 16 Randall K. Zanatta 37 Senior Vice President - General Merchandise Manager 15 _____________________________
RICHARD M. SCHULZE is a founder of the Company. He has served as an officer and director of the Company from its inception in 1966 and currently serves as its Chairman and Chief Executive Officer. BRADBURY H. ANDERSON has been the Company's President and Chief Operating Officer since April 1991, having served as Executive Vice President - Marketing of the Company from February 1986. He has been employed in various other capacities with the Company since 1973, including retail salesperson, store manager and sales manager. Mr. Anderson has been a Director of the Company since 1986. ALLEN U. LENZMEIER was promoted to his present position in April 1991 after having served as Senior Vice President - Finance and Operations and Treasurer of the Company from 1986. Mr. Lenzmeier joined the Company in 1984 and has also served as Vice President - Finance and Operations and Treasurer. WADE R. FENN was promoted to his present position in April 1991, having served as Regional Vice President of the Company from 1987. Mr. Fenn joined the Company in 1980 as a salesperson and has also been employed by the Company as a store and district manager. GEORGE S. FOUTS was promoted to his present position in April 1991, having served as Regional Vice President of the Company from 1987. Mr. Fouts joined the Company in 1986 as a sales manager after being employed by RCA Corporation for nineteen years, most recently as Vice President of RCA Sales Corporation. KENNETH R. WELLER joined the Company in May 1993. Since 1986, he was Vice President of Sales of The Good Guys!, a San Francisco-based consumer electronics retailer where he had worked since 1982. -15- STEVEN R. ANDERSON was promoted to his present position in April 1994, after having served as Vice President-MIS since July 1990. Mr. Anderson joined the Company in 1986 as Director of Management Information Systems. JULIE M. ENGEL was promoted to her present position in April 1995. Ms. Engel joined the Company in July 1981 as Advertising Manager, was promoted to Advertising Director in 1984 and became Vice-President - Advertising in April 1987. ROBERT C. FOX was promoted to his present position in April 1994, after having served as Vice President-Accounting since 1987 and Treasurer since 1993. Mr. Fox joined the Company in 1985 as Controller. JAMES P. MIXON joined Best Buy in April 1994 as Senior Vice President-Transportation and Distribution. Prior to joining the Company, Mr. Mixon held various distribution management positions with several national retailers, most recently with Marshalls Stores, Inc. LEE H. SCHOENFELD was promoted to his present position in July 1993. Mr. Schoenfeld joined the Company in 1978 as a salesperson and has served most recently as Vice President - Marketing. RANDALL K. ZANATTA joined the Company in March 1980 and was promoted to his present position in April 1994. Mr. Zanatta initially joined the Company as a salesperson and was promoted to store manager, joined the Company's Marketing Department, becoming a Vice President-Marketing in 1986. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock Prices" on page 10 of the Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Consolidated Financial and Operating Data" on page 5 of the Annual Report is incorporated herein by reference. -16- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion & Analysis of Financial Condition and Results of Operations" on pages 6 through 9 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this Item, listed below, are contained in the Annual Report on the pages thereof indicated, and are expressly incorporated herein by this reference. Page No. -------- Consolidated balance sheets as of February 25, 1995 and February 26, 1994 11 For the fiscal years ended February 25, 1995, February 26, 1994, and February 27, 1993 Consolidated statements of earnings 12 Consolidated statements of cash flows 13 Consolidated statements of shareholders' equity 14 Notes to consolidated financial statements 15-19 REPORT OF INDEPENDENT AUDITORS - ERNST & YOUNG LLP Shareholders and Board of Directors Best Buy Co., Inc. We have audited the accompanying consolidated balance sheet of Best Buy Co., Inc. and subsidiaries as of February 25, 1995, and the related consolidated statements of earnings, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We have conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. -17- In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Best Buy Co., Inc. and subsidiaries at February 25, 1995, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Minneapolis, Minnesota April 19, 1995 REPORT OF INDEPENDENT AUDITORS - DELOITTE & TOUCHE LLP We have audited the accompanying balance sheets of Best Buy Co., Inc. (the Company) as of February 26, 1994 and the related statements of earnings, shareholders' equity, and cash flows for the years ended February 26, 1994 and February 27, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Best Buy Co., Inc., as of February 26, 1994 and the results of its operations and its cash flows for the years ended February 26, 1994 and February 27, 1993, in conformity with generally accepted accounting principles. As discussed in Note 8 to the financial statements, the Company changed its method of accounting for income taxes during the year ended February 26, 1994. DELOITTE & TOUCHE LLP Minneapolis, Minnesota April 13, 1994 -18- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On August 16, 1994, the Company dismissed Deloitte & Touche LLP as its independent auditors and retained Ernst & Young LLP. The Audit Committee of the Board of Directors approved the decision to change auditors. The reports of Deloitte & Touche LLP for each of the previous two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified with respect to uncertainty, audit scope or accounting principle. During the past two fiscal years and through the date of dismissal, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. During the same time period there were no "reportable events" as defined by the Rules and Regulations of the Securities and Exchange Commission. -19- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Nominees and Directors" on pages 3 through 6 of the Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" on pages 7 through 13 of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Beneficial Owners and Management" on pages 3 through 5 of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the captions "Nominees and Directors" and "Certain Transactions" on pages 5 through 7 of the Proxy Statement is incorporated herein by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements. All financial statements of the Registrant as set forth under Item 8 of this Report. 2. Financial Statement Schedules: No schedules have been included since they are either not applicable or the information is included elsewhere herein. -20- 3. Exhibits: Method of Number Description filing ------ ----------- ------ 3.1 Amended and Restated Articles of (2) Incorporation, as amended, of Best Buy 3.2 Certificate of Designation with respect (1) to Best Buy Series A Cumulative Convertible Preferred Stock, filed November 1, 1994 3.3 Amended and Restated By-Laws, as (1,3,4) amended, of Best Buy 4.1 Form of Indenture between Best Buy and (5) First Trust Company, Inc., relating to $30,000,000 Subordinated Extendible Notes due 1997, dated as of July 1, 1987 4.2 Note Purchase Agreement with Principal (6) Mutual Life Insurance Company, dated as of July 30, 1992 4.3 Credit Agreement dated July 29, 1994 (7) between Best Buy and First Bank National Association 4.4 First Amendment to the Credit Agreement (1) between Best Buy and First Bank National Association, dated October 5, 1994 4.5 Second Amendment to the Credit Agreement (1) between Best Buy and First Bank National Association, dated October 26, 1994 4.6 Indenture between Best Buy and (2) Mercantile Bank of St. Louis N.A. relating to $150,000,000 8-5/8% Senior Subordinated Notes due 2000, dated as of October 12, 1993 4.7 Amended and Restated Agreement of (1) Limited Partnership of Best Buy Capital, L.P., dated as of November 3, 1994 4.8 Indenture between Best Buy, Best Buy (1) Capital, L.P., and Harris Trust and Savings Bank relating to $288,227,848 6-1/2% Convertible Subordinated Debentures due 2024, dated as of November 3, 1994 -21- 4.9 Guarantee Agreement related to 6-1/2% (1) Convertible Monthly Income Preferred Securities of Best Buy Capital, L.P., dated November 3, 1994 4.10 Deposit Agreement with respect to Best (1) Buy Series A Cumulative Convertible Preferred Stock, dated November 3, 1994 10.1 1987 Employee Non-Qualified Stock Option (2) Plan, as amended 10.2 Amended 1987 Directors' Non-Qualified (1) Stock Option Plan, as amended 10.3 1994 Full-Time Employee Non-Qualified (2) Option Stock Plan 10.4 Resolutions of the Board of Directors (1) dated April 10, 1995 implementing the fiscal 1996 bonus program for senior officers 11.1 Computation of Earnings Per Share (1) 13.1 1995 Annual Report to Shareholders (1) 21.1 Subsidiaries of the Registrant (1) 23.1 Consent of Ernst & Young LLP (1) 23.2 Consent of Deloitte & Touche LLP (1) 27.1 Financial Data Schedule (1) -22- (1) Document is filed herewith. (2) Exhibits so marked were filed with the Securities and Exchange Commission on May 20, 1994 as exhibits to the Form 10-K of Best Buy Co., Inc. and are incorporated herein by reference and made a part hereof. (3) Exhibit so marked was filed with the Securities and Exchange Commission on November 12, 1991, as an exhibit to the Registration Statement on Form S-3 (Registration No. 33-43065) of Best Buy Co., Inc., and is incorporated herein by reference and made a part of hereof. (4) Exhibit so marked was filed with the Securities and Exchange Commission on January 13, 1992, as an exhibit to Form 10-Q of Best Buy Co., Inc., and is incorporated herein by reference and made a part hereof. (5) Exhibit so marked was filed with the Securities and Exchange Commission on June 19, 1987, as an exhibit to the registration statement on form S-1 (Registration No. 33-15201) of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof. (6) Exhibits so marked were filed with the Securities and Exchange Commission on October 12, 1992, as exhibits to Form 10-Q of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof. (7) Exhibit so marked was filed with the Securities and Exchange Commission on September 30, 1994, as an exhibit to Form 10-Q of Best Buy Co., Inc. and is incorporated herein by reference and made a part hereof. Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, the Registrant has not filed as exhibits to the Form 10-K certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10 percent of the total assets of the Registrant. The Registrant hereby agrees to furnish copies of all such instruments to the Commission upon request. (b) Reports on Form 8-K A Current Report on Form 8-K was filed on December 7, 1994, reporting the lawsuit against the Company alleging various federal securities law violations. -23- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BEST BUY CO., INC. (Registrant) By: /s/ RICHARD M. SCHULZE ---------------------- Richard M. Schulze Chief Executive Officer Dated: May 23, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 23, 1995. /s/ Richard M. Schulze Chairman, Chief Executive Officer ------------------------------ and Director (principal executive Richard M. Schulze officer) /s/ Bradbury H. Anderson President, Chief Operating Officer ------------------------------ and Director Bradbury H. Anderson /s/ Allen U. Lenzmeier Executive Vice President and Chief ------------------------------ Financial Officer (principal Allen U. Lenzmeier financial officer) /s/ Robert C. Fox Sr. Vice President - Finance and ------------------------------ Treasurer (principal accounting Robert C. Fox officer) /s/ Elliot S. Kaplan ------------------------------ Director Elliot S. Kaplan /s/ Frank D. Trestman ------------------------------ Director Frank D. Trestman ------------------------------ Director Culver Davis, Jr. ------------------------------ Director David Stanley ------------------------------ Director James C. Wetherbe -24- EX-3.2 2 EXHIBIT 3.2 EXHIBIT 3.2 CERTIFICATE OF DESIGNATION OF BEST BUY CO., INC. Series A Cumulative Convertible Preferred Stock ______________________ THE UNDERSIGNED, ELLIOT S. KAPLAN, the Secretary of the Best Buy Co., Inc. (the "Corporation"), does hereby certify that pursuant to Minnesota Statutes Section 302A.401, resolutions as hereinafter set forth were adopted in writing as of October 27, 1994 by the Board of Directors of the Corporation, such resolutions stating the number, designation, relative rights, preferences and limitations of a series of Preferred Stock, as fixed by the Board of Directors of the Corporation: RESOLVED: That the Board of Directors of this Corporation hereby establishes a series of preferred stock of the Corporation with such terms and relative rights and preferences as set forth in EXHIBIT A, attached hereto (the "Series A Preferred Stock"). RESOLVED FURTHER: That the appropriate officer or officers of this Corporation shall prepare a Certificate of Designation describing the Series A Preferred Stock and cause the same to be filed with the Secretary of State of the State of Minnesota. IN WITNESS WHEREOF, the undersigned has signed this Certificate of Designation this 1 day of November, 1994. /s/ Elliot S. Kaplan ----------------------------------- Elliot S. Kaplan Secretary EXHIBIT A SECTION 1. DESIGNATION AND AMOUNT; SPECIAL PURPOSE; RESTRICTION ON SENIOR SERIES. (A) The shares of this series of Preferred Stock shall be designated as "Series A Cumulative Convertible Preferred Stock" ("Series A Preferred Stock") and the number of shares constituting such series shall be 46,000, par value $1.00 per share. (B) Shares of Series A Preferred Stock shall be issued by the conversion and exchange agent (the "Conversion Agent") for the Series A Preferred Stock only upon the exchange of 6 1/2% Convertible Subordinated Debentures due 2024 of the Corporation (the "Subordinated Debentures") following a valid exchange election (an "Exchange Election") by the holders of a majority of the aggregate liquidation preference of the outstanding 6 1/2% Convertible Monthly Income Preferred Securities, liquidation preference $50 per security (the "Best Buy Capital Preferred Securities"), of Best Buy Capital, L.P., a Delaware limited partnership ("Best Buy Capital"), to cause the Best Buy Capital Preferred Securities then outstanding to be exchanged for depositary shares, each representing a one one-hundredth (1/100th) interest in a share of Series A Preferred Stock (the "Depositary Shares"), issued pursuant to the Deposit Agreement, dated as of November 3, 1994, among the Corporation, Harris Trust and Savings Bank, as Depositary and the holders from time to time of the receipts described therein (the "Deposit Agreement"), in the manner prescribed in the Amended and Restated Agreement of Limited Partnership of Best Buy Capital, dated as of November 3, 1994 (the "Partnership Agreement"). (C) So long as any Best Buy Capital Preferred Securities are outstanding, the Corporation shall not authorize or issue any other class or series of capital stock ranking senior as to the payment of dividends or amounts upon liquidation, dissolution or winding-up to the Series A Preferred Stock without the approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Best Buy Capital Preferred Securities then outstanding. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A)(1) The holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefor, cumulative cash dividends in an amount per share per annum equal to $325.00 (equivalent to a rate per annum of 6 1/2% of the stated liquidation preference of $5,000 per share of Series A Preferred Stock), calculated on the basis of a 360-day year consisting of 12 months of 30 days each, and for any period shorter than a full monthly dividend period, dividends will be computed on the basis of the actual number of days elapsed in such period, and payable in United States dollars monthly in arrears on the last day of each calendar month of each year. (2) Dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefor, shall be paid on the last day of each month. Such dividends will accrue and be cumulative whether or not they have been earned or declared and whether or not there are funds of the Corporation legally available for the payment of dividends. Dividends on the Series A Preferred Stock shall be cumulative from the date of the Exchange Election. Accumulated but unpaid dividends, if any (including arrearages at the rate of 6 1/2% per annum compounded monthly), on the Best Buy Capital Preferred Securities on the date of the Exchange Election shall constitute, and be treated as, accumulated and unpaid dividends on the Series A Preferred Stock as of the date of the issuance thereof. The record date for each dividend payment date shall be the day immediately preceding such dividend payment date, provided that such day is a day on which banking institutions in The City of New York are not authorized or obligated by law or executive order to be closed (a "Business Day"). In the event that any date on which dividends are payable on the Series A Preferred Stock is not a Business Day, then payment of the dividend payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (B) In the event that full cumulative dividends on the Series A Preferred Stock have not been declared and paid or set apart for payment when due, then the Corporation shall not, and shall not permit any majority-owned subsidiary to, declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any Pari Passu Stock or Junior Stock (each as defined herein) (other than as a result of a reclassification of Pari Passu Stock or Junior Stock or the exchange or conversion of one class or series of Pari Passu Stock or Junior Stock for another class or series of Pari Passu Stock or Junior Stock, respectively), or make any guarantee payments with respect to the foregoing (other than payments under the Guarantee Agreement dated as of November 3, 1994 -2- of the Corporation in favor of the holders of Best Buy Capital Preferred Securities with respect to such securities or dividends or guarantee payments to the Corporation). When dividends are not paid in full, all dividends declared upon the Series A Preferred Stock and all dividends declared upon any Pari Passu Stock shall be paid ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Stock and accumulated and unpaid on such Pari Passu Stock. "Pari Passu Stock" means any preference stock or preferred stock of the Corporation, or any guarantee now or hereafter entered into by the Corporation in respect of any preferred or preference stock of any affiliate of the Corporation, ranking, in such case, as to the payment of dividends and amounts upon liquidation, dissolution and winding-up on a parity with the Series A Preferred Stock. "Junior Stock" means Common Stock and any other class or series of capital stock of the Corporation or any of its affiliates which by its express terms ranks junior in the payment of dividends or amounts upon liquidation, dissolution or winding-up to the Series A Preferred Stock. SECTION 3. VOTING RIGHTS. (A) In the event that full cumulative dividends on the Series A Preferred Stock have not been paid for 18 monthly dividend periods (including for this purpose any arrearage with respect to Best Buy Capital Preferred Securities), the number of directors of the Corporation constituting the entire Board of Directors shall be increased by two (2) persons and the holders of the Series A Preferred Stock shall have the right to elect such persons to fill such positions at any regular meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series A Preferred Stock called as hereinafter provided. Whenever all arrearages of dividends on the Series A Preferred Stock then outstanding shall have been paid and dividends thereon for the current monthly period shall have been paid or declared and set apart for payment, then the right of the holders of the Series A Preferred Stock to elect such additional two (2) directors shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the terms of office of all persons elected as directors by the holders of the Series A Preferred Stock shall forthwith terminate and the number of directors of the Corporation shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of shares of the Series A Preferred Stock, the Secretary of the -3- Corporation may, and upon the written request for a special meeting signed by the holders of at least 10% of all outstanding Series A Preferred Stock (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Series A Preferred Stock for the election of the two (2) directors to be elected by them as herein provided; such call to be made by notice similar to that provided for in the by-laws for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series A Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books and records of the Corporation. The directors elected at any such special meeting shall hold office until the next regular meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as above provided. In case any vacancy shall occur among the directors elected by the holders of the Series A Preferred Stock, a successor shall be elected by the Board of Directors to serve until the next regular meeting of the shareholders or special meeting held in place thereof upon the nomination of the then remaining director elected by the holders of the Series A Preferred Stock or the successor of such remaining director. (B) Except as otherwise required by law or set forth herein, holders of Series A Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action. So long as any shares of Series A Preferred Stock are outstanding, the consent of the holders of not less than 66 2/3% of the outstanding shares of Series A Preferred Stock, given in person or by proxy either at a regular meeting or at a special meeting called for that purpose, at which the holders of Series A Preferred Stock shall vote separately as a series, shall be necessary for effecting, validating or authorizing any one or more of the following: (1) The amendment, alteration or repeal of any of the provisions of the Amended and Restated Articles of Incorporation, as amended, of the Corporation, or any amendment thereto or any other certificate filed pursuant to law (including any such amendment, alteration or repeal effected by any merger or consolidation to which the Corporation is a party) that would adversely affect any of the rights, powers or preferences of outstanding shares of Series A Preferred Stock; PROVIDED, HOWEVER, that any amendment or amendments to the provisions of the Amended and -4- Restated Articles of Incorporation, as amended, so as to authorize or create, or to increase the authorized amount of, any Junior Stock shall not be deemed to adversely affect the voting powers, rights or preferences of the holders of the Series A Preferred Stock; (2) The creation of any shares of any class or series or any security convertible into shares of any class or series of capital stock ranking prior to the Series A Preferred Stock in the distribution of assets on any liquidation, dissolution or winding-up of the Corporation or in the payment of dividends; or (3) Any merger or consolidation with or into, or any sale, transfer, exchange or lease of all or substantially all of the assets of the Corporation to, any other corporation, in either case that would adversely affect any of the rights, powers or preferences of outstanding shares of Series A Preferred Stock. (C) For purposes of this Section 3, while Best Buy Capital Preferred Securities are outstanding and owned by any entity other than the Corporation, Best Buy Capital, or their subsidiaries or affiliates, any Best Buy Capital Preferred Securities owned by the Corporation, Best Buy Capital or their subsidiaries or affiliates shall not have the voting rights referred to in this Section. SECTION 4. REDEMPTION. (A) If at any time following the Conversion Expiration Date (as defined below), less than five percent (5%) of the shares of Series A Preferred Stock remain outstanding, such shares of Series A Preferred Stock are redeemable, at the option of the Corporation, in whole but not in part, from time to time, at a redemption price equal to the liquidation preference, plus accumulated and unpaid dividends, whether or not earned or declared, to the date of redemption (the "Redemption Price"). (B) Unless otherwise required by law, notice of redemption will be sent to the holders of Series A Preferred Stock by first-class mail, postage prepaid, mailed not less than thirty (30), nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the Redemption Price; (iii) the place or places where receipts for Depositary Shares representing such shares are to be surrendered for payment of the Redemption Price; and (iv) that dividends on the shares to be redeemed will cease to accrue on such redemption date. -5- Upon surrender of the receipts for Depositary Shares representing the shares so called for redemption (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation on the date fixed for redemption at the Redemption Price. SECTION 5. LIQUIDATION, DISSOLUTION OR WINDING-UP. (A) Upon any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Corporation, the holders of Series A Preferred Stock at the time outstanding will be entitled to receive out of the net assets of the Corporation available for payment to shareholders and subject to the rights of the holders of any stock of the Corporation ranking senior to or on a parity with the Series A Preferred Stock in respect of distributions upon liquidation, dissolution, winding-up or termination of the Corporation, before any amount shall be paid or distributed with respect to any Junior Stock, liquidating distributions in the amount of $5,000 per share plus an amount equal to all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for distribution. If, upon any liquidation, dissolution, winding-up or termination of the Corporation, the amounts payable with respect to the Series A Preferred Stock and any Pari Passu Stock are not paid in full, the holders of the Series A Preferred Stock and such Pari Passu Stock shall share ratably in any distribution of assets based on the proportion of their full respective liquidation preference to the entire amount of the unpaid liquidation preference of the Series A Preferred Stock. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 5(A), the holders of shares of Series A Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Corporation, nor the sale, transfer, exchange or lease of all or any portion of the assets of the Corporation, shall be deemed to be a dissolution, liquidation or winding-up of the affairs of the Corporation for purposes of this Section 5. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, stating the payment date or dates when, and the -6- place or places where, the amounts distributable to holders of Series A Preferred Stock in such circumstances shall be payable, shall be given by first- class mail, postage prepaid, mailed not less than twenty (20) days prior to any payment date stated therein, to the holders of Series A Preferred Stock, at the address shown on the books of the Corporation or the transfer agent for the Series A Preferred Stock; PROVIDED, HOWEVER, that a failure to give notice as provided above or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation. SECTION 6. CONVERSION RIGHTS OF SERIES A PREFERRED STOCK. (A) The shares of Series A Preferred Stock are convertible at any time before the close of business on the Conversion Expiration Date, at the option of the holder thereof, into shares of Common Stock at the initial conversion price of $45.00 per share of Common Stock, subject to adjustment, as provided in Section 7 (as so adjusted, the "Conversion Price"). For this purpose, each share of Series A Preferred Stock shall be taken at $5,000. (B) Holders of record of Series A Preferred Stock at the close of business on a dividend payment record date will be entitled to receive the dividend payable on such shares of Series A Preferred Stock on the corresponding dividend payment date notwithstanding the conversion thereof following such dividend payment record date but on or prior to such dividend payment date. Except as provided in the immediately preceding sentence, the Corporation will make no payment or allowance for accumulated and unpaid dividends, whether or not in arrears, on converted shares of Series A Preferred Stock. (C) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Corporation shall pay a cash adjustment in an amount equal to the same fraction of the Closing Price (as hereinafter defined) on the date on which the certificate or certificates for such shares were duly surrendered for conversion, or, if such date is not a Trading Day (as hereinafter defined), on the next Trading Day. (D) Any holder of shares of Series A Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Series A Preferred Stock being converted, duly assigned or endorsed for transfer to the -7- Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series A Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series A Preferred Stock by the Corporation or the transfer agent for the Series A Preferred Stock, accompanied by written notice of conversion, on any day prior to the Conversion Expiration Date (as defined herein) that is a Business Day. Such notice of conversion shall specify (i) the number of shares of Series A Preferred Stock to be converted and the name or names in which such holder desires the certificate or certificates for Common Stock and for any shares of Series A Preferred Stock not to be so converted to be issued (subject to compliance with applicable legal requirements if any of such certificates are to be issued in a name other than the name of the holder), and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (E) Upon surrender of a certificate representing a share or shares of Series A Preferred Stock for conversion, the Corporation shall issue and send by hand delivery (with receipt to be acknowledged) or by first-class mail, postage prepaid, to the holder thereof, at the address designated by such holder, a certificate or certificates representing the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered a certificate or certificates representing shares of Series A Preferred Stock, only part of which are to be converted, the Corporation shall issue and deliver to such holder or such holder's designee in the manner provided in the immediately preceding sentence a new certificate or certificates representing the number of shares of Series A Preferred Stock that shall not have been converted. (F) The issuance by the Corporation of shares of Common Stock upon a conversion of shares of Series A Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective upon the surrender by such holder or such holder's designee of the certificate or certificates for the shares of Series A Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto). The person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of the close of business on the effective date of the -8- conversion. No allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record as of any date prior to such effective date. (G) (i) On and after November 3, 1997, the Corporation shall have the right, at its option, to cause the conversion rights set forth in this Section to expire, provided that the Current Market Price (as defined below) of the Common Stock of the Corporation on each of 20 Trading Days within any period of 30 consecutive Trading Days, including the last Trading Day of such period, exceeds 120% of the Conversion Price in effect on such Trading Day; (ii) In order to exercise its option to cause the conversion rights of holders of shares of Series A Preferred Stock to expire, the Corporation must issue a press release for publication on the Dow Jones News Service and such other print and electronic media as the Corporation shall select announcing the Conversion Expiration Date (the "Press Release") prior to the opening of business on the second Trading Day after a period in which the condition in the preceding paragraph has been met (but in no event prior to November 3, 1997). The Press Release shall state that the Corporation has elected to exercise its right to extinguish the conversion rights of holders of shares of Series A Preferred Stock, specify the Conversion Expiration Date and provide the Conversion Price of the Series A Preferred Stock and the Current Market Price of the Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Press Release. If the Corporation exercises the option described in this paragraph, the "Conversion Expiration Date" shall be a date selected by the Corporation which date shall be not less than 30 or more than 60 days after the date on which the Corporation issues the Press Release; and (iii) In addition to issuing the Press Release, the Company shall send notice of the expiration of conversion rights (a "Notice of Conversion Expiration") by first-class mail to each record holder of shares of Series A Preferred Stock not more than four (4) Business Days after the Corporation issues the Press Release. Such Notice of Conversion Expiration shall state: (1) the Conversion Expiration Date; (2) the Conversion Price of the Series A Preferred Stock and the Current Market Price of the Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Notice of Conversion Expiration; (3) the place or places at which receipts for Depositary Shares representing shares of Series A Preferred Stock are to be surrendered prior to the Conversion Expiration Date for certificates representing -9- shares of Common Stock; and (4) such other information or instructions as the Corporation deems necessary or advisable to enable a holder of shares of Series A Preferred Stock to exercise its conversion right hereunder. No defect in the Notice of Conversion Expiration or in the mailing thereof with respect to any shares of Series A Preferred Stock shall affect the validity of such notice with respect to any other share of Series A Preferred Stock. As of the close of business on the Conversion Expiration Date, the Series A Preferred Stock shall no longer be convertible into Common Stock. As used in this Section, "Current Market Price" of publicly traded shares of Common Stock for any day means the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange Consolidated Transaction Tape, or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading if the Common Stock is listed on a national securities exchange, or the National Market System of the National Association of Securities Dealers, Inc., or, if the Common Stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the Common Stock may be listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. (H) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Series A Preferred Stock as herein provided, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series A Preferred Stock then outstanding. All shares of Common Stock delivered upon conversion of the Series A Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, interests and other encumbrances. The Corporation shall prepare and shall use its best efforts to obtain and keep in force such govern- -10- mental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the Common Stock (and all requirements to list the Common Stock issuable upon conversion of Series A Preferred Stock that are at the time applicable), in order to enable the Corporation lawfully to issue and deliver to each holder of record of Series A Preferred Stock such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of Series A Preferred Stock then outstanding and convertible into shares of Common Stock. SECTION 7. ADJUSTMENT OF CONVERSION PRICE. (A) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price at which a share of Series A Preferred Stock is convertible into Common Stock shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall pay or make a dividend or other distribution on any class or series of capital stock of the Corporation exclusively in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution or exchange, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (ii) In case the Corporation shall pay or make a dividend or other distribution on its Common Stock consisting exclusively of, or shall otherwise issue to all holders of its Common Stock, rights or warrants entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in subparagraph (vii) of this Section 7(a)) of the Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock -11 outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. In case any rights or warrants referred to in this subparagraph (ii) in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Corporation, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iv) Subject to the last sentence of this subparagraph (iv), in case the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets (including securities, but excluding any rights or warrants referred to in subparagraph (ii) of this Section 7(A), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subparagraph (i) of this Section 7(A)), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (iv) by a fraction of which the numerator shall be the current market price per share (determined as provided in -12- subparagraph (vii) of this Section 7(A)) of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. If the Board of Directors determines the fair market value of any distribution for purposes of this subparagraph (iv) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock pursuant to subparagraph (vii) of this Section 7(A). For purposes of this subparagraph (iv), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Price reduction required by this subparagraph (iv)) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further Conversion Price reduction required by subparagraph (i) or (ii) of this Section 7(A)), except (A) the Reference Date of such dividend or distribution as defined in this subparagraph (iv) shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution," "the date fixed for the determination of shareholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of subparagraphs (i) and (ii) of this Section 7(A) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of subparagraph (i) of this Section 7(A). (v) In case the Corporation shall pay or make a dividend or other distribution on its Common Stock exclusively in cash (excluding, in the case of any regular cash dividend on the Common Stock, the portion thereof that does not exceed the per share amount of the next preceding regular cash dividend on the Common Stock (as adjusted to appropriately reflect any of the events referred to in -13- subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A)), or excluding all of such regular cash dividend if the annualized amount thereof per share of Common Stock does not exceed 15% of the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day (as defined in Section 7(E)) next preceding the date of declaration of such dividend), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (v) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed and not excluded as provided above applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution. (vi) In case a tender or exchange offer made by the Corporation or any subsidiary of the Corporation for all or any portion of the Corporation's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Corporation or such subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds 10% of the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day (as defined in Section 7(E)) next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (vi) by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to holders of Common Stock -14- based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (vii) For the purpose of any computation under subparagraphs (ii), (iv), (v) and (vi) of this Section 7(A), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices (as defined in Section 7(E)) for the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; PROVIDED, HOWEVER, that if another event occurs that would require an adjustment pursuant to subparagraphs (i) through (vi), inclusive, the Board of Directors may make such adjustments to the Closing Prices during such five Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section 7(A), in which case any such determination by the Board of Directors shall be set forth in a resolution of the Board of Directors and shall be conclusive. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the New York Stock Exchange or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, and (2) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (viii) The Corporation may make such reductions in the Conversion Price, in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or dis- -15- tribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Corporation from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period, and the Board of Directors of the Corporation shall have made a determination that such reduction would be in the best interest of the Corporation, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Corporation shall mail to holders of record of the Series A Preferred Stock a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. (ix) Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; PROVIDED, HOWEVER, that any adjustments which by reason of this subparagraph (ix) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (x) Whenever the Conversion Price is adjusted as herein provided: (1) the Corporation shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Corporation setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the transfer agent for the Series A Preferred Stock; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Corporation to all record holders of shares of Series A Preferred Stock at their last addresses as they shall appear upon the stock transfer books of the Corporation. (B) RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE OF ASSETS. In the event that the Corporation shall be a party to any transaction (including without limitation any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), any -16- consolidation of the Corporation with, or merger of the Corporation into, any other person, any merger of another person into the Corporation (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange) pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property), then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of Series A Preferred Stock then outstanding shall have the right thereafter, to convert such share only into (i) in the case of any such transaction other than a Common Stock Fundamental Change (as defined in Section 7(E)), the kind and amount of securities, cash and other property receivable upon such transaction by a holder of the number of shares of Common Stock of the Corporation into which such share of Series A Preferred Stock could have been converted immediately prior to such transaction, after giving effect, in the case of any Non-Stock Fundamental Change (as defined in Section 7(E)), to any adjustment in the Conversion Price required by the provisions of Section 7(D), and (ii) in the case of a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined pursuant to the provisions of Section 7(D). The Corporation or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The above provisions shall similarly apply to successive transactions of the foregoing type. (C) PRIOR NOTICE OF CERTAIN EVENTS. In case: (i) the Corporation shall (1) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash out of its retained earnings that would not require an adjustment pursuant to 7(A)(iv) or (v) or (2) authorize a tender or exchange offer that would require an adjustment pursuant to 7(A)(vi); -17- (ii) the Corporation shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; (iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation shall be required, or of the sale or transfer of all or substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (iv) of the voluntary or involuntary dissolution, liquidation or winding- up of the Corporation; then the Corporation shall cause to be filed with the transfer agent for the Series A Preferred Stock, and shall cause to be mailed to the holders of record of the Series A Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the Corporation, at least fifteen (15) days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, redemption, repurchase, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, repurchase, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (D) ADJUSTMENTS IN CASE OF FUNDAMENTAL CHANGES. Notwithstanding any other provision in this Section 7 to the contrary, if any Fundamental Change (as defined in Section 7(E)) occurs, then the Conversion Price in effect will be adjusted immediately after such Fundamental Change as -18- described below. In addition, in the event of a Common Stock Fundamental Change, each share of Series A Preferred Stock shall be convertible solely into common stock of the kind and amount received by holders of Common Stock as the result of such Common Stock Fundamental Change as more specifically provided in the following clauses (D)(i) and (D)(ii). For purposes of calculating any adjustment to be made pursuant to this Section 7(D) in the event of a Fundamental Change, immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price of the Series A Preferred Stock shall thereupon become the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to this Section 7, and (B) the result obtained by multiplying the greater of the Applicable Price (as defined in Section 7(E)) or the then applicable Reference Market Price (as defined in Section 7(E)) by a fraction of which the numerator shall be $5,000 and the denominator shall be an amount per share of Series A Preferred Stock determined by the Corporation in its sole discretion, after consultation with a nationally recognized investment banking firm, to be the equivalent of the hypothetical redemption price that would have been applicable if the Series A Preferred Stock had been redeemable during such period; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price of the Series A Preferred Stock in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to this Section 7, shall thereupon be adjusted by multiplying such Conversion Price by a fraction of which the numerator shall be the Purchaser Stock Price (as defined in Section 7(E)) and the denominator shall be the Applicable Price; PROVIDED, HOWEVER, that in the event of a Common Stock Fundamental Change in which (A) 100% by value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, is paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for common stock (and cash with respect to fractional interests) of the successor, acquiror or other third party, the Conversion Price of the Series A Preferred Stock in effect immediately prior to such Common Stock Fundamental Change shall thereupon be adjusted by -19- multiplying such Conversion Price by a fraction of which the numerator shall be one (1) and the denominator shall be the number of shares of common stock of the successor, acquiror, or other third party received by a shareholder for one share of Common Stock as a result of such Common Stock Fundamental Change. (E) DEFINITIONS. The following definitions shall apply to terms used in this Section 7: (1) "Applicable Price" shall mean (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a shareholder for one share of Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the daily Closing Prices of the Common Stock for the ten (10) consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive securities, cash or other property in connection with such Non-Stock Fundamental Change or Common Stock Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such securities, cash or other property, in each case, as adjusted in good faith by the Board of Directors of the Corporation to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 7(A). (2) "Closing Price" of any common stock on any day shall mean the last reported sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way of such common stock, in each case on the principal national securities exchange on which such common stock is listed, if the common stock is listed on a national securities exchange, or the NASDAQ National Market System of the National Association of Securities Dealers, Inc., or, if the common stock is not quoted or admitted to trading on such quotation system, on the principal national securities exchange or quotation system on which the common stock is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the common stock in the over-the- counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or, if not so available in -20- such manner, as otherwise determined in good faith by the Board of Directors. (3) "Common Stock Fundamental Change" shall mean any Fundamental Change in which more than 50% by value (as determined in good faith by the Board of Directors of the Corporation) of the consideration received by holders of Common Stock consists of common stock that for each of the ten (10) consecutive Trading Days referred to with respect to such Fundamental Change in Section 7(E)(1) above has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the NASDAQ National Market System of the National Association of Securities Dealers, Inc.; PROVIDED, HOWEVER, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Corporation continues to exist after the occurrence of such Fundamental Change and the outstanding shares of Series A Preferred Stock continue to exist as outstanding shares of Series A Preferred Stock, or (ii) not later than the occurrence of such Fundamental Change, the outstanding shares of Series A Preferred Stock are converted into or exchanged for shares of convertible preferred stock of a corporation succeeding to the business of the Corporation, which convertible preferred stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions, substantially similar to those of the Series A Preferred Stock. (4) "Fundamental Change" shall mean the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive securities, cash or other property (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); PROVIDED, HOWEVER, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock of the Corporation shall be exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash or other property, but the adjustment shall be based upon the highest weighted average of consideration per share which a holder of Common Stock could have received in such transactions or events as a result of which more than 50% of the Common Stock of the Corporation shall have been exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash or other property. -21- (5) "Non-Stock Fundamental Change" shall mean any Fundamental Change other than a Common Stock Fundamental Change. (6) "Purchaser Stock Price" shall mean, with respect to any Common Stock Fundamental Change, the average of the daily Closing Prices of the common stock received in such Common Stock Fundamental Change for the ten (10) consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive such common stock, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock, in each case, as adjusted in good faith by the Board of Directors of the Corporation to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 7(A); (7) "Reference Market Price" shall initially mean $25.00 and in the event of any adjustment to the Conversion Price other than as a result of a Non-Stock Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $25.00 to the initial Conversion Price per share. (8) "Trading Day" shall mean a day on which securities are traded on the national securities exchange or quotation system or in the over-the-counter market used to determine the Closing Price. (F) DIVIDEND OR INTEREST REINVESTMENT PLANS. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Corporation or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Series A Preferred Stock was first designated, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Corporation to which any of the adjustment provisions described above applies. (G) CERTAIN ADDITIONAL RIGHTS. In case the Corporation shall, by dividend or otherwise, declare or make -22- a distribution on its Common Stock referred to in Section 7(A)(iv) or 7(A)(v) (including, without limitation, dividends or distributions referred to in the last sentence of Section 7(A)(iv)), the holder of each share of Series A Preferred Stock, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which such share of Series A Preferred Stock is converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; PROVIDED, HOWEVER, that, at the election of the Corporation (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all holders so converting, the Corporation may, in lieu of distributing to such holder any portion of such distribution not consisting of cash or securities of the Corporation, pay such holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of a share of Series A Preferred Stock described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the holder of the share of Series A Preferred Stock so converted is entitled to receive in accordance with the immediately preceding sentence, the Corporation may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such holder is so entitled, PROVIDED that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. -23- (H) STOCK ISSUANCES; MULTIPLE ADJUSTMENTS. There shall be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Corporation except as specifically described in this Section 7. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value to holders of Series A Preferred Stock. SECTION 8. RANKING; ATTRIBUTABLE CAPITAL AND ADEQUACY OF SURPLUS; RETIREMENT OF SHARES. (A) The Series A Preferred Stock shall rank senior to all shares of Junior Stock as to the payment of dividends and amounts upon the liquidation, dissolution or winding-up of the Corporation. The ranking of any subsequent series of Preferred Stock issued by the Corporation as compared to the Series A Preferred Stock as to the payment of dividends and amounts upon the liquidation, dissolution or winding-up of the Corporation shall be as specified in the Amended and Restated Articles of Incorporation, as amended, of the Corporation, the Certificate of Designation pertaining thereto and, if appropriate, shall also be subject to the provisions of paragraph (C) of Section 1 and paragraph (B) of Section 3 hereof. (B) The capital of the Corporation allocable to the Series A Preferred Stock for purposes of the Minnesota Business Corporation Act shall be $1.00 per share. (C) Any shares of Series A Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares, or otherwise so acquired, shall be retired as shares of Series A Preferred Stock and restored to the status of authorized but unissued shares of Preferred Stock, par value $1.00 per share, of the Corporation, undesignated as to series, and may thereafter be reissued as part of a new series of Preferred Stock as permitted by law. SECTION 9. MISCELLANEOUS. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three business days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice) with postage prepaid addressed: (i) if to the Corporation, to its office -24- at 7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344 (Attention: Chief Financial Officer) or to the transfer agent for the Series A Preferred Stock, or such other agent of the Corporation designated as permitted by this paragraph, or (ii) if to any holder of the Series A Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series A Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) The term "Common Stock" as used herein means the Corporation's Common Stock, par value $0.10 per share, as the same exists at the date of filing of the Certificate of Designation relating to the Series A Preferred Stock (the "Certificate of Designation") with the Secretary of State of the state of Minnesota, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. However, subject to the provisions of Section 7(B), shares of Common Stock issuable on conversion of shares of Series A Preferred Stock shall include only shares of the class designated as Common Stock of the Corporation at the date of the filing of the Certificate of Designation with the Secretary of State of the state of Minnesota or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation and which are not subject to redemption by the Corporation; PROVIDED that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of such classes resulting from all such reclassifications. (C) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series A Preferred Stock or shares of Common Stock or other securities issued on account of Series A Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involving the issuance or delivery of shares of -25- Series A Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series A Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series A Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series A Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series A Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (E) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series A Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series A Preferred Stock. -26- EX-3.3 3 EXHIBIT 3.3 AMENDMENT TO THE BY-LAWS OF BEST BUY CO., INC. Pursuant to resolutions adopted by the Board of Directors of Best Buy Co., Inc., at a meeting of the Board of Directors held November 2, 1994, Article IV of the Amended and Restated By-laws of this corporation has been amended, effective as of November 4, 1994, to read as follows: ARTICLE IV OFFICERS Section 1 ELECTION, TERM; NUMBER. The officers of the corporation shall be elected or appointed by the Board of Directors. The officers of the corporation shall consist of a Chairman and Chief Executive Officer, a President and Chief Operating Officer, a Chief Financial Officer, a Treasurer, and such other officer or officers as are elected or appointed by the Board of Directors. A person may hold more than one office. The officers shall perform such duties and have such responsibilities as provided for in these By-laws or as otherwise determined by the Board of Directors. The terms of office with respect to each officer shall be prescribed by the Board at the time of election of the officers and absent the specifications of a term, the term shall be determined to be at the pleasure of the Board of Directors. Section 2 CHAIRMAN AND CHIEF EXECUTIVE OFFICER. The Chairman and Chief Executive Officer shall preside at all meetings of shareholders and directors and shall be responsible for the strategic management and planning of the business of the corporation, in addition to the duties and powers prescribed by the Board of Directors or by Chapter 302A. Section 3 PRESIDENT AND CHIEF OPERATING OFFICER. The President and Chief Operating Officer shall have responsibility for managing the day-to-day operations of the business of the corporation, in addition to such other duties and powers prescribed by the Board of Directors. Section 4 VICE PRESIDENTS. The Vice Presidents, if any, in the order designated by the Board of Directors, shall perform the duties and exercise the powers of the President in his absence or upon his incapacity and shall perform such other duties as the Board of Directors may from time to time prescribe or as may be delegated by the Chief Executive Officer or the President. Section 5 CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the corporation shall be responsible for the strategic management and planning of the corporation's finances, in addition to the duties and powers prescribed by the Board of Directors or by Chapter 302A. Section 6 TREASURER. The Treasurer of the corporation shall have responsibility for managing the day-to-day finances of the corporation, in addition to such other duties and powers prescribed by the Board of Directors. Section 7 SECRETARY. The Secretary or Assistant Secretary, if any, shall attend all meetings of the Board of Directors, committees thereof, if any, and all meetings of the shareholders and record all votes and minutes of all proceedings in a book kept for that purpose. The Secretary or Assistant Secretary shall give or cause to be given notice of all meetings of the shareholders and of the Board of Directors and of committees, if any, and shall perform such other duties as may be prescribed by the Board of Directors or delegated to such officer by the Chief Executive Officer, the President or the Chief Financial Officer. The Secretary or Assistant Secretary shall cause and affix the seal of the corporation, to the extent the corporation shall have one, to any instrument requiring the same. If there is no Secretary or Assistant 2 Secretary, then the duties and responsibilities provided for herein shall be discharged by the President. Section 8 VACANCIES. If any office becomes vacant by reason of death, resignation, retirement, disqualification, removal, or other cause, the directors then in office, although less than a quorum, may by a majority vote, choose a successor or successors who shall hold office for the unexpired term in respect of which such vacancy occurred. Section 9 DELEGATION. Unless prohibited by a resolution approved by the affirmative vote of the Board of Directors, an officer of the corporation may delegate some or all of the duties and powers of an office to other persons, provided that such delegation is in writing. /s/ Elliot S. Kaplan ----------------------------- Elliot S. Kaplan Secretary 3 EX-4.4 4 EXHIBIT 4.4 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of October 5, 1994, and is between BEST BUY CO., INC., a Minnesota corporation (the "Company"), the lenders party to the Credit Agreement, as hereinafter defined (such lenders being hereinafter sometimes referred to, collectively, as the "Banks"), and FIRST BANK NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, the "Agent"). WITNESSETH THAT: WHEREAS, the Company, the Banks and the Agent are parties to a Credit Agreement dated as of July 29, 1994 (the "Credit Agreement"); and WHEREAS, the Company, the Banks and the Agent have agreed to amend the Credit Agreement as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. CERTAIN DEFINED TERMS. Each capitalized term used herein without being defined that is defined in the Credit Agreement shall have the meaning given to it in the Credit Agreement. 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as follows: (a) the following definitions in Section 1.01 are restated in their entirety to read as follows: "BORROWING BASE": as of a date of determination, 71 43/100% of the sum (a) 55% of the lower of: (i) cost (as determined on a first-in, first-out basis) of Eligible Inventory LESS (A) the amount of Indebtedness of the Company secured by Liens on inventory and (B) the amount accrued for losses due to missing inventory (shrink accrual) or (ii) market value of Eligible Inventory LESS (A) the amount of Indebtedness of the Company secured by Liens on inventory and (B) the amount accrued for losses due to missing inventory (shrink accrual); and (b) 40% of the lower of: (i) cost (as determined on a first-in, first-out basis) of Eligible Close-Out Inventory LESS amounts accrued for price reduction on inventory (markdown reserve) or (ii) market value of Eligible Close-Out Inventory LESS amounts accrued for price reduction on inventory (markdown reserve), MINUS (i) the amount of any unsecured Indebtedness incurred by the Company pursuant to Section 5.13(g) and (ii) $30,000,000. "INTEREST COVERAGE RATIO": for any period of determination, the ratio of (i) the sum of (A) Earnings Before Interest, Income Taxes and Depreciation, (B) Rental and Lease Expense, and (C) the amount, if any, by which distributions made by Best Buy Capital in respect of the MIPS are deducted in determining the consolidated net income of the Company and are not reflected in the consolidated net interest expense of the Company, as set forth in the financial statements of the Company delivered hereunder, to (ii) the sum of (x) Rental and Lease Expense, (y) consolidated net interest expense of the Company and its Subsidiaries, as included in the Company's financial statements referred to in Section 4.05 and 5.01, and (z) the amount, if any, by which distributions made by Best Buy Capital in respect of the MIPS are not reflected in the consolidated net interest expense of the Company, as set forth in the financial statements delivered hereunder. "LEVERAGE RATIO": at any date of determination, the ratio of (a) the Indebtedness of the Company and its Subsidiaries, excluding the Indebtedness evidenced by the MIPS Debenture, MINUS the sum of cash and Investments with a maturity of less than one year of the type permitted pursuant to Section 5.14(c) of the Company and its Subsidiaries, as set forth in the Borrower's consolidated balance sheet under the item "Cash and Cash Equivalents," to (b) Tangible Net Worth, in all cases as set forth in the Company's financial statements referenced to in Section 4.05 and 5.01. "RESTRICTED PAYMENTS": with respect to any Person, collectively, all dividend or other distributions of any nature (cash, securities (other than common stock of such Person), assets or otherwise), and all payments on, any class of equity securities (including, without limitation, warrants, options or rights therefor) issued by such Person or any of its Subsidiaries, whether such securities are authorized or outstanding on the Signing Date or at any time thereafter, including, with respect to the Company, any payments made by the Company (other than scheduled or deferred payments of principal and interest under the MIPS Debenture) in respect of the MIPS. -2- "TANGIBLE NET WORTH": as of any date of determination, the sum of the amounts set forth on the consolidated balance sheet of the Company as the sum of the common stock, preferred stock, additional paid-in capital and retained earnings of the Company (excluding treasury stock), less the book value of all assets of the Company and its Subsidiaries that would be treated as intangibles under GAAP, including, without limitation, all such items as goodwill, trademarks, trade names, service marks, copyrights, patents, licenses, unamortized debt discount and expenses and the excess of the purchase price of the assets of any business acquired by the Company or any Subsidiary over the book value of such assets, and less the book value of the interests of the holders of the MIPS to the extent otherwise included therein. (b) the following definitions are added to Section 1.01 in the appropriate alphabetical order: "BBC": BBC Property Co., a Minnesota corporation. "BEST BUY CAPITAL": Best Buy Capital, L.P., a Delware limited partnership. "MIPS": the Monthly Income Preferred Securities of Best Buy Capital, containing substantially the terms described in the Company's Form S-3 Registration Statement filed with the Securities Exchange Commission on September 30, 1994, provided there are no material changes to the terms of the MIPS or the MIPS Debenture unless such changes are approved by the Majority Banks. "MIPS DEBENTURE": the debenture issued by Best Buy to Best Buy Capital to evidence Best Buy's obligations to Best Buy Capital in respect of a loan from Best Buy Capital to Best Buy in an amount equal to the net proceeds of the issuance and sale of MIPS. (c) Section 5.14 is amended to delete the word "and" at the end of subsection (e) thereof, to delete the period at the end of subsection (f) thereof and substitute a semicolon therefor, and to add the following after subsection (f) thereof: (g) Investments in BBC in an amount not to exceed $1,000,000; (h) Investments in Best Buy Capital, provided that Best Buy Capital engages in no activities other than the issuance of MIPS and the -3- lending of the proceeds thereof, together with all or any part of such Investments, to the Company. (d) Section 5.15 is restated in its entirety to read as follows: Section 5.15 GUARANTEES. Not, and not permit any Subsidiary to, be or become liable on any Guarantee, except Guarantees existing on the Signing Date and described in Schedule 5.15, Guarantees of the obligations of BBC to Conquest under the proposed lease agreement between Conquest, as lessor, and BBC, as lessee, relating to certain real property used or to be used in the Company's business, and a subordinated Guaranty by the Company of certain obligations of Best Buy Capital in respect of the MIPS; PROVIDED, that the Company may not amend or cancel the subordination provisions thereof. (e) Section 5.26 is restated in its entirety to read as follows: Section 5.26 NEGATIVE PLEDGES. Not, and not permit any Subsidiary to, enter into any agreement, bond, note or other instrument for the benefit of any Person other than the Agent and the Banks that would (a) prohibit the Company or such Subsidiary from granting or otherwise limit the ability of the Company or such Subsidiary to grant, any Lien on any of its property to the Agent, for the benefit of the Banks, or to lenders providing credit facilities to replace the Commitments or refinance the Obligations, except limitations created in agreements creating Liens on, and applicable only to, property on which a Lien is granted by the Company as permitted in Sections 5.12(e), (f) or (g), or (b) require the Company or such Subsidiary to grant a Lien to any other Person if the Borrower or such Subsidiary grants Liens to the Agent, for the benefit of the Banks, or to lenders providing credit facilities to replace the Commitments or refinance the Obligations, except for any such requirement for the benefit of Conquest, provided (i) such requirement is for the grant of an equal and ratable or junior Lien for the benefit of Conquest on the property subject to a Lien in favor of the Agent or such replacement lenders, (ii) such Lien will secure only the amount by which the liability of BBC to Conquest under the Lease Agreement dated as of August 25, 1994 between Conquest and BBC and the Agreement for Lease dated as of August 25, 1994 between Conquest and BBC exceeds the amount realized by Conquest from the disposition of real property owned by Conquest and leased to BBC pursuant to such Lease Agreement, or eligible to be so leased pursuant to such Agreement for Lease, and (iii) the sum of (A) the amount of Conquest's Indebtedness and (B) all capital contributions to Conquest does not at any time exceed $155,000,000. -4- (f) Exhibit A to the Credit Agreement is deleted, and Exhibit A hereto is substituted therefor. 3. MIPS DEBENTURE. The Banks and the Company hereby agrees that the MIPS Debenture, when issued, shall constitute Subordinated Indebtedness for purposes of the Credit Agreement, provided that there are no material changes to the terms of the MIPS or the MIPS Debenture as set forth in the Company's Form S-3 Registration Statement filed with the Securities Exchange Commission on September 30, 1994, unless such changes are approved by the Majority Banks. 4. EFFECTIVENESS OF AMENDMENT. This Amendment shall be deemed effective as of the date first above written, but only upon delivery to the Agent of this Amendment duly executed by the parties hereto, and when each of the following conditions precedent has been satisified: (a) no material action, suit or proceeding (including without limitation, any inquiry or investigation) shall be pending or threatened with respect to the Company that could have a material adverse affect on the Company; (b) no material adverse change in the business assets, financial condition or prospects of the Company shall have occurred since February 26, 1994; (c) payment shall have been made to, and received by, the Agent of (i) an amendment fee in the amount of $50,000, for distribution to the Banks in accordance with their respective Pro Rata Shares, and (ii) all other amounts payable to the Agent under the Credit Agreement or this Amendment, including, without limitation, all expenses of the Agent and the fees and expenses of counsel to the Agent incurred on or prior to the effective date of this Amendment, in the amounts requested by the Agent; (d) the representations and warranties contained in Article IV of the Credit Agreement, as amended hereby, are correct on and as of the effective date of this Amendment as though made on and as of such date; and (e) no Event of Default or Default has occurred and is continuing, or would result from the execution and delivery of this Amendment or the consummation of the transactions contemplated hereby. 5. ACKNOWLEDGEMENT. The Banks and the Company each acknowledge that, as amended hereby, the Credit Agreement, as amended by this Amendment, remains in full force and effect with respect to the Company, the Banks and the Agent. The Company confirms and acknowledges that it will continue to comply -5- with the covenants set out in the Credit Agreement, as amended hereby, and that its representations and warranties set out in the Credit Agreement, as amended hereby, are true and correct as of the date of this Amendment. The Company further represents and warrants that (i) the execution, delivery and performance of this Amendment by the Company is within its corporate powers and has been duly authorized by all necessary corporate action, (ii) this Amendment has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, insolvency or other similar laws affecting creditors' rights generally) and (iii) after giving effect to this Amendment, no Events of Default or events which, with the giving of notice or passage of time, would be an Event of Default, exist under the Credit Agreement. 6. COUNTERPARTS. This Amendment may be signed by the parties hereto on different counterparts with the same effect as if the signatures hereto were on the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Credit Agreement to be executed as of the day and year first above written. BEST BUY CO., INC. By /s/ Robert C. Fox --------------------------------------- Its Sr. Vice President ----------------------------------- FIRST BANK NATIONAL ASSOCIATION By /s/ John Gatzlaff --------------------------------------- Its Vice President ----------------------------------- Bank One, Dayton, National Association By --------------------------------------- Its ----------------------------------- -6- THE MITSUBISHI BANK, LIMITED (CHICAGO BRANCH) By /s/ Jeff Arnold --------------------------------------- Its Vice President ----------------------------------- FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Mary J. Amatoue --------------------------------------- Its Assistant Vice President ----------------------------------- THE LONG TERM CREDIT BANK OF JAPAN, LTD. By /s/ Armund J. Schoen, Jr. --------------------------------------- Its Vice President and Deputy General Manager ----------------------------------- THE BANK OF NOVA SCOTIA By /s/ F.C.H. Ashby --------------------------------------- Its Senior Manager Loan Operations ----------------------------------- YASUDA TRUST AND BANKING CO., LTD. By /s/ Joseph C. Meek --------------------------------------- Its Vice President & Manager ----------------------------------- -7- THE BANK OF TOKYO, LTD. CHICAGO BRANCH By /s/ Joseph P. Howard --------------------------------------- Its Vice President ----------------------------------- THE DAIWA BANK, LIMITED By /s/ Jon W. Howard, Jr. --------------------------------------- Its Vice President ----------------------------------- And /s/ Doug Pidvil -------------------------------------- Its Vice President ----------------------------------- CREDIT LYONNAIS CHICAGO BRANCH By /s/ Marcus Katz --------------------------------------- Its Vice President ----------------------------------- CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Marcus Katz --------------------------------------- Its Authorized Signature ----------------------------------- MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION By /s/ Edward Cheney --------------------------------------- Its Vice President ----------------------------------- -8- COMERICA BANK By --------------------------------------- Its ----------------------------------- TRUST COMPANY BANK By --------------------------------------- Its ----------------------------------- And -------------------------------------- Its ----------------------------------- WELLS FARGO BANK By /s/ Laila S. Partridge --------------------------------------- Its Vice President ----------------------------------- BANK OF AMERICA ILLINOIS By /s/ Patricia De Goode --------------------------------------- Its Authorized Officer ----------------------------------- -9- EX-4.5 5 EXHIBIT 4.5 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of October 26, 1994, and is between BEST BUY CO., INC., a Minnesota corporation (the "Company"), the lenders party to the Credit Agreement, as hereinafter defined (such lenders being hereinafter sometimes referred to, collectively, as the "Banks"), and FIRST BANK NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, the "Agent"). WITNESSETH THAT: WHEREAS, the Company, the Banks and the Agent are parties to a Credit Agreement dated as of July 29, 1994, as amended by a First Amendment to Credit Agreement dated as of October 5, 1994 (as so amended, the "Credit Agreement"); and WHEREAS, the Company, the Banks and the Agent have agreed to amend the Credit Agreement as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. CERTAIN DEFINED TERMS. Each capitalized term used herein without being defined that is defined in the Credit Agreement shall have the meaning given to it in the Credit Agreement. 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as follows: (a) the following definition in Section 1.01 is restated in its entirety to read as follows: "RESTRICTED PAYMENTS": with respect to any Person, collectively, all dividends or other distributions of any nature (cash, securities (other than common stock of such Person), assets or otherwise) declared or paid, and all payments made, by such Person on any class of equity securities (including, without limitation, warrants, options or rights therefor) issued by such Person or any of its Subsidiaries, whether such securities are authorized or outstanding on the Signing Date or at any time thereafter, including, with respect to the Company, any payments made by the Company (other than scheduled or deferred payments of principal and interest under the MIPS Debenture) in respect of the MIPS. (b) Section 5.14 is amended to delete the period at the end of subsection (h) thereof and substitute a semicolon and the word "and" therefor, and to add the following after subsection (h) thereof: (i) Investments by Best Buy Capital in the MIPS Debenture. (c) Section 5.20 is restated in its entirety to read as follows: Section 5.20 PAYMENT OF SUBORDINATED INDEBTEDNESS. Not, and not permit any Subsidiary to: make any prepayment of principal of, or acquire, redeem or otherwise retire (except, in the case of the MIPS Debenture, retirement upon the conversion or exchange of all or any part of the MIPS Debenture for common or preferred stock of the Company), any Subordinated Indebtedness; make any payment of principal or interest on any Subordinated Indebtedness if an Event of Default or Unmatured Event of Default exists; amend or cancel the subordination provisions thereof; take or omit to take any action whereby the subordination of such indebtedness or any part thereof to the Notes might be terminated, impaired or adversely affected; or omit to give the Banks prompt written notice of any notice received from any holder of Subordinated Indebtedness of any default under any agreement or instrument relating to any Subordinated Indebtedness by reason whereof such Subordinated Indebtedness might become or be declared to be due or payable. 3. EFFECTIVENESS OF AMENDMENT. This Amendment shall be deemed effective as of the date first above written, but only upon delivery to the Agent of this Amendment duly executed by the parties hereto, and when each of the following conditions precedent has been satisfied: (a) no material action, suit or proceeding (including, without limitation, any inquiry or investigation) shall be pending or threatened with respect to the Company that could have a material adverse affect on the Company; (b) no material adverse change in the business assets, financial condition or prospects of the Company shall have occurred since February 26, 1994; (c) payment shall have been made to, and received by, the Agent of all amounts payable to the Agent under the Credit Agreement or this Amendment, including, without limitation, all expenses of the Agent and the fees and expenses of counsel to the Agent incurred on or prior to the effective date of this Amendment, in the amounts requested by the Agent; -2- (d) the representations and warranties contained in Article IV of the Credit Agreement, as amended hereby, are correct on and as of the effective date of this Amendment as though made on and as of such date; and (e) no Event of Default or Default has occurred and is continuing, or would result from the execution and delivery of this Amendment or the consummation of the transactions contemplated hereby. 4. ACKNOWLEDGEMENT. The Banks and the Company each acknowledge that, as amended hereby, the Credit Agreement, as amended by this Amendment, remains in full force and effect with respect to the Company, the Banks and the Agent. The Company confirms and acknowledges that it will continue to comply with the covenants set out in the Credit Agreement, as amended hereby, and that its representations and warranties set out in the Credit Agreement, as amended hereby, are true and correct as of the date of this Amendment. The Company further represents and warrants that (i) the execution, delivery and performance of this Amendment by the Company is within its corporate powers and has been duly authorized by all necessary corporate action, (ii) this Amendment has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, insolvency or other similar laws affecting creditors' rights generally) and (iii) after giving effect to this Amendment, no Events of Default or events which, with the giving of notice or passage of time, would be an Event of Default, exist under the Credit Agreement. 5. COUNTERPARTS. This Amendment may be signed by the parties hereto on different counterparts with the same effect as if the signatures hereto were on the same instrument. -3- IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Credit Agreement to be executed as of the day and year first above written. BEST BUY CO., INC. By /s/ Robert C. Fox --------------------------------------- Its Sr. Vice President ----------------------------------- FIRST BANK NATIONAL ASSOCIATION By /s/ John Gatzlaff --------------------------------------- Its Vice President ----------------------------------- BANK ONE, DAYTON, NATIONAL ASSOCIATION By /s/ John Middelberg --------------------------------------- Its Vice President ----------------------------------- THE MITSUBISHI BANK, LIMITED (CHICAGO BRANCH) By /s/ Jeff Arnold --------------------------------------- Its Vice President ----------------------------------- FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ William Grier, III --------------------------------------- Its Vice President ----------------------------------- -4- THE LONG TERM CREDIT BANK OF JAPAN, LTD. By Robert W. Atts --------------------------------------- Its Senior Vice President ----------------------------------- THE BANK OF NOVA SCOTIA By /s/ FCH Ashby --------------------------------------- Its Senior Manager Loan Operations ----------------------------------- YASUDA TRUST AND BANKING CO., LTD. By /s/ Joseph C. Meek --------------------------------------- Its Vice President & Manager ----------------------------------- THE BANK OF TOKYO, LTD. CHICAGO BRANCH By Jon G. Odenz --------------------------------------- Its Vice President ----------------------------------- THE DAIWA BANK, LIMITED By /s/ John W. Howard, Jr. --------------------------------------- Its Vice President ----------------------------------- And /s/ Michael J. Phillipe -------------------------------------- Its Vice President & Manager ----------------------------------- -5- CREDIT LYONNAIS CHICAGO BRANCH By /s/ Francois Valla --------------------------------------- Its First Vice President and Branch Manager ----------------------------------- CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Francois Valla --------------------------------------- Its Authorized Signature ----------------------------------- MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION By /s/ Timothy W. Hassler --------------------------------------- Its Banking Officer ----------------------------------- COMERICA BANK By /s/ David A. Woods --------------------------------------- Its AVP ----------------------------------- TRUST COMPANY BANK By /s/ Jennifer P. Harrelson --------------------------------------- Its Group Vice President ----------------------------------- And /s/ Frank O. Bennett -------------------------------------- Its Vice President ----------------------------------- -6- WELLS FARGO BANK By --------------------------------------- Its ----------------------------------- BANK OF AMERICA ILLINOIS By /s/ Charles Ackman --------------------------------------- Its Vice President ----------------------------------- -7- EX-4.7 6 EXHIBIT 4.7 EXHIBIT 4.7 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BEST BUY CAPITAL, L.P. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- DATED AS OF NOVEMBER 3, 1994 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINED TERMS Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE II CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITIES HOLDERS; WITHDRAWAL OF INITIAL LIMITED PARTNER Section 2.1 Continuation of the Partnership . . . . . . . . . . . . . . . 11 Section 2.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.3 Business of the Partnership . . . . . . . . . . . . . . . . . 11 Section 2.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.5 Registered Agent and Office . . . . . . . . . . . . . . . . . 12 Section 2.6 Principal Place of Business . . . . . . . . . . . . . . . . . 12 Section 2.7 Name and Business Address of General Partner. . . . . . . . . . . . . . . . . . . . . 12 Section 2.8 Qualification to Do Business. . . . . . . . . . . . . . . . . 12 Section 2.9 Admission of Holders of Preferred Securities; Withdrawal of Initial Limited Partner . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE III CAPITAL CONTRIBUTIONS; REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1 Capital Contributions . . . . . . . . . . . . . . . . . . . . 13 Section 3.2 Preferred Security Holder's Interest Represented by LP Certificate . . . . . . . . . . . . . . . 14 Section 3.3 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.4 Interest on Capital Contributions . . . . . . . . . . . . . . 14 Section 3.5 Withdrawal and Return of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.6 Investment of Capital Contributions . . . . . . . . . . . . . 15 -i- ARTICLE IV ALLOCATIONS Section 4.1 Profits and Losses. . . . . . . . . . . . . . . . . . . . . . 15 Section 4.2 Special Allocations . . . . . . . . . . . . . . . . . . . . . 17 Section 4.3 Allocations for Income Tax Purposes . . . . . . . . . . . . . 18 Section 4.4 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE V DIVIDENDS AND DISTRIBUTIONS Section 5.1 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.2 Limitations on Distributions. . . . . . . . . . . . . . . . . 19 ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1 General Provisions Regarding Preferred Securities. . . . . . . . . . . . . . . . . . . . 20 Section 6.2 Preferred Securities. . . . . . . . . . . . . . . . . . . . . 21 Section 6.3 Conversion Rights of Preferred Securities. . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.4 Optional Exchange for Depositary Shares Representing Best Buy Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . 35 Section 7.2 Accounting Method . . . . . . . . . . . . . . . . . . . . . . 36 Section 7.3 Annual Audit. . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.2 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.3 Priority. . . . . . . . . . . . . . . . . . . . . . . . . . . 37 -ii- ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 9.2 Powers and Duties of General Partner. . . . . . . . . . . . . 37 Section 9.3 Expenses Payable by General Partner . . . . . . . . . . . . . 39 Section 9.4 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.5 Investment Company or Tax Actions . . . . . . . . . . . . . . 39 Section 9.6 Outside Businesses. . . . . . . . . . . . . . . . . . . . . . 40 Section 9.7 Limits on General Partner's Powers. . . . . . . . . . . . . . 40 Section 9.8 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . 42 Section 9.9 Consolidation, Merger or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1 Transfer of Interests . . . . . . . . . . . . . . . . . . . . 44 Section 10.2 Transfer of LP Certificates . . . . . . . . . . . . . . . . . 44 Section 10.3 Persons Deemed Preferred Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 10.4 Book-Entry Interests. . . . . . . . . . . . . . . . . . . . . 45 Section 10.5 Notices to Clearing Agency. . . . . . . . . . . . . . . . . . 46 Section 10.6 Definitive LP Certificates. . . . . . . . . . . . . . . . . . 46 ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1 Withdrawal of Partners. . . . . . . . . . . . . . . . . . . . 46 Section 11.2 Dissolution of the Partnership. . . . . . . . . . . . . . . . 47 Section 11.3 Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.4 Distribution in Liquidation . . . . . . . . . . . . . . . . . 48 Section 11.5 Rights of Limited Partners. . . . . . . . . . . . . . . . . . 49 Section 11.6 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 12.2 Amendment of Certificate. . . . . . . . . . . . . . . . . . . 49 Section 12.3 Meetings of Partners. . . . . . . . . . . . . . . . . . . . . 50 -iii- ARTICLE XIII MISCELLANEOUS Section 13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 13.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . 51 Section 13.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 52 Section 13.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 13.5 Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 13.6 Pronouns and Number . . . . . . . . . . . . . . . . . . . . . 52 Section 13.7 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 13.8 Partial Enforceability. . . . . . . . . . . . . . . . . . . . 53 Section 13.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 13.10 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ANNEX A -- Form of LP Certificate Evidencing Preferred Securities ANNEX B -- Form of Notice of Conversion ANNEX C -- Form of Notice of Exchange -iv- AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BEST BUY CAPITAL, L.P. AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Best Buy Capital, L.P., a Delaware limited partnership (the "PARTNERSHIP"), dated as of November 3, 1994, among Best Buy Co., Inc., a Minnesota corporation ("BEST BUY"), as the general partner, Best Buy Financial Corporation, a Delaware corporation, as the initial limited partner (the "INITIAL LIMITED PARTNER") and such other Persons (as defined herein) who become Limited Partners (as defined herein) as provided herein. WHEREAS, Best Buy and the Initial Limited Partner entered into a Limited Partnership Agreement, dated as of September 22, 1994 (the "ORIGINAL LIMITED PARTNERSHIP AGREEMENT"); WHEREAS, the Certificate of Limited Partnership of the Partnership was filed with the Office of the Secretary of State of the State of Delaware on September 23, 1994; and WHEREAS, the Partners desire to continue the Partnership under the Act (as defined herein) and to amend and restate the Original Limited Partnership Agreement in its entirety. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Original Limited Partnership Agreement as follows: ARTICLE I DEFINED TERMS Section 1.1 DEFINITIONS. Unless the context otherwise requires, the terms defined in this Article I shall, for the purposes of this Agreement, have the meanings herein specified. "ACT" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time. "ACTION" means any action permitted to be taken by the General Partner under this Agreement relating to the terms of the Preferred Securities, which action shall be in writing. "ADDITIONAL DIVIDENDS" means Dividends that shall accumulate on any Dividend arrearages in respect of the Preferred Securities at the rate of 6 1/2% per annum compounded monthly. "ADDITIONAL INTEREST" means interest that shall accrue on any interest on the Subordinated Debentures that is not paid monthly and that shall accrue at the rate of 6 1/2% per annum compounded monthly. "AFFILIATE" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person and (f) if the specified Person is an officer, director, general partner or employee, any other entity for which the specified Person acts in any such capacity. "AGREEMENT" means this Amended and Restated Agreement of Limited Partnership, as amended, modified, supplemented or restated from time to time in accordance with its terms. "BEST BUY" has the meaning set forth in the forepart of this Agreement. "BEST BUY COMMON STOCK" means the Common Stock, par value $.10 per share, of Best Buy. However, subject to the provisions of Article XII of the Indenture, shares of Best Buy Common Stock issuable on conversion of Preferred Securities shall include only shares of the class designated as Common Stock of Best Buy on the first Closing Date or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of Best Buy and which are not subject to redemption by Best Buy; PROVIDED, that if at any -2- time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "BEST BUY PREFERRED STOCK" means the Series A Cumulative Convertible Preferred Stock, par value $1.00 per share, of Best Buy with a liquidation preference of $5,000 per share. "BOOK-ENTRY INTEREST" means a beneficial interest in the LP Certificates, ownership of which shall be recorded and transfers of which shall be made through the book-entry system of a Clearing Agency as described in Section 10.4. "BUSINESS DAY" means any day other than a day on which banking institutions in The City of New York or Chicago are authorized or required by law or executive order to close. "CAPITAL ACCOUNT" has the meaning set forth in Section 3.3. "CERTIFICATE" means the Certificate of Limited Partnership of the Partnership filed with the Secretary of State of the State of Delaware on September 23, 1994, as it may be amended and restated from time to time. "CLEARING AGENCY" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Preferred Securities and in whose name (or nominee's name) shall be registered one or more global LP Certificates and which shall undertake to effect book-entry transfers and pledges of the Preferred Securities. "CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects bookentry transfers and pledges of interests in securities deposited with the Clearing Agency. "CLOSING DATE" means each "Time of Delivery" under the Underwriting Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any corresponding federal tax statute enacted after the date of this Agreement. A reference to a specific section (SECTION) of the Code refers not -3- only to such specific section but also to any corresponding provision of any federal tax statute enacted after the date of this Agreement, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference. "CONVERSION AGENT" has the meaning set forth in Section 6.3(c) of this Agreement. "CONVERSION DATE" has the meaning set forth in Section 6.3(b) of this Agreement. "CONVERSION EXPIRATION DATE" has the meaning set forth in Section 6.3(d)(iii) of this Agreement. "CONVERSION PRICE" has the meaning set forth in Section 6.3(a) of this Agreement. "CURRENT MARKET PRICE" of Best Buy Common Stock for any day means the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange Consolidated Transaction Tape, or, if the Best Buy Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Best Buy Common Stock is listed or admitted to trading, if the Best Buy Common Stock is listed on a national securities exchange, or the National Market System of the National Association of Securities Dealers, Inc., or, if the Best Buy Common Stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the Best Buy Common Stock may be listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the Best Buy Common Stock in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of Best Buy for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. "DEFINITIVE LP CERTIFICATES" has the meaning set forth in Section 10.4 of this Agreement. "DEPOSITARY" means Harris Trust and Savings Bank and its successors and assigns. -4- "DEPOSIT AGREEMENT" means the Deposit Agreement dated as of November 3, 1994 among Best Buy, the Depositary, and the holders from time to time of the Depositary Receipts. "DEPOSITARY RECEIPT" means one of the deposit receipts, issued by the Depositary under the Deposit Agreement, each representing any number of whole Depositary Shares. "DEPOSITARY SHARES" means the depositary shares, each representing a 1/100th interest in a share of Best Buy Preferred Stock deposited with the Depositary pursuant to the Deposit Agreement. "DIVIDENDS" means the cumulative cash distributions from the Partnership with respect to the Interests represented by the Preferred Securities, accruing from the first Closing Date and payable monthly in arrears on the last day of each calendar month of each year, commencing November 30, 1994. "DIVIDEND PAYMENT DATE" has the meaning set forth in Section 6.2(b)(ii) of this Agreement. "DTC" means The Depository Trust Company, the initial Clearing Agency. "ELIGIBLE INVESTMENT ACCOUNT" means either (a) a segregated account with an Eligible Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), having corporate trust powers and acting as trustee for funds deposited in such account, so long as any of the securities of such depository institution shall have a credit rating from each Rating Agency in one of its generic rating categories which signifies investment grade. "ELIGIBLE INSTITUTION" means (a) the Trustee or (b) a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), (1) (i) which has either (A) a long-term unsecured debt rating of AAA or better by S&P's and Aaa or better by Moody's or (B) a short-term unsecured debt rating or a certificate of deposit rating of A-1+ or better by S&P's and P-1 or better by Moody's and (ii) whose deposits are insured by the FDIC or (2) (i) the parent of which has a long-term or short-term unsecured debt rating which signi- -5- fies investment grade and (ii) whose deposits are insured by the FDIC. "ELIGIBLE INVESTMENTS" mean book-entry securities, negotiable instruments, cash or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully guaranteed as to timely payment by, the Government of the United States of America; (b) demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking or depository institution authorities; PROVIDED, HOWEVER, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of S&P's, Moody's and, if rated by Fitch, Fitch in the highest investment category granted thereby; (c) commercial paper having, at the time of the investment or contractual commitment to invest therein, a rating from each of S&P's, Moody's and, if rated by Fitch, Fitch in the highest investment rating category granted thereby; (d) investments in money market funds having a rating from each of S&P's and Moody's in the highest investment rating category granted thereby; (e) demand deposits, time deposits and certificates of deposit which are fully insured by the FDIC; (f) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; or (g) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the Government of the United States of America or any agency or instrumentality thereof, the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with (i) a depository institution or trust -6- company (acting as principal) described in clause (b) or (ii) a depository institution or trust company which is an Eligible Institution and the deposits of which are insured by the FDIC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE DATE" has the meaning specified in Section 6.4(e) of this Agreement. "EXCHANGE ELECTION" has the meaning specified in Section 6.4(c) of this Agreement. "EXCHANGE ELECTION MEETING" has the meaning specified in Section 6.4(c) of this Agreement. "EXCHANGE EVENT" has the meaning specified in Section 6.4(b) of this Agreement. "EXCHANGE PRICE" means one Depositary Share (with a proportionate liquidation preference per share of $50) representing a 1/100th interest in a share of Best Buy Preferred Stock (with a liquidation preference per share of $5,000) for each $50 principal amount of Subordinated Debentures (which rate of exchange is equivalent to one Depositary Share representing Best Buy Preferred Stock for one Preferred Security). "FDIC" means the Federal Deposit Insurance Corporation or any successor thereto. "FISCAL PERIOD" means each calendar month. "FISCAL YEAR" means (i) the period commencing upon the formation of the Partnership and ending on December 31, 1994, and (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31. "FITCH" means Fitch Investors Service, Inc. or any successor thereto. "GENERAL PARTNER" means Best Buy in its capacity as general partner of the Partnership, its permitted successors, or any successor general partner in the Partnership admitted as such pursuant to the applicable provisions of this Agreement. "GUARANTEE" means the Guarantee Agreement dated as of November 3, 1994 of Best Buy in favor of the Preferred Security Holders with respect to the Preferred Securities. -7- "HOLDER" or "PREFERRED SECURITY HOLDER" means a Limited Partner in whose name an LP Certificate representing Preferred Securities is registered. "INDENTURE" means the Indenture, dated as of November 3, 1994, among Best Buy, the Partnership and the Trustee relating to the Subordinated Debentures. "INITIAL LIMITED PARTNER" means Best Buy Financial Corporation, a Delaware corporation. "INTEREST" means the entire ownership interest of a Partner in the Partnership at any particular time, including, without limitation, its interest in the capital, profits, losses and distributions of the Partnership. "LIMITED PARTNER" means any Person who is admitted to the Partnership as a Limited Partner pursuant to the terms of this Agreement. "LIQUIDATION DISTRIBUTION" has the meaning set forth in Section 6.2(f). "LIQUIDATOR" has the meaning specified in Section 11.3 of this Agreement. "LP CERTIFICATE" means a certificate substantially in the form attached hereto as Annex A, evidencing the Preferred Securities held by a Limited Partner. "MAJORITY (OR OTHER STATED PERCENTAGE) IN LIQUIDATION PREFERENCE" means Holder(s) of Preferred Securities who are the record owners of Preferred Securities whose aggregate liquidation preferences represent not less than 50% or not less than such stated percentage of the aggregate liquidation preference of all Preferred Securities then outstanding. "MOODY'S" means Moody's Investors Service, Inc. or any successor thereto. "NET INCOME" and "NET LOSS", respectively, for any Fiscal Period means the income and loss, respectively, of the Partnership for such Fiscal Period as determined in accordance with the method of accounting followed by the Partnership for federal income tax purposes, including, for all purposes, the net income, if any, from Eligible Investments and any income exempt from tax and any expenditures of the Partnership which are described in Code Section 705(a) (2)(B); PROVIDED, HOWEVER, that any item allocated under -8- Section 4.2 shall be excluded from the computation of Net Income and Net Loss. "NOTICE OF CONVERSION" has the meaning set forth in Section 4.2 of this Agreement. "NOTICE OF CONVERSION EXPIRATION" has the meaning set forth in Section 6.3(d)(iii) of this Agreement. "NOTICE OF EXCHANGE" has the meaning specified in Section 6.4(d) of this Agreement. "NYSE" means the New York Stock Exchange, Inc. "ORIGINAL LIMITED PARTNERSHIP AGREEMENT" has the meaning set forth in the recitals to this Agreement. "PARTNERS" means the General Partner and, if appointed pursuant to Section 6.2(g), any Special General Partner and the Limited Partners, collectively, where no distinction is required by the context in which the term is used. "PARTNERSHIP" means the limited partnership formed under the Act pursuant to the Original Limited Partnership Agreement upon filing of the Certificate, and continued pursuant to this Agreement. "PARTNERSHIP DISTRIBUTION ACCOUNT" has the meaning specified in Section 3.6(b) of this Agreement. "PERSON" means any individual, corporation, association, partnership, trust or other entity. "POWER OF ATTORNEY" means the Power of Attorney granted pursuant to Section 13.2. "PREFERRED SECURITIES" means the Interests of Limited Partners represented by one or more LP Certificates and described in Article VI. "PREFERRED SECURITY OWNER" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency or Clearing Agency Participant). -9- "PRESS RELEASE" has the meaning set forth in Section 6.3(d)(ii) of this Agreement. "PURCHASE PRICE" for any Preferred Security means the amount paid per Preferred Security pursuant to the Underwriting Agreement, payment of which shall constitute the contribution to capital contemplated by Section 3.1(c). "REDEMPTION PRICE" has the meaning set forth in Section 6.2(d). "RATING AGENCIES" means Fitch, Moody's and S&P. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SPECIAL GENERAL PARTNER" means the Person appointed (i) to enforce Preferred Security Holders' rights under the Guarantee, (ii) to enforce the Partnership's rights against Best Buy under the Subordinated Debentures or (iii) to exercise rights otherwise exercisable by the General Partner to declare and pay distributions on the Preferred Securities as provided in Section 6.2(g) of this Agreement. "S&P" means Standard & Poor's Ratings Group or any successor thereof. "SUBORDINATED DEBENTURES" means the convertible subordinated debentures of Best Buy issued pursuant to the Indenture and sold by Best Buy to the Partnership in connection with the issuance and sale by the Partnership of the Preferred Securities. "TAX MATTERS PARTNER" means the General Partner designated as such in Section 9.8 hereof. "TRADING DAY" means, with respect to any security listed for trading on the New York Stock Exchange, any day on which such securities are traded on the New York Stock Exchange. "TRANSFER AGENT" means Harris Trust and Savings Bank and its successors and assigns. "TREASURY REGULATIONS" means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). -10- "TRUSTEE" means Harris Trust and Savings Bank, the trustee under the Indenture, and its successors and assigns. "UNDERWRITERS" means the underwriters named in Schedule I to the Underwriting Agreement. "UNDERWRITING AGREEMENT" means the Underwriting Agreement dated October 27, 1994, among Best Buy, the Partnership and the several Underwriters named therein relating to the issuance of the Preferred Securities. Section 1.2 HEADINGS. The headings and subheadings in this Agreement are included for convenience and identification purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. ARTICLE II CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITY HOLDERS; WITHDRAWAL OF INITIAL LIMITED PARTNER Section 2.1 CONTINUATION OF THE PARTNERSHIP. The parties hereto agree to continue the Partnership in accordance with the terms of this Agreement. The General Partner, for itself and as agent for the Limited Partners, shall make every reasonable effort to assure that an amendment to the Certificate of Limited Partnership reflecting this Agreement, and all other certificates and documents, are properly executed and shall accomplish all filing, recording, publishing and other acts necessary or appropriate for compliance with all the requirements for the continuation of the Partnership as a limited partnership under the Act and under all other laws of the State of Delaware or such other jurisdictions in which the General Partner determines that the Partnership may conduct business. The rights and duties of the Partners shall be as provided herein and, subject to the terms hereof, in the Act. Section 2.2 NAME. The name of the Partnership is "Best Buy Capital, L.P.", as such name may be modified from time to time by the General Partner following written notice to the Limited Partners. Section 2.3 BUSINESS OF THE PARTNERSHIP. The purposes of the Partnership are (a) to issue limited partnership interests in the Partnership in the form of Preferred Securities, and to use substantially all of the -11- proceeds thereof and substantially all of the proceeds from the capital contributed to the Partnership by the General Partner to purchase Subordinated Debentures of Best Buy, (b) to invest, at all times, at least 1% of the total capital contributed to the Partnership by the Partners in the Eligible Investment Account as provided herein and (c) except as otherwise limited herein, to enter into, make and perform all contracts and other undertakings, and engage in all activities and transactions as the General Partner may reasonably deem necessary or advisable for the carrying out of the foregoing purposes of the Partnership. The Partnership may not conduct any other business or operations except as contemplated by the preceding sentence. Section 2.4 TERM. The term of the Partnership shall commence upon the filing of the Certificate in the Office of the Secretary of State of the State of Delaware and shall continue until December 31, 2039, unless dissolved before such date in accordance with the provisions of this Agreement. Section 2.5 REGISTERED AGENT AND OFFICE. The Partnership's registered agent and office in Delaware shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. At any time, the General Partner may designate another registered agent and/or registered office. Section 2.6 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Partnership shall be 7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344. Upon ten days written notice to the Partners, the General Partner may change the location of the Partnership's principal place of business, provided that such change has no material adverse effect upon any Partner. Section 2.7 NAME AND BUSINESS ADDRESS OF GENERAL PARTNER. The name and address of the General Partner are as follows: Best Buy Co., Inc. 7075 Flying Cloud Drive Eden Prairie, Minnesota 55344 Attention: Chief Financial Officer The General Partner may change its name or business address from time to time, in which event the General Partner shall promptly notify the Limited Partners of any such change. Section 2.8 QUALIFICATION TO DO BUSINESS. The General Partner shall cause the Partnership to become quali- -12- fied, formed or registered under the applicable qualification, fictitious name or similar laws of any jurisdiction in which the Partnership transacts business. Section 2.9 ADMISSION OF HOLDERS OF PREFERRED SECURITIES; WITHDRAWAL OF INITIAL LIMITED PARTNER. (a) Without execution of this Agreement, upon the acquisition of an LP Certificate by a Person, whether by purchase, gift, devise or otherwise, which acquisition shall be deemed to constitute a request by such Person that the books and records of the Partnership reflect such Person's admission as a Limited Partner, such Person shall be admitted to the Partnership as a Limited Partner and shall become bound by this Agreement. (b) Following the first admission of a Preferred Security Holder to the Partnership as a Limited Partner, the Initial Limited Partner shall withdraw from the Partnership and shall receive the return of its capital contribution without interest or deduction. (c) The name and mailing address of each Partner and the amount contributed by such Partner to the capital of the Partnership shall be listed on the books and records of the Partnership. The General Partner shall be required to update the books and records from time to time as necessary to accurately reflect such information. ARTICLE III CAPITAL CONTRIBUTIONS; REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1 CAPITAL CONTRIBUTIONS. (a) The General Partner has, on or prior to the first Closing Date, contributed an aggregate of $21.00 to the capital of the Partnership. The General Partner shall on or prior to each Closing Date, make such additional capital contributions as are necessary to maintain its Capital Account balance at an amount equal to at least 21% of the aggregate positive Capital Account balances of all Partners as of the time of each such Closing Date. (b) The Initial Limited Partner has, prior to the date hereof, contributed the amount of $79.00 to the capital of the Partnership, which amount will be returned to the Initial Limited Partner as contemplated by Section 2.9(b). -13- (c) On each Closing Date, each Person who acquires a Preferred Security from the Partnership shall, as the consideration for the acquisition of such Preferred Security, contribute to the capital of the Partnership an amount in cash equal to the Purchase Price for such Preferred Security. (d) No Limited Partner shall at any time be required to make any additional capital contributions to the Partnership, except as may be required by law. Section 3.2 PREFERRED SECURITY HOLDER'S INTEREST REPRESENTED BY LP CERTIFICATE. A Preferred Security Holder's Interest shall be represented by the LP Certificate held by or on behalf of such Holder. Each Preferred Security Holder's respective ownership of Preferred Securities shall be set forth on the books and records of the Partnership. Each Holder hereby agrees that its Interest represented by its LP Certificate shall for all purposes be personal property. A Preferred Security Holder shall have no interest in specific Partnership property. Section 3.3 CAPITAL ACCOUNTS. An individual capital account (a "CAPITAL ACCOUNT") shall be established and maintained on the books of the Partnership for each Partner in compliance with Treasury Regulation SECTIONS 1.704-1(b)(2)(iv) and 1.704-2, as amended. Subject to the preceding sentence, each Capital Account will be increased by the amount of the capital contributions (including the Purchase Price) made by, and the Net Income allocated to, such Partner (or predecessor in interest) and reduced by the amount of distributions made by the Partnership, and Net Losses allocated, to the Partner (or predecessor thereof). In addition, a Partner's Capital Account shall be increased or decreased, as the case may be, for any items specifically allocated to such Partner under Section 4.2 of this Agreement, and, to the extent permitted under such Treasury Regulation, the General Partner's Capital Account will be increased to the extent the General Partner pays any costs or expenses of the Partnership directly out of the General Partner's own funds. Section 3.4 INTEREST ON CAPITAL CONTRIBUTIONS. Except as provided herein, no Partner shall be entitled to interest on or with respect to any capital contribution to the Partnership. Section 3.5 WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTIONS. Subject to Section 3.l(b), no Partner shall be entitled to withdraw any part of such Partner's capital contribution to the Partnership. No Partner shall be -14- entitled to receive any distributions from the Partnership, except as provided in this Agreement. Section 3.6 INVESTMENT OF CAPITAL CONTRIBUTIONS. (a) The General Partner shall establish and maintain in the name of the Partnership an Eligible Investment Account bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Partners. On each Closing Date, the General Partner shall deposit from the proceeds of the aggregate capital contributions received from the Partners an amount equal to at least 1% of such aggregate capital contributions into the Eligible Investment Account. On the first Closing Date, the amount so deposited by the General Partner shall equal $2,911,392. (b) Funds on deposit in the Eligible Investment Account shall be invested by the General Partner in Eligible Investments; PROVIDED, HOWEVER, it is understood and agreed that the General Partner shall not be liable for any loss arising from such investment in Eligible Investments; PROVIDED FURTHER that none of the funds deposited in the Eligible Investment Account shall be invested in an Eligible Investment or Eligible Investments issued by the General Partner or an Affiliate thereof for a period of five years following the Closing Date. All such Eligible Investments shall be held by the General Partner for the benefit of the Partnership, PROVIDED, HOWEVER, that on the day preceding each Dividend Payment Date all interest and other investment income (net of losses and investment expenses) on funds on deposit in the Eligible Investment Account shall be deposited into an account maintained by the Partnership for receipt of income on the Subordinated Debentures (the "PARTNERSHIP DISTRIBUTION ACCOUNT") and shall constitute a portion of the Partnership's Net Income eligible for distribution to the Partners. Funds on deposit in the Eligible Investment Account shall be invested in Eligible Investments that will mature prior to the next succeeding Dividend Payment Date. ARTICLE IV ALLOCATIONS Section 4.1 PROFITS AND LOSSES. After giving effect to the special allocations set forth in Section 4.2, (a) the Partnership's Net Income for each Fiscal Period of the Partnership shall be allocated as follows: -15- (i) First, to each Holder, as of the close of business on the record date for such Fiscal Period, an amount of Net Income equal to the excess of (x) the Dividends accrued on such Holder's Preferred Securities from the first Closing Date through and including the close of business on the record date for such Fiscal Period, including any Additional Dividends payable with respect thereto, over (y) the amount of Net Income allocated to each such Holder (or predecessor thereof) pursuant to this Section 4.1(a)(i) in all prior Fiscal Periods, including any Additional Dividends payable with respect thereto. (ii) Second, to each Holder, as of the close of business on the record date for such Fiscal Period, an amount of Net Income equal to the excess of (x) all Net Losses allocated to each such Holder (or predecessor thereof) from the date of issuance of each of such Holder's Preferred Securities through and including the close of such Fiscal Period pursuant to Section 4.1(b)(ii) over (y) the amount of Net Income allocated to such Holder (or predecessor thereof) pursuant to this Section 4.1(a)(ii) in all prior Fiscal Periods. (iii) Any remaining Net Income shall be allocated to the General Partner. (b) The Partnership's Net Loss for any Fiscal Period shall be allocated as follows: (i) First, to the General Partner until the balance of the General Partner's Capital Account is reduced to zero. (ii) Second, among the Holders in proportion to their respective aggregate Capital Account balances, until the Capital Account balances of such Holders are reduced to zero; PROVIDED, HOWEVER, that the General Partner shall make appropriate adjustments in these allocations, in accordance with Section 4.1(c), with respect to any Preferred Securities as to which Net Income has been allocated with respect to Dividends that accrued but were not paid. (iii) Any remaining Net Loss shall be allocated to the General Partner. (c) The General Partner shall make such changes to the allocations in Sections 4.1(a) and 4.1(b) as it deems reasonably necessary so that, in the year of the Partnership's liquidation, amounts distributed to the -16- Preferred Security Holders in accordance with Section 11.4(ii) shall equal their Liquidation Distributions. Section 4.2 SPECIAL ALLOCATIONS. (a) If a Holder delivers to the Conversion Agent an irrevocable notice of conversion substantially in the form of Annex B hereto ("NOTICE OF CONVERSION") pursuant to Section 6.3(b) of this Agreement, such Holder shall be allocated any interest (including original issue discount) accruing on a daily basis on the Subordinated Debentures so converted until the date of such conversion, but only to the extent such interest was not previously allocated to the Partners in a prior Fiscal Period as part of Net Income under Section 4.1(a) of this Agreement. (b) All expenditures described in Code Section 705(a)(2)(B) that are incurred by, or on behalf of, the Partnership and paid by the General Partner shall be allocated entirely to the General Partner. (c) In the event any Holder unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation SECTION 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership Net Income shall be specially allocated to such Holder in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the deficit, if any, in the balance of the Capital Account of such Holder as quickly as possible. This Section 4.2(c) is intended to comply with the qualified income offset provision in SECTION 1.704-1(b)(2)(ii)(d) of the Treasury Regulations. (d) For purposes of determining the profits, losses or any other items allocable to any period, profits, losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the General Partner using any method that is permissible under SECTION 706 of the Code and the Treasury Regulations promulgated thereunder. Unless otherwise specified, such profits, losses or other items shall be determined for each Fiscal Period. (e) The Partners and Holders, by becoming parties to this Agreement, either by execution hereof or pursuant to Section 2.9, will be deemed to be aware of the income tax consequences of the allocations made by this Article IV and will be deemed to have agreed to be bound by the provisions of this Article IV in reporting their shares of Partnership Net Income and Net Loss for U.S. federal income tax purposes. -17- (f) Notwithstanding anything to the contrary that may be expressed or implied in this Article IV, the interest of the General Partner in each item of income, gain, loss, deduction and credit will be equal to at least (i) at any time that aggregate capital contributions to the Partnership are equal to or less than $50,000,000, 1% of each such item and (ii) at any time that aggregate capital contributions to the Partnership are greater than $50,000,000, 1% of each such item, multiplied by a fraction (not exceeding one and not less than 0.2), the numerator of which is $50,000,000 and the denominator of which is the lesser of the aggregate Capital Account balances of the Capital Accounts of all Partners at such time and the aggregate capital contributions to the Partnership of all Partners at such time. (g) The Partners intend that the allocations under Section 4.1 conform to Treasury Regulations SECTIONS 1.704-1(b) and 1.704-2 (including, without limitation, the minimum gain chargeback, chargeback of partner non- recourse debt minimum gain, qualified income offset and partner nonrecourse debt provisions of such Treasury Regulations), and the General Partner shall make such changes in the allocations under Section 4.1 as it believes are reasonably necessary to meet the requirements of such Treasury Regulations. (h) Solely for the purpose of adjusting the Capital Accounts of the Partners, and not for tax purposes, if any property is distributed in kind to any Partner, the difference between its fair market value and its book value at the time of distribution shall be treated as gain or loss recognized by the Partnership and allocated pursuant to the provisions of Section 4.1. Section 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income, gains, losses, deductions and credits of the Partnership shall be allocated in the same manner as the items entering into the computation of Net Income and Net Loss are allocated under Sections 4.1 and 4.2; PROVIDED, HOWEVER, that solely for federal, state and local income and franchise tax purposes, but not for book or Capital Account purposes, income, gain, loss and deductions with respect to any property properly carried on the Partnership's books at a value other than the tax basis of such property shall be allocated in a manner determined in the General Partner's discretion, so as to take into account (consistently with Code Section 704(c) principles) the difference between such property's book value and its tax basis. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner is authorized to modify the allocations of -18- this Section 4.3, and Sections 4.1 and 4.2, if necessary or appropriate, in the General Partner's sole discretion, for the allocations to fairly reflect the economic gain, income or loss to each of the Partners, or as otherwise required by the Code or the Treasury Regulations. Section 4.4 WITHHOLDING. The Partnership shall comply with withholding requirements under federal, state and local law and shall remit amounts withheld to and file required forms with applicable jurisdictions. To the extent that the Partnership is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Partner, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Partner. In the event of any claimed over-withholding, Partners shall be limited to an action against the applicable jurisdiction. If the amount withheld was not withheld from actual distributions, the Partnership may reduce subsequent distributions by the amount of such withholding. Each Partner agrees to furnish the Partnership with any representations and forms as shall reasonably be requested by the Partnership to assist it in determining the extent of, and in fulfilling, its withholding obligations. ARTICLE V DIVIDENDS AND DISTRIBUTIONS Section 5.1 DIVIDENDS. Limited Partners shall receive periodic Dividends, if any, redemption payments and liquidation distributions in accordance with the terms of the Preferred Securities set forth in Article VI. Subject to the rights of the Preferred Security Holders, all cash remaining in the Partnership Distribution Account shall be distributed to the General Partner at such time as the General Partner shall determine. Section 5.2 LIMITATIONS ON DISTRIBUTIONS. The Partnership shall not make a distribution to any Partner on account of such Partner's Interest if such distribution would violate Section 17-607 of the Act or other applicable law. -19- ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1 GENERAL PROVISIONS REGARDING PREFERRED SECURITIES. (a) There is hereby authorized for issuance and sale Preferred Securities having an aggregate liquidation preference not greater than $230,000,000 and having the designation, annual Dividend rate, liquidation preference, redemption terms, conversion and exchange rights and other powers, preferences and special rights and limitations set forth in this Article VI. The aggregate liquidation preference of Preferred Securities authorized hereunder shall be reduced 30 days after the first Closing Date to the aggregate liquidation preference of such Preferred Securities as shall have been purchased through such date by the Underwriters. (b) The payment of Dividends and payments of distributions by the Partnership in liquidation or on redemption in respect of Preferred Securities shall be guaranteed by Best Buy pursuant to, and to the extent provided in, the Guarantee. In the event of an appointment of a Special General Partner pursuant to Section 6.2(g), among other things, to enforce the Guarantee, the Special General Partner may take possession of the Guarantee for such purpose. The Preferred Security Holders, by acceptance of such Preferred Securities, acknowledge and agree to the subordination provisions and other terms of the Guarantee. (c) The proceeds received by the Partnership from the issuance of Preferred Securities, together with the proceeds of the capital contributed by the General Partner pursuant to Section 3.1(a) of this Agreement, but less any amounts deposited by the General Partner in the Eligible Investment Account pursuant to Section 3.6(a), shall be invested by the Partnership in Subordinated Debentures with (i) an aggregate principal amount equal to such aggregate invested proceeds and (ii) an interest rate at least equal to the Dividend rate of the Preferred Securities. (d) The Partnership may not issue any other interests in the Partnership, without the approval of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities; PROVIDED, HOWEVER, that the Partnership may issue a general partnership interest to the Special General Partner. All Preferred Securities shall rank senior to all other Interests in the Partnership in respect of the right to receive Dividends or other distribu- -20- tions and the right to receive payments out of the assets of the Partnership upon voluntary or involuntary liquidation, dissolution, winding-up or termination of the Partnership. All Preferred Securities redeemed, purchased or otherwise acquired by the Partnership (including Preferred Securities surrendered for conversion or exchange) shall be canceled. The Preferred Securities will be issued in registered form only. Dividends on all Preferred Securities shall be cumulative. (e) No Holder shall be entitled as a matter of right to subscribe for or purchase, or have any preemptive right with respect to, any part of any new or additional limited partnership interests, or of securities convertible into any Preferred Securities or other limited partnership interests, whether now or hereafter authorized and whether issued for cash or other consideration or by way of a Dividend. (f) Neither Best Buy nor any Affiliate of Best Buy shall have the right to vote or give or withhold consent with respect to any Preferred Security owned by it, directly or indirectly, and, for purposes of any matter upon which the Limited Partners may vote or give or withhold consent as provided in this Agreement, Preferred Securities owned by Best Buy or any Affiliate shall be treated as if they were not outstanding. Section 6.2 PREFERRED SECURITIES. (a) DESIGNATION. The Preferred Securities, liquidation preference $50 per Preferred Security, are hereby designated as "6 1/2 % CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES". (b) DIVIDENDS. (i) Preferred Security Holders shall be entitled to receive, when, as and if declared by the General Partner, cumulative Dividends at a rate per annum of 6 1/2% of the stated liquidation preference of $50 per Preferred Security, calculated on the basis of a 360-day year consisting of 12 months of 30 days each. For any period shorter than a full monthly Dividend period, Dividends will be computed on the basis of the actual number of days elapsed in such period. Dividends shall be payable in United States dollars monthly in arrears on the last day of each calendar month of each year, commencing November 30, 1994. Such Dividends will accrue and be cumulative whether or not they have been declared and whether or not there are funds of the Partnership legally available for the payment of Dividends. Dividends on the Preferred Securities shall be cumulative from the first Closing Date. Additional -21- Dividends upon any Dividend arrearages shall be declared and paid in order to provide, in effect, monthly compounding on such Dividend arrearages at a rate of 6 1/2% per annum compounded monthly and such Additional Dividends shall accumulate. In the event that any date on which Dividends are payable on the Preferred Securities is not a Business Day, then payment of the Dividend payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (ii) Dividends on the Preferred Securities must be declared monthly and be paid on the last day of each calendar month (each a "DIVIDEND PAYMENT DATE") to the extent that the Partnership has, on such date, (x) funds legally available for the payment of such Dividends and (y) cash on hand sufficient to permit such payments, it being understood that to the extent that funds are not available to pay in full all accumulated and unpaid Dividends, the Partnership may pay partial pro rata Dividends to the extent of funds legally available therefor. For purposes of this Section 6.2(b), net interest and investment income from funds on deposit in the Eligible Investment Account that is transferred into the Partnership Distribution Account shall be considered funds available for the payment of Dividends; PROVIDED, HOWEVER, that the principal amount of Eligible Investments shall not be available as distributions as Dividends or otherwise except in connection with a liquidating distribution pursuant to Section 11.4 of this Agreement. Dividends will be payable to the Holders as they appear on the books and records of the Partnership on the relevant record dates, which will be one Business Day prior to the related Dividend Payment Date. In the event of any extended interest payment period with respect to the Subordinated Debentures resulting in the deferral of the payment of Dividends on the Preferred Securities, the Partnership shall give written notice by first-class mail to the Holders as to such extended interest payment period no later than the last date on which it would be required to notify the NYSE of the record or payment date of the related Dividend on the Preferred Securities. (iii) The Partnership shall not: (A) pay, declare or set aside for payment, any dividends or other distributions on any other Interests in the Partnership; or -22- (B) redeem, purchase or otherwise acquire any other Interests in the Partnership; until, in each case, such time as all accumulated and unpaid Dividends on all of the Preferred Securities, including any Additional Dividends thereon, shall have been paid in full for all Dividend periods terminating on or prior to the date of such payment or the date of such redemption, purchase or acquisition, as the case may be. (iv) In the event of an election by the Holder to convert its Preferred Securities through the Conversion Agent into Best Buy Common Stock pursuant to Section 6.3 of this Agreement, neither Best Buy nor the Partnership shall make, or be required to make, any payment, allowance or adjustment with respect to accumulated and unpaid Dividends on such Preferred Securities; PROVIDED that Holders of Preferred Securities at the close of business on any record date for the payment of Dividends will be entitled to receive the Dividend payable on such Preferred Securities on the corresponding Dividend Payment Date notwithstanding the conversion of such Preferred Securities into Best Buy Common Stock following such record date. (d) REDEMPTION. (i) If at any time following the Conversion Expiration Date, less than five percent (5%) of the Preferred Securities issued and sold pursuant to the Underwriting Agreement remain outstanding, such Preferred Securities shall be redeemable, at the option of the Partnership, in whole but not in part, from time to time, upon not fewer than 30 nor more than 60 days' prior notice, at a redemption price equal to the liquidation preference per Preferred Security plus accumulated and unpaid Dividends (whether or not earned or declared) to the date fixed for redemption, including any Additional Dividends accrued thereon (the "REDEMPTION PRICE"). (ii) Upon repayment at maturity of the Subordinated Debentures or as a result of acceleration of the Subordinated Debentures, the Preferred Securities shall be redeemable, in whole but not in part, at the Redemption Price, and the proceeds from such repayment shall be applied to redeem the Preferred Securities at the Redemption Price. In the case of such acceleration, the Preferred Securities shall only be redeemed when repayment of the Subordinated Debentures has actually been received by the Partnership. (e) REDEMPTION PROCEDURES. (i) Notice of any redemption (a "NOTICE OF REDEMPTION") of the Preferred Securities to be redeemed will be given by the Partnership by first-class mail to each record Holder of Preferred -23- Securities not fewer than 30 nor more than 60 days prior to the date fixed for redemption thereof following the issuance of a notice of redemption of the Subordinated Debentures by Best Buy to the Partnership. For purposes of the calculation of the date of redemption and the dates on which notices are given pursuant to this paragraph (e)(i), a Notice of Redemption shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to each Holder of Preferred Securities. Each Notice of Redemption shall be addressed to each Holder of Preferred Securities at the address of the Holder appearing in the books and records of the Partnership. If all of the Preferred Securities are represented by Book-Entry Interests, Notices of Redemption shall be sent to the Clearing Agency. No defect in the Notice of Redemption or in the mailing thereof with respect to any Preferred Security shall affect the validity of the redemption proceedings with respect to any other Preferred Security. (ii) If, following a notice of redemption of all outstanding Subordinated Debentures, the Partnership issues a Notice of Redemption, then, by 12:00 noon, New York time, on the redemption date, Best Buy will repay to the Partnership an aggregate principal amount of the Subordinated Debentures which, together with accrued and unpaid interest and any Additional Interest thereon, will be an amount sufficient to pay the Redemption Price for all Preferred Securities then outstanding. If all of the Preferred Securities are represented by Book-Entry Interests, the Partnership shall irrevocably deposit such funds with the Clearing Agency and give the Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the Holders of Preferred Securities and otherwise the Partnership may pay the Redemption Price by check. If a Notice of Redemption shall have been issued and funds deposited as required or a check deposited in the U.S. mails postage prepaid, then upon the date of such deposit, all rights of the Preferred Security Holders who hold such Preferred Securities so called for redemption will cease, except the right of the Holders of such securities to receive the Redemption Price, but without interest from and after such redemption date. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and -24- not paid either by the Partnership or by Best Buy pursuant to the Guarantee, Dividends on such Preferred Securities (including any Additional Dividends thereon) will continue to accumulate at the then applicable rate, from the original redemption date to the date that the Redemption Price is actually paid. (f) LIQUIDATION RIGHTS. In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Partnership, the Holders of Preferred Securities at the time outstanding will be entitled to receive out of the assets of the Partnership (including any Eligible Investments or amounts deposited in the Eligible Investment Account) legally available for distribution to Partners after satisfaction of liabilities of creditors as required by the Act before any distribution of assets is made with respect to any other Interest in the Partnership, an amount equal to the aggregate of the stated liquidation preference of $50 per Preferred Security and accumulated and unpaid Dividends (whether or not earned or declared) to the date of payment, including any Additional Dividends accrued thereon (the "LIQUIDATION DISTRIBUTION"). (g) VOTING RIGHTS -- SPECIAL GENERAL PARTNER. (i) If (x) the Partnership fails to pay Dividends in full on the Preferred Securities for 15 consecutive months (other than as a result of a determination by Best Buy to extend the interest payment period of the Subordinated Debentures in accordance with the terms thereof), (y) an Event of Default under the Subordinated Debentures occurs and is continuing or (z) Best Buy is in default on any of its payment obligations under the Guarantee, then the Holders, upon the affirmative vote of at least a Majority in Liquidation Preference of the Preferred Securities, will be entitled to appoint and authorize a Special General Partner to enforce the Partnership's rights as a creditor under the Subordinated Debentures, enforce the rights of the Holders under the Guarantee and to declare and pay Dividends (including Additional Dividends) on the Preferred Securities. Upon the appointment of a Special General Partner, the Special General Partner shall be authorized, and shall to the extent of legally available funds, declare and pay Dividends (including Additional Dividends) on the Preferred Securities. So long as the appointment of the Special General Partner is effective, the Special General Partner shall manage the business and affairs of the Partnership to the exclusion of the General Partner. (ii) In furtherance of the foregoing, and without limiting the powers of any Special General Partner so appointed and for the avoidance of any doubt concerning the -25- powers of the Special General Partner, any Special General Partner, in its own name and as Special General Partner of the Partnership, may institute a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce the Partnership's rights directly against Best Buy, or any other obligor in connection with such obligations on behalf of the Partnership, and may prosecute such proceeding to judgment or final decree, and enforce the same against Best Buy or any other obligor in connection with such obligations and collect, out of the property, wherever situated, of Best Buy or any such other obligor upon such obligations, the monies adjudged or decreed to be payable in the manner provided by law. (iii) For purposes of determining whether the Partnership has failed to pay Dividends in full for 15 consecutive months, Dividends shall be deemed to remain in arrears, notwithstanding any partial payments in respect thereof, until full cumulative Dividends have been or contemporaneously are declared and paid with respect to all monthly Dividend periods terminating on or prior to the date of payment of such full cumulative Dividends. Not later than 30 days after such right to appoint a Special General Partner arises and upon not less than 15 days' written notice by first-class mail to the Holders, the General Partner will convene a meeting for election of a Special General Partner. If the General Partner fails to convene such meeting within such 30-day period, the Holders of not less than 10% in Liquidation Preference of the Preferred Securities will be entitled to convene such meeting. Except as provided herein, the provisions of Section 12.3 relating to the convening and conduct of meetings of the Partners will apply with respect to any such meeting. Any Special General Partner so appointed shall vacate office immediately if the Partnership (or Best Buy pursuant to the Guarantee) shall have paid in full all accumulated and unpaid Dividends (including any Additional Dividends) on the Preferred Securities or such Event of Default or default, as the case may be, shall have been cured. (h) VOTING RIGHTS -- CERTAIN AMENDMENTS. (i) If any proposed amendment of this Agreement provides for, or the General Partner otherwise proposes to effect, (x) any action that would materially adversely affect the powers, preferences or rights of the Preferred Securities, whether by way of amendment of this Agreement or otherwise (including, without limitation, the authorization or issuance of any additional limited partnership interests in the Partnership) or (y) the liquidation, dissolution, winding-up or termination of the Partnership (other than in -26- connection with the exchange of Depositary Shares representing Best Buy Preferred Stock for all of the Preferred Securities upon the occurrence of an Exchange Event), then the Holders of outstanding Preferred Securities will be entitled to vote on such amendment or action of the General Partner (but not on any other amendment or action) and such amendment or action shall not be effective except with the approval of Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities; PROVIDED, HOWEVER, that no such approval shall be required if the liquidation, dissolution, winding-up or termination of the Partnership is proposed or initiated pursuant to Section 11.2 hereof. (ii) Any required approval of Holders may be given at a separate meeting of such Holders convened for such purpose or pursuant to written consent. The Partnership will cause written notice of any meeting at which Holders are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed by first-class mail to each Holder at least 15 days prior to the date of such meeting or the date by which such action is to be taken. Each such notice will include a statement setting forth (x) the date of such meeting or the date by which such action is to be taken, (y) a description of any matter on which such Holders are entitled to vote or upon which written consent is sought and (z) instructions for the delivery of proxies or consents. No vote or consent of the Holders will be required for the Partnership to redeem and cancel Preferred Securities in accordance with this Agreement. (iii) Except as provided in this Section 6.2, Holders shall have no voting rights, and the Holders may not remove the General Partner. Section 6.3 CONVERSION RIGHTS OF PREFERRED SECURITIES. The Holders of Preferred Securities shall have the right, at their option, at any time before the close of business on the Conversion Expiration Date, to cause the Conversion Agent to convert Preferred Securities, on behalf of the converting Holders, into shares of Best Buy Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Preferred Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Best Buy Common Stock, pursuant to the Holder's direction to the Conversion Agent given by means of a Notice of Conversion to (i) exchange such Preferred Securities for a portion of the Subordinated -27- Debentures theretofore held by the Partnership on the basis of one Preferred Security per $50 principal amount of Subordinated Debentures, and (ii) immediately convert such Subordinated Debentures into fully paid and nonassessable shares of Best Buy Common Stock, at an initial rate of 1.111 shares of Best Buy Common Stock per $50 principal amount of Subordinated Debentures (which is equivalent to a conversion price of $45.00 per share of Best Buy Common Stock, subject to certain adjustments set forth in the Indenture (as so adjusted, "CONVERSION PRICE")). (b) In order to convert Preferred Securities into Best Buy Common Stock, the Holder shall surrender the Preferred Securities to be converted to the Conversion Agent at the office referred to above, together with an irrevocable Notice of Conversion (i) setting forth the number of Preferred Securities to be converted and the name or names, if other than the Holder, in which the shares of Best Buy Common Stock should be issued and (ii) directing the Conversion Agent to exchange such Preferred Securities for Subordinated Debentures and immediately convert such Subordinated Debentures, on behalf of such Holder, into Best Buy Common Stock. If the Notice of Conversion is delivered before the close of business on the Conversion Expiration Date, the Conversion Agent shall notify the Partnership of the Holder's election to convert and the Partnership shall, upon receipt of such notice, deliver to the Conversion Agent (x) the appropriate principal amount of Subordinated Debentures for exchange in accordance with this Section, together with (y) Preferred Securities represented by the surrendered certificates but not directed to be converted in the Notice of Conversion. The Conversion Agent shall thereupon, on behalf of such Holder, effect the conversion of such Subordinated Debentures into shares of Best Buy Common Stock. Holders of Preferred Securities at the close of business on a dividend payment record date will be entitled to receive the Dividend payable on such securities on the corresponding Dividend Payment Date notwithstanding the conversion of such Preferred Securities following such dividend payment record date. Except as provided above, no payment, allowance or adjustment shall be made by the Partnership or Best Buy upon any conversion on account of any accumulated and unpaid Dividends accrued on the Preferred Securities (including any Additional Dividends accrued thereon) surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Best Buy Common Stock issued upon such conversion. Preferred Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Notice of Conversion relating to such Preferred Securities is delivered in accordance with the foregoing -28- provision (the "CONVERSION DATE"). The Person or Persons entitled to receive the Best Buy Common Stock issuable upon conversion of the Subordinated Debentures shall be treated for all purposes as the record holder or holders of such Best Buy Common Stock at such time. No fractional shares of Best Buy Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by Best Buy. As promptly as practicable on or after the Conversion Date, Best Buy shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Best Buy Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, and unless otherwise directed by the Holder in the Notice of Conversion, the Conversion Agent shall distribute such certificate or certificates and cash payment, together with the certificate(s) representing any unconverted Preferred Securities, to such Person or Persons. (c) Each Holder of a Preferred Security by his acceptance thereof appoints the Transfer Agent for the Preferred Securities "CONVERSION AGENT" for the purpose of effecting the conversion of Preferred Securities in accordance with this Section and the exchange of Preferred Securities for Depositary Shares representing Best Buy Preferred Stock in accordance with Section 6.4. In effecting the conversion and exchange transactions described in this Section and Section 6.4, the Conversion Agent shall be acting as agent of the Holders of Preferred Securities directing it to effect such conversion or exchange transactions. The Conversion Agent is hereby authorized (i) to effect conversions of Preferred Securities from time to time upon receipt of Notices of Conversion and (ii) following the occurrence of an Exchange Event, to exchange all of the Subordinated Debentures for Depositary Shares representing Best Buy Preferred Stock in accordance with the provisions of Section 6.4. (d) (i) On and after November 3, 1997, and provided that the Partnership has paid in full all accumulated and unpaid Dividends on all of the Preferred Securities, including any Additional Dividends thereon, for all Dividend periods terminating on or prior to such date, the Partnership shall have the right, at its option, to cause the conversion rights set forth in this Section to expire, BUT ONLY IF for 20 Trading Days within any period of 30 consecutive Trading Days, including the last Trading Day of such period, the Current Market Price of the Best Buy Common Stock exceeds 120% of the Conversion Price in effect on such Trading Day. -29- (ii) In order to exercise its option to cause the conversion rights of Holders to expire, the Partnership must issue a press release announcing the Conversion Expiration Date (the "PRESS RELEASE") prior to the opening of business on the second Trading Day after a period in which the condition in the preceding paragraph has been met (but in no event prior to November 3, 1997). The Press Release shall be issued for publication to the Dow Jones News Service and to such other print and electronic media as the Partnership may select. The Press Release shall state that the Partnership has elected to exercise its right to extinguish the conversion rights of Holders of Preferred Securities, specify the Conversion Expiration Date and provide the Conversion Price of the Preferred Stock and the Current Market Price of the Best Buy Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Press Release. If the Partnership exercises the option described in this paragraph, the "CONVERSION EXPIRATION DATE" shall be a date selected by the Partnership which shall be not less than 30 or more than 60 days after the date on which the Partnership issues the Press Release. In the event the Partnership does not exercise the option described in this paragraph, the Conversion Expiration Date shall be the earlier of (a) the date of an Exchange Election, as set forth in Section 6.4(c), and (b) two Business Days prior to the date set for the mandatory redemption of the Preferred Securities pursuant to Section 6.2(d)(ii). (iii) In addition to issuing the Press Release, the Partnership shall send notice of the expiration of conversion rights (a "NOTICE OF CONVERSION EXPIRATION") by first-class mail to each record Holder of Preferred Securities not more than four (4) Business Days after the Partnership issues the Press Release. Such mailed Notice of Conversion Expiration shall state: (1) the Conversion Expiration Date; (2) the Conversion Price of the Preferred Securities and the Current Market Price of the Best Buy Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Notice of Conversion Expiration; (3) the place or places at which Preferred Securities are to be surrendered prior to the Conversion Expiration Date for certificates representing shares of Best Buy Common Stock; and (4) such other information or instructions as the Partnership deems necessary or advisable to enable a Holder to exercise its conversion right hereunder. No defect in the Notice of Conversion Expiration or in the mailing thereof with respect to any Preferred Security shall affect the validity of such notice with respect to any other Preferred Security. As of the close of business on the Conversion Expiration Date, the -30- Preferred Securities shall no longer be convertible into Best Buy Common Stock. (e) No fractional shares of Best Buy Common Stock will be issued as a result of conversion, but in lieu thereof, Best Buy shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the Current Market Price on the date on which the certificate or certificates for such shares were duly surrendered for conversion, or, if such day is not a Trading Day, on the next Trading Day, and the Conversion Agent in turn will make such payment to the Holder or Holders of Preferred Securities so converted. (f) Best Buy shall at all times reserve and keep available out of its authorized and unissued Best Buy Common Stock, solely for issuance upon the conversion of the Subordinated Debentures, free from any preemptive or other similar rights, such number of shares of Best Buy Common Stock as shall from time to time be issuable upon the conversion of all the Subordinated Debentures then outstanding. Any shares of Best Buy Common stock issued upon conversion of the Subordinated Debentures shall be duly authorized, validly issued and fully paid and nonassessable. Best Buy shall deliver the shares of Best Buy Common Stock upon conversion of the Subordinated Debentures to the Conversion Agent, as agent for the converting Holder, free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of Best Buy and the Partnership shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the Best Buy Common Stock (and all requirements to list the Best Buy Common Stock issuable upon conversion of Subordinated Debentures that are at the time applicable), in order to enable Best Buy to lawfully issue Best Buy Common Stock to the Conversion Agent and the Conversion Agent to lawfully deliver the Best Buy Common Stock to each Holder upon conversion of the Preferred Securities. (g) Best Buy will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Best Buy Common Stock to the Conversion Agent on conversion of Subordinated Debentures and by the Conversion Agent upon conversion of the Preferred Securities. Best Buy shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Best Buy Common Stock in a name other than that in which the Preferred Securities so converted were -31- registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Partnership the amount of any such tax, or has established to the satisfaction of the Partnership that such tax has been paid. (h) Nothing in Section 6.3(g) shall limit the requirement of the Partnership to withhold taxes pursuant to Section 4.4 or otherwise require the General Partner or the Partnership to pay any amounts on account of such withholdings. Section 6.4 OPTIONAL EXCHANGE FOR DEPOSITARY SHARES REPRESENTING BEST BUY PREFERRED STOCK. (a) Upon the occurrence of an Exchange Event, the Holders of a Majority in Liquidation Preference of the Preferred Securities, voting as a class or by written consent, may, at their option, cause the Conversion Agent to (i) exchange all (but not less than all) of the Preferred Securities then outstanding for Subordinated Debentures held by the Partnership, (ii) immediately exchange such Subordinated Debentures, on behalf of the Holders, for Depositary Shares, each representing ownership of 1/100th of a share of Best Buy Preferred Stock, at the Exchange Price and (iii) distribute such Depositary Shares to the Holders, subject to the following terms and conditions. (b) The failure of Holders to receive for 15 consecutive months the full amount of Dividend payments (including any arrearages thereon) on the Preferred Securities shall constitute an "EXCHANGE EVENT." (c) As soon as practicable, but in no event later than 30 days after the occurrence of an Exchange Event, the General Partner will, upon not less than 15 days' written notice by first-class mail to the Holders, convene a meeting of such Holders for the purpose of acting on the matter of whether to cause the Conversion Agent to effect an exchange, as described above, of all of the Preferred Securities then outstanding for Depositary Shares. If the General Partner fails to convene such Exchange Election Meeting within such 30-day period, the Holders of not less than 10% in Liquidation Preference of the Preferred Securities will be entitled to convene such Exchange Election Meeting. Upon the affirmative vote of the Holders of a Majority in Liquidation Preference of the Preferred Securities at an Exchange Election Meeting or, in the absence of such meeting, upon receipt by the Partnership of a written consent signed by the Holders of a Majority in Liquidation Preference of the Preferred Securities, an election to -32- exchange all outstanding Preferred Securities on the basis described above (an "EXCHANGE ELECTION") will be deemed to have been made. Holders, by becoming a party to this Agreement pursuant to Section 2.9 of this Agreement, will be deemed to have agreed to be bound by these optional exchange provisions in regard to the exchange of Preferred Securities for Depositary Shares pursuant to the terms described above. (d) Upon receipt of notice substantially in the form of Annex C hereto from such Holders (the "NOTICE OF EXCHANGE"), the Conversion Agent shall promptly deliver copies of the Notice of Exchange to the Partnership, Best Buy and the Trustee. (e) All outstanding Preferred Securities shall be deemed to have been exchanged, immediately prior to the close of business on the date of the Exchange Election (the "EXCHANGE DATE"), for Subordinated Debentures held by the Partnership, at an exchange rate of $50 principal amount of Subordinated Debentures for each Preferred Security, and the Partnership shall promptly deliver the Subordinated Debentures deemed to have been so exchanged to the Conversion Agent, on behalf of the Holders of exchanged Preferred Securities. As promptly as practicable after the exchange date, Best Buy shall issue and deposit with the Depositary, pursuant to the Deposit Agreement, a certificate or certificates for the number of fully paid and non-assessable shares of Best Buy Preferred Stock issuable at the rate referred to in paragraph (f) below upon the exchange contemplated in such paragraph in return for a Depositary Receipt or Receipts issued by the Depositary evidencing a proportionate number of Depositary Shares in respect of the Best Buy Preferred Stock so deposited. Best Buy shall request that the Depositary Receipts be issued in the names of the Holders of Preferred Securities designated in the Notice of Exchange. (f) Best Buy shall thereafter, promptly upon request by the Conversion Agent, exchange such Subordinated Debentures for Depositary Shares, each representing a 1/100th interest in a fully paid and non-assessable share of Best Buy Preferred Stock and evidenced by Depositary Receipts, at the rate of one Depositary Share for each $50 principal amount of Subordinated Debentures (which rate is equivalent to one Depositary Share or 1/100th of a share of Best Buy Preferred Stock for each Preferred Security). Any accumulated and unpaid Dividends on the Preferred Securities (including any Additional Dividends thereon) at the time of the Exchange Election shall from and after the time of such -33- exchange be treated as accumulated and unpaid dividends on the Best Buy Preferred Stock issued in exchange for the Subordinated Debentures. The Person or Persons entitled to receive the Depositary Shares representing the Best Buy Preferred Stock issuable upon such exchange shall be treated for all purposes as the record holder or holders of such Best Buy Preferred Stock as of the exchange date. As promptly as practicable on or after the exchange date, Best Buy shall deliver at the office of the Conversion Agent the Depositary Receipt or Receipts representing the Best Buy Preferred Stock issuable upon such exchange. The Conversion Agent shall deliver such Depositary Receipt or Receipts to the Person or Persons entitled to receive the same. (g) Each Depositary Share will represent a one one-hundredth (1/100th) interest in a share of Best Buy Preferred Stock and shall be evidenced by a Depositary Receipt. Best Buy shall at all times reserve and keep available out of its authorized and unissued Best Buy Preferred Stock, solely for issuance upon the exchange of Subordinated Debentures for Depositary Shares, free from any preemptive or other similar rights, such number of shares of Best Buy Preferred Stock as shall from time to time be issuable upon the exchange of all the Subordinated Debentures then outstanding for Depositary Shares. Each of Best Buy and the Partnership shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the Best Buy Preferred Stock in order to enable Best Buy to lawfully issue the Best Buy Preferred Stock upon exchange of the Subordinated Debentures and deposit such Best Buy Preferred Stock with the Depositary under the Deposit Agreement and the Conversion Agent to lawfully deliver Depositary Shares upon exchange of the Preferred Securities. All shares of Best Buy Preferred Stock issued upon conversion of the Subordinated Debentures shall be duly authorized, validly issued and fully paid and non-assessable and the terms of the Best Buy Preferred Stock shall be valid and binding on Best Buy. The Conversion Agent shall deliver the Depositary Shares, evidenced by Depositary Receipts, received upon exchange of the Preferred Securities to the exchanging Holder, free and clear of all liens, charges, security interests and encumbrances. Best Buy will use its best efforts to have the Depositary Shares issued upon an exchange of Preferred Securities listed for trading on the NYSE or such other securities exchange on which the Preferred Securities may then be listed. -34- (h) Best Buy will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Best Buy Preferred Stock to the Conversion Agent upon exchange of the Subordinated Debentures, the delivery and deposit of such shares to the Depositary and the delivery of the Depositary Shares by the Conversion Agent upon exchange of the Preferred Securities. Best Buy shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Best Buy Preferred Stock or Depositary Shares in a name other than that in which Preferred Securities so exchanged were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Partnership the amount of any such tax, or has established to the satisfaction of the Partnership that such tax has been paid. (i) Nothing in Section 6.4(h) shall limit the requirement of the Partnership to withhold taxes pursuant to Section 4.4 or otherwise require the General Partner or the Partnership to pay any amounts on account of such withholdings. ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1 BOOKS AND RECORDS. (a) Proper and complete records and books of account of the Partnership shall be kept by the General Partner in which shall be entered fully and accurately all transactions and other matters relative to the Partnership's business as are usually entered into records and books of account maintained by Persons engaged in businesses of a like character, including a Capital Account for each Partner. The books and records of the Partnership, together with a copy of this Agreement and of the Certificate, shall at all times be maintained at the principal office of the General Partner and shall be open to the inspection and examination of the Partners or their duly authorized representatives for a proper purpose during reasonable business hours. (b) The General Partner may, for such period of time that the General Partner deems reasonable, keep confidential from the Partners any information with respect to the Partnership the disclosure of which the General Partner reasonably believes is not in the best interests of the Partner- -35- ship or is adverse to the interests of the Partnership or which the Partnership or the General Partner is required by law or by an agreement with any Person to keep confidential. (c) Within three months after the close of each Fiscal Year, the General Partner shall transmit to each Partner a statement indicating such Partner's share of each item of Partnership income, gain, loss, deduction or credit for such Fiscal Year for federal income tax purposes. Section 7.2 ACCOUNTING METHOD. For both financial and tax reporting purposes and for purposes of determining profits and losses, the books and records of the Partnership shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Partnership transactions and be appropriate and adequate for the Partnership's business. Section 7.3 ANNUAL AUDIT. As soon as practical after the end of each Fiscal Year, but not later than 90 days after such end, the financial statements of the Partnership shall be audited by a firm of independent certified public accountants selected by the General Partner, and such financial statements shall be accompanied by a report of such accountants containing their opinion. The cost of such audits will be an expense of the Partnership and paid by Best Buy. ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1 LIMITATIONS. Other than as set forth in this Agreement, the Limited Partners shall not participate in the management or control of the Partnership's business, property or other assets nor shall the Limited Partners transact any business for the Partnership, nor shall the Limited Partners have the power to act for or bind the Partnership, said powers being vested solely and exclusively in the General Partner (and, upon appointment, the Special General Partner). Except for shares of Best Buy Common Stock or Best Buy Preferred Stock deliverable upon conversion or exchange of the Preferred Securities, the Limited Partners shall have no interest in the properties or assets of the General Partner, or any equity therein, or in any proceeds of any sales thereof (which sales shall not be restricted in any respect, by virtue of acquiring or owning an Interest in the Partnership). -36- Section 8.2 LIABILITY. Subject to the provisions of the Act, no Limited Partner shall be liable for the repayment, satisfaction or discharge of any debts or other obligations of the Partnership in excess of the Capital Account balance of such Limited Partner. Section 8.3 PRIORITY. No Limited Partner shall have priority over any other Limited Partner as to Partnership allocations or distributions. ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1 AUTHORITY. Subject to the limitations provided in this Agreement, the General Partner or, upon appointment pursuant to Section 6.2(g), the Special General Partner, shall have exclusive and complete authority and discretion to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership. Any action taken by the General Partner or, upon appointment pursuant to Section 6.2(g), the Special General Partner, shall constitute the act of and serve to bind the Partnership. In dealing with the General Partner or, upon appointment pursuant to Section 6.2(g), the Special General Partner, acting on behalf of the Partnership, no Person shall be required to inquire into the authority of the General Partner or, upon appointment pursuant to Section 6.2(g), the Special General Partner to bind the Partnership. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the General Partner or, upon appointment pursuant to Section 6.2(g), the Special General Partner, as set forth in this Agreement. Section 9.2 POWERS AND DUTIES OF GENERAL PARTNER. Except as otherwise specifically provided herein, the General Partner (or, upon appointment pursuant to Section 6.2(g), the Special General Partner) shall have all rights and powers of a general partner under the Act, and shall have all authority, rights and powers in the management of the Partnership business to do any and all other acts and things necessary, proper, convenient or advisable to effectuate the purposes of this Agreement, including by way of illustration but not by way of limitation, the following: (a) to secure the necessary goods and services required in performing the General Partner's duties for the Partnership; -37- (b) to exercise all powers of the Partnership, on behalf of the Partnership, in connection with enforcing the Partnership's rights under the Subordinated Debentures and the Guarantee; (c) to issue Preferred Securities and to admit Limited Partners in connection therewith in accordance with this Agreement; (d) to act as registrar and transfer agent for the Preferred Securities or designate an entity to act as registrar and transfer agent; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including with respect to Dividends and voting rights and to make determinations as to the payment of Dividends, and make or cause to be made all other required payments to Holders and to the General Partner; (f) to open, maintain and close bank accounts and to draw checks and other orders for the payment of money; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Partnership; (h) to deposit, withdraw, invest, pay, retain and distribute the Partnership's funds in a manner consistent with the provisions of this Agreement; (i) to take all action which may be necessary or appropriate for the preservation and the continuation of the Partnership's valid existence, rights, franchises and privileges as a limited partnership under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Limited Partners or to enable the Partnership to conduct the business in which it is engaged; (j) to cause the Partnership to enter into and perform, on behalf of the Partnership, the Underwriting Agreement and to cause the Partnership to purchase the Subordinated Debentures without any further act, vote or approval of any Partner; and -38- (k) to execute and deliver any and all documents or instruments, perform all duties and powers and do all things for and on behalf of the Partnership in all matters necessary or desirable or incidental to the foregoing. Section 9.3 EXPENSES PAYABLE BY GENERAL PARTNER. The General Partner hereby assumes and shall be liable for the debts, obligations and liabilities of the Partnership and agrees to pay to each Person or entity to whom the Partnership is now or hereafter becomes indebted or liable, whether such indebtedness, obligations or liabilities arise in contract, tort or otherwise, (including, without limitation, payment obligations arising under Section 7.3 of this Agreement, but excluding payment obligations of Best Buy to Holders of the Preferred Securities in such Holders' capacities as Holders of such Preferred Securities, such obligations being separately guaranteed under the Guarantee) (the "BENEFICIARIES") the full payment of such indebtedness and any and all liabilities, when and as due. This agreement is intended to be for the benefit of and to be enforceable by all such Beneficiaries whether or not such Beneficiaries have received notice hereof. Section 9.4 LIABILITY. Except as expressly set forth in this Agreement, (a) the General Partner shall not be personally liable for the return of any portion of the capital contributions (or any return thereon) of the Limited Partners; (b) the return of such capital contributions (or any return thereon) shall be made solely from assets of the Partnership; and (c) the General Partner shall not be required to pay to the Partnership or to any Limited Partner any deficit in any Limited Partner's Capital Account upon dissolution or otherwise. Other than as provided in Sections 6.3 and 6.4 of this Agreement or under the Act, no Limited Partner shall have the right to demand or receive property other than cash for its respective Interest in the Partnership. Section 9.5 INVESTMENT COMPANY OR TAX ACTIONS. The General Partner is authorized and directed to conduct its affairs and to operate the Partnership in such a way that the Partnership would not be deemed to be an "investment company" required to be registered under the Investment Company Act of 1940 (the "1940 ACT") or taxed as a corporation for federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of Best Buy for federal income tax purposes. In this connection, the General Partner is authorized to take any action not inconsistent with applicable law or this Agreement, and that does not materially and adversely affect the interests -39- of Holders, that the General Partner determines in its discretion to be necessary or desirable for such purposes. Section 9.6 OUTSIDE BUSINESSES. Any Partner or Affiliate thereof may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Partnership, and the Partnership and the Partners shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. No Partner or Affiliate thereof shall be obligated to present any particular investment opportunity to the Partnership even if such opportunity is of a character that, if presented to the Partnership, could be taken by the Partnership, and any Partner or Affiliate thereof shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. Section 9.7 LIMITS ON GENERAL PARTNER'S POWERS. (a) Anything in this Agreement to the contrary notwithstanding, the General Partner (or, upon appointment pursuant to Section 6.2(g), the Special General Partner) shall not cause or permit the Partnership to: (i) acquire any assets other than as expressly provided herein; (ii) do any act which would make it impractical or impossible to carry on the ordinary business of the Partnership; (iii) possess Partnership property for other than a Partnership purpose; (iv) admit a Person as a Partner, except as expressly provided in this Agreement; (v) make any loans to the General Partner or its Affiliates, other than loans represented by the Subordinated Debentures; (vi) perform any act that would subject any Limited Partner to liability as a general partner in any jurisdiction; -40- (vii) engage in any activity that is not consistent with the purposes of the Partnership, as set forth in Section 2.3; (viii) without the written consent of 66 2/3% in Liquidation Preference of the Preferred Securities, have an order for relief entered with respect to the Partnership or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of the Partnership's property, or make any assignment for the benefit of creditors of the Partnership; or (ix) borrow money or become liable for the borrowings of any third party or engage in any financial or other trade or business. (b) So long as the Subordinated Debentures are held by the Partnership, the General Partner shall not: (i) direct the time, method and place of conducting any proceeding for any remedy available to the Special General Partner, or exercising any trust or power conferred on the Special General Partner with respect to the Subordinated Debentures, (ii) waive any past default which is waivable under the Subordinated Debentures, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, (iv) consent to any amendment, modification or termination of the Subordinated Debentures or the Indenture without, in each case, obtaining the prior approval of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities; PROVIDED, HOWEVER, that where a consent under the Subordinated Debentures would require the consent of each holder of Subordinated Debentures affected thereby, no such consent shall be given by the General Partner without the prior consent of each Holder of Preferred Securities. -41- (c) The General Partner shall not revoke any action previously authorized or approved by the Special General Partner or by a vote of Holders without the approval of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities. The General Partner shall notify all Holders of any notice of default received from the Trustee with respect to the Subordinated Debentures. Section 9.8 TAX MATTERS PARTNER. (a) For purposes of Code Section 6231(a)(7), the "TAX MATTERS PARTNER" shall be the General Partner as long as it remains the general partner of the Partnership. The Tax Matters Partner shall keep the Limited Partners fully informed of any inquiry, examination or proceeding. (b) The General Partner shall not make an election in accordance with Section 754 of the Code. (c) The General Partner and the Preferred Security Holders acknowledge that they intend, for U.S. federal income tax purposes, that the Partnership shall be treated as a partnership and that the General Partner and the Preferred Security Holders shall be treated as Partners of such Partnership for such purposes. (d) The General Partner shall retain, at the expense of the Partnership and at its sole discretion, a nationally recognized firm of certified public accountants which shall prepare all federal, state, local or other tax returns (including information returns) of the Partnership, as required by law, and the Schedule K-1's or any successor or similar forms or schedules required by law. Section 9.9 CONSOLIDATION, MERGER OR SALE OF ASSETS. (a) Best Buy may not merge or consolidate with or into another entity or permit another entity to merge or consolidate with or into, or be replaced by, or convey, transfer or lease all or substantially all of its properties and assets to another entity (each such event, a "TRANSACTION") unless (i) at the time of such Transaction, no Event of Default (as defined in the Indenture) shall have occurred and be continuing, or would occur as a result of such Transaction, (ii) the survivor of such merger or consolidation or the entity to which Best Buy's assets are sold, transferred or leased is an entity organized under the laws of the United States or any state thereof, such entity (if other than Best Buy) becomes a party to this Agreement -42- and becomes the General Partner, assumes all of Best Buy's obligations under this Agreement, and such entity has a net worth equal to at least 10% of the total capital contributions made by the Partners to the Partnership, and (iii) prior to such Transaction, Best Buy obtains an opinion of nationally recognized independent counsel experienced in such matters to the effect that the Partnership will continue to be taxable as a partnership for federal income tax purposes after such Transaction and (iv) in the case of any sale, transfer or lease of all or substantially all of Best Buy's assets that includes Best Buy's Interest in the Partnership, Best Buy has obtained the consent of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities to the sale, transfer or lease of its Interest in the Partnership. (b) In addition, Best Buy shall not cause or allow the Partnership to enter into a Transaction, except as described below and as permitted or required under Section 11.3 of this Agreement. The Partnership may, in order to avoid 1940 Act consequences adverse to Best Buy, itself or the Holders, without the consent of the Holders, merge or consolidate with or into, or be replaced by, a limited partnership or trust organized as such under the laws of any state of the United States of America; PROVIDED, that (i) such successor entity either (x) expressly assumes all of the obligations of the Partnership under the Preferred Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank, with respect to participation in the profits or assets of the successor entity, at least as high as the Preferred Securities rank, with respect to participation in the profits or assets of the Partnership, (ii) Best Buy expressly acknowledges such successor entity as the holder of the Subordinated Debentures, (iii) such Transaction does not cause the Preferred Securities (or the Successor Securities) to be delisted by any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such Transaction does not cause the Preferred Securities (or the Successor Securities) to be downgraded by any nationally recognized statistical rating organization, as that term is defined by the Securities and Exchange Commission for purposes of Rule 436(g)(2) under the Securities Act, (v) such Transaction does not adversely affect the powers, preferences and other special rights of Holders of Preferred Securities (including Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) prior to such Transaction Best Buy has -43- received an opinion of nationally recognized independent counsel to the Partnership experienced in such matters to the effect that (x) such successor entity will be treated as a partnership for federal income tax purposes, (y) following such Transaction, Best Buy and such successor entity will be in compliance with the 1940 Act without registering thereunder as an investment company, and (z) such Transaction will not adversely affect the limited liability of the Holders. ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1 TRANSFER OF INTERESTS. (a) Preferred Securities shall be freely transferable by a Holder. (b) Except as provided in the next sentence, the General Partner may not assign or transfer its Interest in the Partnership in whole or in part unless, prior to such assignment or transfer, the General Partner has obtained the consent of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities. The General Partner may assign or transfer its interest in the Partnership without such consent only to an entity that is the survivor of a merger or consolidation of the General Partner in a transaction that meets the requirements of Section 9.9(a). "PERMITTED SUCCESSOR" shall mean an entity that is an assignee or transferee of the Interest of the General Partner as permitted by this Section 10.1(b). (c) Except as provided above, no Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Agreement. Any transfer or purported transfer of any Interest not made in accordance with this Agreement shall be null and void. Section 10.2 TRANSFER OF LP CERTIFICATES. The General Partner shall provide for the registration of LP Certificates and of transfers of LP Certificates. Upon surrender for registration of transfer of any LP Certificate, the General Partner shall cause one or more new LP Certificates to be issued in the name of the designated transferee or transferees. Every LP Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the General Partner duly executed by the Preferred Security Holder or his or her attorney duly authorized in writing. -44- Each LP Certificate surrendered for registration of transfer shall be canceled by the General Partner. A transferee of an LP Certificate shall be admitted to the Partnership as a Limited Partner and shall be entitled to the rights and subject to the obligations of a Preferred Security Holder hereunder upon the receipt by a transferee of an LP Certificate. Section 10.3 PERSONS DEEMED PREFERRED SECURITY HOLDERS. The Partnership may treat the Person in whose name any LP Certificate shall be registered on the books and records of the Partnership as the sole holder of such LP Certificate and of the Preferred Securities represented by such LP Certificate for purposes of receiving Dividends and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such LP Certificate or in the Preferred Securities represented by such LP Certificate on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof. Section 10.4 BOOK-ENTRY INTERESTS. The LP Certificates, on original issuance, will be issued in the form of a global LP Certificate or LP Certificates representing the Book-Entry Interests, to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Partnership. Such LP Certificate or LP Certificates shall initially be registered on the books and records of the Partnership in the name of Cede & Co., the nominee of DTC, and no Preferred Security Owner will receive a definitive LP Certificate representing such Preferred Security Owner's interests in such LP Certificate, except as provided in Section 10.6. Unless and until definitive, fully registered LP Certificates (the "DEFINITIVE LP CERTIFICATES") have been issued to the Preferred Security Owners pursuant to Section 10.6: (i) The provisions of this Section shall be in full force and effect; (ii) The Partnership, the General Partner and any Special General Partner shall be entitled to deal with the Clearing Agency for all purposes of this Agreement (including the payment of Dividends, Redemption Price and liquidation proceeds on the LP Certificates and receiving approvals, votes or consents hereunder) as the Preferred Security Holder and the sole holder of the LP Certificates and shall have no obligation to the Preferred Security Owner; and (iii) None of the Partnership, the General Partner, any Special General Partner or any agent of the General -45- Partner, the Partnership or any Special General Partner shall have any liability with respect to or responsibility for the records of the Clearing Agency. Section 10.5 NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Preferred Security Holders is required under this Agreement, unless and until Definitive LP Certificates shall have been issued to the Preferred Security Owners pursuant to Section 10.6, the General Partner and any Special General Partner shall give all such notices and communications specified herein to be given to the Preferred Security Holders to the Clearing Agency, and shall have no obligations to the Preferred Security Owners. Section 10.6 DEFINITIVE LP CERTIFICATES. If (i) the Clearing Agency elects to discontinue its services as securities depository, (ii) the Partnership elects to terminate the book-entry system through the Clearing Agency, or (iii) there is an Event of Default under the Subordinated Debentures, then Definitive LP Certificates shall be prepared by the Partnership. Upon surrender of the global LP Certificate or LP Certificates representing the Book- Entry Interests by the Clearing Agency, accompanied by registration instructions, the General Partner shall cause Definitive LP Certificates to be delivered to Preferred Security Owners in accordance with the instructions of the Clearing Agency. Neither the General Partner nor the Partnership shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Any Person receiving a Definitive LP Certificate in accordance with this Article X shall be admitted to the Partnership as a Limited Partner upon receipt of such Definitive LP Certificate and shall be registered on the books and records of the Partnership as a Preferred Security Holder. The Definitive LP Certificates shall be printed, lithographed or engraved or may be produced in any other manner as may be required by any national securities exchange on which the Preferred Securities may be listed and is reasonably acceptable to the General Partner, as evidenced by its execution thereof. ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1 WITHDRAWAL OF PARTNERS. The General Partner shall not at any time retire or withdraw from the Partnership except as otherwise permitted hereunder. If the -46- General Partner retires or withdraws in contravention of this Section 11.1, it shall indemnify, defend and hold harmless the Partnership and the other Partners from and against any losses, expenses, judgments, fines, settlements or damages suffered or incurred by the Partnership or such other Partners arising out of or resulting from such retirement or withdrawal. Section 11.2 DISSOLUTION OF THE PARTNERSHIP. (a) The Partnership shall not be dissolved by the admission of Partners in accordance with the terms of this Agreement. Except as provided in Section 11.2(b)(ii), the death, retirement, resignation, expulsion, bankruptcy or dissolution of a Partner, or the occurrence of any other event which terminates the Interest of a Partner in the Partnership, shall not cause the Partnership to be dissolved and its affairs wound up so long as the Partnership at all times has at least two Partners. Upon the occurrence of any such event, the business of the Partnership shall be continued without dissolution. (b) The Partnership shall be dissolved and terminated and its affairs shall be wound up upon the earliest to occur of any of the following events: (i) the expiration of the term of the Partnership, as provided in Section 2.4 of this Agreement; (ii) upon the bankruptcy, insolvency or dissolution of the General Partner; (iii) the entry of a decree of judicial dissolution under Section 17-802 of the Act; or (iv) the written consent of all Partners. (c) Upon dissolution of the Partnership, the Liquidator shall promptly notify the Partners of such dissolution. Section 11.3 LIQUIDATION. (a) In the event of the dissolution of the Partnership for any reason, the General Partner (or, if the Partnership is dissolved pursuant to Section 11.2(b)(ii), then a liquidating agent appointed by Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities (the General Partner or such person so appointed is hereinafter referred to as the "LIQUIDATOR")) shall commence to wind up the affairs of the Partnership and to -47- liquidate the Partnership's assets, including the Partnership's Eligible Investments and/or amounts deposited in the Eligible Investment Account; PROVIDED, HOWEVER, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Partnership and the satisfaction of liabilities to creditors so as to enable the Partners to minimize the normal losses attendant upon liquidation. The Partners shall continue to share all income, losses and distributions during the period of liquidation in accordance with Articles IV and V. Subject to the provisions of this Article XI, the Liquidator shall have full right and unlimited discretion to determine the time, manner and terms of any sale or sales of Partnership property pursuant to such liquidation, giving due regard to the activity and condition of the relevant market and general financial and economic conditions. (b) The Liquidator shall have all of the rights and powers with respect to the assets and liabilities of the Partnership in connection with the liquidation and termination of the Partnership that the General Partner would have with respect to the assets and liabilities of the Partnership during the term of the Partnership, and the Liquidator is hereby expressly authorized and empowered to execute any and all documents necessary or desirable to effectuate the liquidation and termination of the Partnership and the transfer of any assets. (c) Notwithstanding the foregoing, a Liquidator that is not the General Partner shall not be deemed a Partner in this Partnership and shall not have any of the economic interests in the Partnership of a Partner; and such Liquidator may be compensated for its services to the Partnership at normal customary and competitive rates for its services to the Partnership as reasonably proposed by the General Partner and agreed to by a Majority in Liquidation Preference of the Preferred Securities (by written consent or by vote taken at a meeting convened by the General Partner therefor). Section 11.4 DISTRIBUTION IN LIQUIDATION. Subject to Section 9.3, the proceeds of liquidation shall be applied in the following order of priority (and without regard to the provisions of Section 17-804 of the Act): (i) to creditors of the Partnership, including Preferred Security Holders who are creditors, to the extent otherwise permitted by law, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment -48- thereof), other than liabilities for distributions (including Dividends) to Partners; and (ii) following any allocations required under Section 4.1(c) of the Agreement, to the Partners in proportion to the Partners' positive Capital Account balances. Section 11.5 RIGHTS OF LIMITED PARTNERS. Each Limited Partner shall look solely to the assets of the Partnership for all distributions with respect to the Partnership and such Partner's capital contribution (including returns thereof), and such Partner's share of profits or losses thereof, and shall have no recourse therefor (upon dissolution or otherwise) against the General Partner, except under the Guarantee. Except as provided in Sections 6.3 and 6.4 of this Agreement, no Partner shall have any right to demand or receive property other than cash upon dissolution and termination of the Partnership. Section 11.6 TERMINATION. The Partnership shall terminate when all of the assets of the Partnership shall have been disposed of and the assets shall have been distributed as provided in Section 11.4. The Liquidator shall then execute and cause to be filed a certificate of cancellation of the Partnership. ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1 AMENDMENTS. Except as provided by Section 6.2(h), this Agreement may be amended by a written instrument executed by the General Partner without the consent of any Limited Partner; PROVIDED, HOWEVER, that no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to cause the Partnership to be treated as anything other than a partnership for purposes of United States income taxation or require the Partnership to register under the 1940 Act. Section 12.2 AMENDMENT OF CERTIFICATE. In the event this Agreement shall be amended pursuant to Section 12.1, the General Partner shall amend the Certificate to reflect such change if it deems such amendment of the Certificate to be necessary or appropriate. -49- Section 12.3 MEETINGS OF PARTNERS. (a) Meetings of the Limited Partners who are Holders may be called at any time by the General Partner to consider and act on any matter on which Limited Partners are entitled to act under the terms of this Agreement or the Act. The General Partner shall call a meeting of Holders if directed to do so by Holders of not less than 10% in Liquidation Preference as permitted by this Agreement. Such direction shall be given by delivering to the General Partner a request in writing stating that the signing Limited Partners desire to call a meeting and indicating the general or specific purpose for which the meeting is to be called. (b) Unless otherwise specified herein, notice of any such meeting shall be given to all Partners not less than seven (7) Business Days nor more than 60 days prior to the date of such meeting. Each such notice shall set forth the date, time and place of the meeting, a description of any matter on which Holders are entitled to vote and instructions for the delivery of proxies or written consents. (c) Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Limited Partners owning not less than the minimum Interests that would be necessary to authorize or take such action at a meeting in which all Limited Partners having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Limited Partners entitled to vote who have not consented in writing. The General Partner may provide that any written ballot submitted to the Limited Partners for the purpose of taking any action without a meeting shall be returned to the Partnership within a specified time. (d) Each Partner may authorize any Person to act for it by proxy on all matters as to which a Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Partner or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Partner executing it. (e) Each meeting of Partners shall be conducted by the General Partner or by such other Person that the General Partner may designate. -50- (f) The General Partner may establish all other reasonable procedures relating to meetings of Partners or the giving of written consents, in addition to those expressly provided, including notice of time, place or purpose of any meeting at which any matter is to be voted on by any Partners, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII MISCELLANEOUS Section 13.1 NOTICES. All notices provided for in this Agreement shall be in writing, and shall be delivered or mailed by first class or registered or certified mail or, with respect to the Partnership and General Partner, telecopied, as follows: (a) if given to the Partnership, in care of the General Partner at the Partnership's mailing address set forth below: Best Buy Capital, L.P. c/o Best Buy Co., Inc. 7075 Flying Cloud Drive Eden Prairie, Minnesota 55344 Attention: Chief Financial Officer Telecopy: (612) 947-1141 (b) if given to the General Partner, at its mailing address set forth below: Best Buy Co., Inc. 7075 Flying Cloud Drive Eden Prairie, Minnesota 55344 Attention: Chief Financial Officer Telecopy: (612) 947-1141 (c) if given to any other Partner, at the address set forth on the books and records of the Partnership. Section 13.2 POWER OF ATTORNEY. Each Holder does hereby constitute and appoint the General Partner, and if applicable, any Special General Partner appointed pursuant to Section 6.2(g) of this Agreement, as its true and lawful representative and attorney-in-fact, in its name, place and stead to make, execute, sign, deliver and file (a) any -51- amendment of the Certificate required because of an amendment of this Agreement or in order to effect any change in the Partnership, (b) this Agreement, (c) any amendments to this Agreement and (d) all such other instruments, documents and certificates which from time to time may required by the laws of the United States of America, the State of Delaware or any other jurisdiction, or any political subdivision or agency thereof, to effectuate, implement and continue the valid and subsisting existence of the Partnership or to dissolve the Partnership for any other purpose consistent with this Agreement and the transactions contemplated hereby. The power of attorney granted hereby is coupled with an interest and shall (a) survive and not be affected by the subsequent death, incapacity, disability, dissolution, termination, or bankruptcy of the Holder granting the same or the transfer of all or any portion of such Holder's Interest and (b) extend to such Holder's successors, assigns and legal representatives. Section 13.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties. It supersedes any prior agreement or understandings among them, and it may not be modified or amended in any manner other than as set forth herein. SECTION 13.4 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Section 13.5 EFFECT. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. Section 13.6 PRONOUNS AND NUMBER. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or neuter shall include the masculine, feminine and neuter. Section 13.7 CAPTIONS. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. -52- Section 13.8 PARTIAL ENFORCEABILITY. If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 13.9 COUNTERPARTS. This Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing of the signature of each of the Partners to one of such counterpart signature pages. All of such counterpart signatures pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Section 13.10 REMEDIES. The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies -53- are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above stated. GENERAL PARTNER: BEST BUY CO., INC., a Minnesota corporation By: /s/ Richard M. Schulze ------------------------ Richard M. Schulze Chairman and Chief Executive Officer INITIAL LIMITED PARTNER: BEST BUY FINANCIAL CORPORATION, a Delaware corporation By: /s/ Richard M. Schulze ------------------------ Richard M. Schulze Chairman and Chief Executive Officer -54- Annex A [IF A GLOBAL LP CERTIFICATE ADD -- Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York Corporation ("DTC"), to Best Buy Capital, L.P. or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. (or in such other name as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Certificate Number Number of Preferred Securities ------------------------------------------------------------------------------- R-1 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- CUSIP NO. 086 51F 200 Certificate Evidencing Preferred Securities of Best Buy Capital, L.P. 6 1/2% Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) Best Buy Capital, L.P., a limited partnership formed under the laws of the State of Delaware (the "Partnership"), hereby certifies that _____ (the "Holder") is the registered owner of _______ preferred securities of the Partnership representing limited partnership interests in the Partnership, which are designated the 6 1/2% Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are fully paid and are nonassessable interests in the Partnership, as to which the Partners in the Partnership who hold the Preferred A-1 Securities (the "Preferred Security Holders"), in their capacities as Partners in the Partnership, will have no liability solely by reason of being Preferred Security Holders (subject to the obligation of a Preferred Security Holder to repay any funds wrongfully distributed to it), and are freely transferable on the books and records of the Partnership, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The powers, preferences and special rights and limitations of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Limited Partnership Agreement of the Partnership dated as of November 3, 1994, as the same may be amended from time to time in accordance with its terms (the "Limited Partnership Agreement"), authorizing the issuance of the Preferred Securities and determining the powers, preferences and other special rights and limitations, regarding Dividends, voting, return of capital and otherwise, and other matters relating to the Preferred Securities. Capitalized terms used herein but not defined herein shall have the meaning given them in the Limited Partnership Agreement. The Holder is entitled to the benefits of the Guarantee Agreement of Best Buy Co., Inc., a Minnesota corporation ("Best Buy"), dated as of November 3, 1994 (the "Guarantee") to the extent provided therein. The Partnership will furnish a copy of the Limited Partnership Agreement and the Guarantee to the Holder without charge upon written request to the Partnership at its principal place of business or registered office. The Holder, by accepting this certificate, is deemed to have agreed (i) to be bound by the provisions of the Limited Partnership Agreement, including the provisions of the Limited Partnership Agreement concerning the exchange of the Preferred Securities for Depositary Shares representing fractional interests in Best Buy Preferred Stock and (ii) that the Subordinated Debentures acquired by the Partnership with the proceeds from the issuance of the Preferred Securities are subordinated and junior in right of payment to all Senior Indebtedness of Best Buy as and to the extent provided in the Subordinated Debentures and (iii) that the Guarantee ranks (x) subordinate and junior in right of payment to all Senior Indebtedness of Best Buy, and (y) PARI PASSU with the most senior preferred or preference stock now or hereafter issued by Best Buy and with any guarantee now or hereafter entered into by Best Buy in respect of any preferred or preference stock of any Affiliate of Best Buy, and (z) senior to Best Buy Common Stock and any other class or series of capital stock of Best Buy or any of its A-2 Affiliates which by its express terms ranks junior in the payment of dividends and amounts on liquidation, dissolution, and winding-up to the Preferred Securities, in each case, as and to the extent provided in the Guarantee. Upon receipt of this certificate, the Holder is admitted to the Partnership as a Limited Partner, is bound by the Limited Partnership Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, this certificate has been executed on behalf of the Partnership by its duly authorized General Partner and countersigned by a duly authorized officer of each of Best Buy Co., Inc., as Guarantor, and Harris Trust and Savings Bank, as Registrar and Transfer Agent this _____ day of _________________, ____. BEST BUY CAPITAL, L.P. By: BEST BUY CO. INC., its General Partner By: ---------------------- Name: Title: By: BEST BUY CO., INC., as Guarantor By: ---------------------- Name: Title: Registered and Countersigned by HARRIS TRUST AND SAVINGS BANK By: --------------------------- Authorized Signature A-3 Annex B Form of Notice of Conversion Best Buy Capital, L.P. 6 1/2% Convertible Monthly Income Preferred Securities To: Harris Trust and Savings Bank, Conversion Agent ------------------------ ------------------------ The undersigned (the "Holder") hereby irrevocably exercises its option to convert 6 1/2% Convertible Monthly Income Preferred Securities (the "Preferred Securities") of Best Buy Capital, L.P. ("Capital"), as designated below and surrendered herewith to the Conversion Agent, into shares of common stock (the "Best Buy Common Stock") of Best Buy Co., Inc. ("Best Buy") in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of Capital, dated as of November 3, 1994 (the "Agreement"). The Holder directs the Conversion Agent, on behalf of the Holder, to effect the conversion of the Preferred Securities designated under (A) below for shares of Best Buy Common Stock pursuant to and in the manner described in Section 6.3 of the Agreement. The Conversion Agent shall instruct Best Buy that the shares of Best Buy Common Stock issuable and deliverable upon the conversion, together with any check in lieu of fractional shares, be issued to the Holder unless, in the case of the Best Buy Common Stock, a different name has been indicated below and to deliver such shares and such check, if any, to the Conversion Agent. The Conversion Agent shall distribute, as promptly as possible after the date hereof, (x) the certificate or certificates for the number of full shares of Best Buy Common Stock issuable upon conversion of the Preferred Securities designated under (A) below, (y) any check in lieu of fractional shares and (z) any certificate or certificates issued by Capital for Preferred Securities surrendered herewith but not designated for conversion under (A) below, to the person or persons entitled to receive the same. If shares of Best Buy Common Stock are to be issued in the name of a person other than the Holder, the Holder will pay transfer taxes payable with respect thereto. B-1 A. PREFERRED SECURITIES TO BE CONVERTED Certificate Numbers of Surrendered Certificate(s): --------------- Number of Preferred Securities to be Converted: ------------ Number of Preferred Securities Surrendered But Not to be Converted: ------------ B. SPECIAL ISSUANCE INSTRUCTIONS To be completed if Best Buy Common Stock Certificate(s) and/or check in lieu of fractional shares to be issued otherwise than to Holder. Please type or print. Social Security or Other Taxpayer Identification Number --------------------- (Name) --------------------- --------------------- (Address) --------------------- C. SIGNATURE Dated: -------- ------------------------- Signature of Holder (must conform in all respects to the name of the registered owner of the Preferred Securities certificate(s) specified in (A) and surrendered herewith) Signature Guaranteed By: ------------------------- B-2 Annex C Form of Notice of Exchange Best Buy Capital, L.P. 6 1/2% Convertible Monthly Income Preferred Securities To: Harris Trust and Savings Bank, Conversion Agent ------------------------ ------------------------ The undersigned holders of a majority in liquidation preference (the "Holders") of the 6 1/2% Convertible Monthly Income Preferred Securities (the "Preferred Securities") of Best Buy Capital, L.P. ("Capital") have, pursuant to an Exchange Election on the date hereof, elected to cause the Conversion Agent to effect an exchange of all (but not less than all) of the outstanding Preferred Securities for Depositary Shares (the "Depositary Shares"), each representing a 1/100th ownership interest in a share of Series A Cumulative Convertible Preferred Stock (the "Best Buy Preferred Stock") of Best Buy Co., Inc. ("Best Buy") in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of Capital, dated as of November 3, 1994 (the "Agreement"). Capitalized terms not defined herein have the meanings ascribed to them in the Agreement. The Holders direct the Conversion Agent, on their behalf, to effect the exchange of the Preferred Securities for Depositary Shares pursuant to and in the manner described in Section 6.4 of the Agreement. The Conversion Agent is directed to instruct Best Buy, as promptly as possible after the date hereof, (x) to issue and deposit with the Depositary the number of shares of Best Buy Preferred Stock issuable upon such exchange in return for a Depositary Receipt or Receipts evidencing Depositary Shares, (y) to request the Depositary to issue the Depositary Receipts evidencing Depositary Shares issuable and deliverable upon the exchange to all registered owners of Preferred Securities unless any such owners have indicated a different name or names on copies of Attachment 1 hereto and (z) to deliver such Depositary Receipts to the Conversion Agent. The Conversion Agent shall distribute, as promptly as possible after the date hereof, the Depositary Receipt or C-1 Receipts to the person or persons entitled to receive the same. If Depositary Receipts are to be issued in the name of a person other than a registered owner of Preferred Securities as specified on one or more copies of Attachment 1 hereto, each owner requesting such special issuance will pay any transfer taxes payable with respect thereto. SIGNATURES OF HOLDERS Signatures of Holders must conform in all respects to the names of registered owners of Preferred Securities. This Notice of Exchange may be executed in more than one counterpart of this signature page with the same effect as though all Holders had signed on a single page. Dated: --------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- C-2 ATTACHMENT 1 TO NOTICE OF EXCHANGE SPECIAL ISSUANCE INSTRUCTIONS To be completed if Depositary Receipt(s) are to be issued otherwise than to registered owners of Preferred Securities. Please type or print. NAME OF REGISTERED OWNER NUMBER OF PREFERRED OF PREFERRED SECURITIES: SECURITIES OWNED: ----------------------- -------------------- PERSON TO WHOM DEPOSITARY RECEIPTS TO BE ISSUED: SOCIAL SECURITY OR ----------------------- OTHER TAXPAYER (Name) IDENTIFICATION NUMBER: ----------------------- ---------------------- (Address) SIGNATURE OF REGISTERED OWNER Signature Guaranteed by: OF PREFERRED SECURITIES: ----------------------- -------------------- C-3 EX-4.8 7 EXIBIT 4.8 EXHIBIT 4.8 ________________________________________________________________________________ BEST BUY CO., INC., BEST BUY CAPITAL, L.P. TO HARRIS TRUST AND SAVINGS BANK Trustee ________________ Indenture Dated as of November 3, 1994 ________________ $288,227,848 6 1/2% Convertible Subordinated Debentures Due November 3, 2024 ________________________________________________________________________________ ..................................... Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section ------------------ --------- Section 310 (a)(1) .................................... 609 (a)(2) .................................... 609 (a)(3) .................................... Not Applicable (a)(4) .................................... Not Applicable (b) .................................... 608, 610 Section 311 (a) .................................... 613 (b) .................................... 613 Section 312 (a) .................................... 701 702(a) (b) .................................... 702(b) (c) .................................... 702(c) Section 313 (a) .................................... 703(a) (a)(4) .................................... 101, 1004 (b) .................................... 703(a) (c) .................................... 703(a) (d) .................................... 703(b) Section 314 (a) .................................... 704 (b) .................................... Not Applicable (c)(1) .................................... 102 (c)(2) .................................... 102 (c)(3) .................................... Not Applicable (d) .................................... Not Applicable (e) .................................... 102 Section 315 (a) .................................... 601 (b) .................................... 602 (c) .................................... 601 (d) .................................... 601 (e) .................................... 514 Section 316 (a) .................................... 101 (a)(1)(A) .................................... 502 512 (a)(1)(B) .................................... 513 (a)(2) .................................... Not Applicable (b) .................................... 508 (c) .................................... 104(c) Trust Indenture Indenture Act Section Section ------------------ --------- Section 317 (a)(1) .................................... 503 (a)(2) .................................... 504 (b) .................................... 1003 Section 318 (a) .................................... 107 ______________ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. -ii- TABLE OF CONTENTS PAGE Parties........................................................... 1 Recitals of the Company and Best Buy Capital...................... 1 ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions: Act............................................. 3 Additional Dividends............................ 3 Additional Interest............................. 3 Affiliate; control.............................. 3 Applicable Price................................ 4 Bank Agreement.................................. 4 Best Buy Capital................................ 4 Board of Directors.............................. 4 Board Resolution................................ 4 Business Day.................................... 4 Capital Lease Obligation........................ 4 Closing Price................................... 4 Commission...................................... 4 Common Stock.................................... 5 Common Stock Fundamental Change................. 5 Company......................................... 5 Company Request; Company Order.................. 5 Conversion Agent................................ 5 Conversion Date................................. 5 Conversion Expiration Date...................... 6 Corporate Trust Office.......................... 6 corporation..................................... 6 Defaulted Interest.............................. 6 Designated Senior Holder........................ 6 Event of Default................................ 6 exchange date................................... 6 Exchange Election............................... 6 Exchange Event.................................. 6 Expiration Date................................. 6 Fundamental Change.............................. 6 General Partner Contribution.................... 7 Guarantee; primary obligor...................... 7 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -i- PAGE Holder.......................................... 7 Incur........................................... 7 Indebtedness.................................... 7 Indenture....................................... 8 Interest Payment Date........................... 8 Junior Subordinated Payment..................... 8 Limited Partnership Agreement................... 8 Maturity........................................ 8 Non-Stock Fundamental Change.................... 8 Notice of Conversion............................ 8 Notice of Exchange.............................. 8 Officers' Certificate........................... 8 Opinion of Counsel.............................. 9 Outstanding..................................... 9 Parent Guarantee................................ 10 Paying Agent.................................... 10 Payment Blockage Period......................... 10 Person.......................................... 10 Predecessor Security............................ 10 Preferred Securities............................ 10 Proceeding...................................... 10 Purchased Shares................................ 10 Purchaser Stock Price........................... 10 Redeemable Interest............................. 10 Redemption Date................................. 11 Redemption Price................................ 11 Reference Date.................................. 11 Reference Market Price.......................... 11 Regular Record Date............................. 11 Responsible Officer............................. 11 Securities...................................... 11 Securities Payment.............................. 11 Security Register; Security Registrar............................ 11 Senior Indebtedness............................. 11 Senior Nonmonetary Default...................... 13 Senior Payment Default.......................... 13 Series A Preferred Stock........................ 13 Special Record Date............................. 13 Stated Maturity................................. 13 Subsidiary...................................... 13 Trading Day..................................... 14 Trustee......................................... 14 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -ii- PAGE Trust Indenture Act............................. 14 Vice President.................................. 14 SECTION 102. Compliance Certificates and Opinions...................................... 14 SECTION 103. Form of Documents Delivered to Trustee.......................... 14 SECTION 104. Acts of Holders; Record Dates................... 15 SECTION 105. Notices, Etc., to Trustee, Company and Best Buy Capital.......................... 17 SECTION 106. Notice to Holders; Waiver....................... 17 SECTION 107. Conflict with Trust Indenture Act............... 18 SECTION 108. Effect of Headings and Table of Contents............................. 18 SECTION 109. Successors and Assigns.......................... 18 SECTION 110. Separability Clause............................. 18 SECTION 111. Benefits of Indenture........................... 19 SECTION 112. Governing Law................................... 19 SECTION 113. Legal Holidays.................................. 19 ARTICLE TWO Security Forms SECTION 201. Forms Generally................................. 19 SECTION 202. Form of Face of Security........................ 20 SECTION 203. Form of Reverse of Security..................... 24 SECTION 204. Form of Trustee's Certificate of Authentication................. 27 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iii- PAGE ARTICLE THREE The Securities SECTION 301. Title and Terms................................. 27 SECTION 302. Denominations................................... 29 SECTION 303. Execution, Authentication, Delivery and Dating........................... 29 SECTION 304. Temporary Securities............................ 30 SECTION 305. Registration, Registration of Transfer and Exchange......................... 31 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.................... 32 SECTION 307. Payment of Interest; Interest Rights Preserved..................... 33 SECTION 308. Persons Deemed Owners........................... 35 SECTION 309. Cancellation.................................... 35 SECTION 310. Computation of Interest......................... 35 ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture........................ 36 SECTION 402. Application of Trust Money...................... 37 ARTICLE FIVE Remedies SECTION 501. Events of Default............................... 38 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iv- PAGE SECTION 502. Acceleration of Maturity; Rescission and Annulment...................... 40 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee....................................... 41 SECTION 504. Trustee May File Proofs of Claim................ 42 SECTION 505. Trustee May Enforce Claims Without Possession of Securities.................................... 43 SECTION 506. Application of Money Collected.................. 43 SECTION 507. Limitation on Suits............................. 44 SECTION 508. Unconditional Right of Holders to Receive Principal and Interest and to Convert....................... 45 SECTION 509. Restoration of Rights and Remedies.............. 45 SECTION 510. Rights and Remedies Cumulative.................. 45 SECTION 511. Delay or Omission Not Waiver.................... 46 SECTION 512. Control by Holders.............................. 46 SECTION 513. Waiver of Past Defaults......................... 46 SECTION 514. Undertaking for Costs........................... 47 SECTION 515. Waiver of Stay or Extension Laws................ 47 ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities.............................. 48 SECTION 602. Notice of Defaults.............................. 48 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -v- PAGE SECTION 603. Certain Rights of Trustee....................... 48 SECTION 604. Not Responsible for Recitals or Issuance of Securities..................... 50 SECTION 605. May Hold Securities............................. 50 SECTION 606. Money Held in Trust............................. 50 SECTION 607. Compensation and Reimbursement.................. 50 SECTION 608. Disqualification; Conflicting Interests...................................... 51 SECTION 609. Corporate Trustee Required; Eligibility................................... 51 SECTION 610. Resignation and Removal; Appointment of Successor...................... 52 SECTION 611. Acceptance of Appointment by Successor..................................... 53 SECTION 612. Merger, Conversion, Consolidation or Succession to Business..................... 54 SECTION 613. Preferential Collection of Claims Against Company........................ 54 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders...................... 54 SECTION 702. Preservation of Information; Communications to Holders..................... 55 SECTION 703. Reports by Trustee.............................. 55 SECTION 704. Reports by Company.............................. 56 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vi- PAGE ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc., Only on Certain Terms......................... 56 SECTION 802. Successor Substituted........................... 58 ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders............................ 58 SECTION 902. Supplemental Indentures with Consent of Holders............................ 59 SECTION 903. Execution of Supplemental Indentures............ 60 SECTION 904. Effect of Supplemental Indentures............... 61 SECTION 905. Conformity with Trust Indenture Act............. 61 SECTION 906. Reference in Securities to Supplemental Indentures....................... 61 ARTICLE TEN Covenants; Representations and Warranties SECTION 1001. Payment of Principal and Interest.................................. 61 SECTION 1002. Maintenance of Office or Agency................. 62 SECTION 1003. Money for Security Payments to Be Held in Trust.............................. 62 SECTION 1004. Statement by Officers as to Default....................................... 63 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vii- PAGE SECTION 1005. Existence....................................... 64 SECTION 1006. Maintenance of Properties....................... 64 SECTION 1007. Payment of Taxes and Other Claims............... 64 SECTION 1008. Additional Covenants............................ 65 SECTION 1009. Representations and Warranties.................. 66 ARTICLE ELEVEN Subordination of Securities SECTION 1101. Securities Subordinate to Senior Indebtedness.................................. 67 SECTION 1102. Payment Over of Proceeds Upon Dissolution, Etc. ............................ 67 SECTION 1103. No Payment When Senior Indebtedness in Default....................... 69 SECTION 1104. Payment Permitted If No Default................. 71 SECTION 1105. Subrogation to Rights of Holders of Senior Indebtedness........................ 71 SECTION 1106. Provisions Solely to Define Relative Rights............................... 72 SECTION 1107. Trustee to Effectuate Subordination............. 72 SECTION 1108. No Waiver of Subordination Provisions.................................... 73 SECTION 1109. Notice to Trustee............................... 73 SECTION 1110. Reliance on Judicial Order or Certificate of Liquidating Agent.............. 75 SECTION 1111. Trustee Not Fiduciary for Holders of Senior Indebtedness........................ 75 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -viii- PAGE SECTION 1112. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights........................................ 75 SECTION 1113. Article Applicable to Paying Agents........................................ 76 ARTICLE TWELVE Conversion of Securities SECTION 1201. Conversion Rights................................... 76 SECTION 1202. Conversion Price Adjustments........................ 79 ARTICLE THIRTEEN Redemption of Securities SECTION 1301. Conditional Right of Redemption; Mandatory Redemption................................ 92 SECTION 1302. Applicability of Article............................ 92 SECTION 1303. Election to Redeem; Notice to Trustee........................................ 92 SECTION 1304. Notice of Redemption................................ 93 SECTION 1305. Deposit of Redemption Price......................... 93 SECTION 1306. Securities Payable on Redemption Date................................... 93 ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -ix- PAGE ARTICLE FOURTEEN Exchange SECTION 1401. Optional Exchange for Depositary Shares Representing Series A Preferred Stock............................... 94 TESTIMONIUM....................................................... 96 SIGNATURES AND SEALS.............................................. 96 ACKNOWLEDGEMENTS.................................................. 97 ANNEX A: Form of Amended and Restated Agreement of Limited Partnership of Best Buy Capital, L.P., dated as of November 3, 1994. ___________ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -x- INDENTURE, dated as of November 3, 1994, among Best Buy Co., Inc., a corporation duly organized and existing under the laws of the State of Minnesota (herein called the "COMPANY"), having its principal office at 7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344, Best Buy Capital, L.P., a limited partnership organized under the laws of the State of Delaware (herein called "Best Buy Capital"), having its principal office at c/o Best Buy Co. Inc., 7075 Flying Cloud Drive, Eden Prairie, Minnesota and Harris Trust and Savings Bank, a corporation duly organized and existing under the laws of Illinois, as Trustee (herein called the "TRUSTEE"). Unless otherwise defined herein, all capitalized items used herein shall have the meanings ascribed to them in the Amended and Restated Agreement of Limited Partnership of Best Buy Capital, dated as of November 3, 1994 (the "LIMITED PARTNERSHIP AGREEMENT"), as in effect on the date hereof, the form of which is attached as Annex A hereto. RECITALS OF THE COMPANY AND BEST BUY CAPITAL WHEREAS, Best Buy Capital may pursuant to the Underwriting Agreement dated October 27, 1994 among the Company, Best Buy Capital and the Underwriters named therein issue up to $230,000,000 aggregate liquidation preference of its 6 1/2% Convertible Monthly Income Preferred Securities (the "PREFERRED SECURITIES") with a liquidation preference of $50 per Preferred Security; WHEREAS, the Company is guaranteeing the payment of Dividends on the Preferred Securities (if and to the extent declared from funds of Best Buy Capital legally available therefor), and payment of the Redemption Price and payments on liquidation with respect to the Preferred Securities, to the extent provided in the Guarantee Agreement dated November 3, 1994, between the Company and Best Buy Capital (the "PARENT GUARANTEE") for the benefit of the holders of the Preferred Securities; WHEREAS, the Company wishes to sell to Best Buy Capital, and Best Buy Capital wishes to purchase from the Company, Securities in an aggregate principal amount equal to the sum of the capital contributed by the Company to Best Buy Capital as the general partner thereof (the "GENERAL PARTNER CONTRIBUTION") and the aggregate stated liquidation preference of the Preferred Securities issued and sold by Best Buy Capital pursuant to the Underwriting Agreement, less $2,911,392, which is equal to 1% of such sum; WHEREAS, so long as Best Buy Capital is a Holder of Securities and any Preferred Securities are outstanding, the Limited Partnership Agreement provides that (i) the holders of Preferred Securities may, on or before the Conversion Expiration Date, cause the Conversion Agent to (a) exchange such Preferred Securities for Securities held by Best Buy Capital and (b) immediately convert such Securities into Common Stock and (ii) under certain circumstances the holders of Preferred Securities may cause the Conversion Agent to (a) exchange such Preferred Securities for Securities held by Best Buy Capital and (b) immediately exchange such Securities for Depositary Shares, each representing a 1/100th interest in a share of Series A Preferred Stock; WHEREAS, the Company has duly authorized the creation of an issue of its 6 1/2% Convertible Subordinated Debentures Due November 3, 2024 (the "SECURITIES"), of substantially the tenor and amount hereinafter set forth and to provide therefor the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, all things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: -2- (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "ACT", when used with respect to any Holder, has the meaning specified in Section 104. "ADDITIONAL DIVIDENDS" means dividends that shall accumulate on any dividend arrearages in respect of the Preferred Securities at the rate of 6 1/2% per annum compounded monthly. "ADDITIONAL INTEREST" means interest that shall accrue on any interest on the Securities that is not paid when due or not paid during an extension of an interest payment period, which in either case shall accrue at the rate of 6 1/2% per annum compounded monthly. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "CONTROL" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. -3- "APPLICABLE PRICE" has the meaning specified in Section 1202. "BANK AGREEMENT" means the Credit Agreement dated as of July 29, 1994, between the Company and First Bank National Association, as Agent, as such Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time, together with all other documents executed in connection therewith. "BEST BUY CAPITAL" means the Person specified as such in the first paragraph of this instrument. "BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of that board. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY" means any day other than a day on which banking institutions in New York City or Chicago are authorized or obligated by law or executive order to close. "CAPITAL LEASE OBLIGATION" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. The stated maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "CLOSING PRICE" has the meaning specified in Section 1202. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. -4- "COMMON STOCK" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Article 12, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock of the Company at the date of this instrument or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; PROVIDED that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "COMMON STOCK FUNDAMENTAL CHANGE" has the meaning specified in Section 1202. "COMPANY" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "CONVERSION AGENT" means the Person appointed under the Limited Partnership Agreement to act on behalf of the holders of Preferred Securities in effecting the conversion of Preferred Securities as and in the manner set forth in the Limited Partnership Agreement and Section 1201 hereof and in effecting the exchange of Preferred Securities for Depositary Shares representing Best Buy Preferred Stock as and in the manner set forth in the Limited Partnership Agreement and Section 1401 hereof. "CONVERSION DATE" has the meaning specified in Section 1201. -5- "CONVERSION EXPIRATION DATE" has the meaning specified in Section 6 of the Limited Partnership Agreement. "CORPORATE TRUST OFFICE" means the principal office of the Trustee in Chicago, Illinois, at which at any particular time its corporate trust business shall be administered. "CORPORATION" means a corporation, association, company, joint-stock company or business trust. "DEFAULTED INTEREST" has the meaning specified in Section 307. "DESIGNATED SENIOR HOLDER" means (i) with respect to the Bank Agreement, the agent bank or such other Person designated as such thereunder and (ii) with respect to any Senior Indebtedness, the Person designated as such in accordance with the terms of the instrument evidencing such Senior Indebtedness. "EVENT OF DEFAULT" has the meaning specified in Section 501. "EXCHANGE DATE" has the meaning specified in Section 1401. "EXCHANGE ELECTION" means the right of holders of a majority of the aggregate liquidation preference of Preferred Securities then outstanding, upon an Exchange Event, to cause the Conversion Agent to (i) exchange the Preferred Securities for Securities held by Best Buy Capital and (ii) immediately exchange such Securities for Depositary Shares, each representing a one-one hundredth (1/100th) interest in a share of Series A Preferred Stock. "EXCHANGE EVENT" means failure of Holders of Preferred Securities (including any such failure following an election by Best Buy to extend interest payments on the Securities in accordance with their terms) to receive, for 15 consecutive months the full amount of dividend payments (including Additional Dividends) accumulated on the Preferred Securities. "EXPIRATION DATE" has the meaning specified in Section 1202. "FUNDAMENTAL CHANGE" has the meaning specified in Section 1202. -6- "GENERAL PARTNER CONTRIBUTION" has the meaning specified in the Recitals to this instrument. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) 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 security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and "GUARANTEED," "GUARANTEEING" and "GUARANTOR" shall have meanings correlative to the foregoing); PROVIDED, HOWEVER, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "HOLDER" means a Person in whose name a Security is registered in the Security Register. "INCUR" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such Indebtedness or other obligation as a liability on the balance sheet of such Person (and "INCURRENCE," "INCURRED," "INCURRABLE" and "INCURRING" shall have meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness. "INDEBTEDNESS" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person, (i) all Indebtedness described in clauses (i)-(ix) of the definition of Senior Indebtedness (all references to Best Buy in such definition being deemed to refer to such Person) and (ii) the maximum fixed redemption or repurchase price of Redeemable Interests of such Person at the time of determination. -7- "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "INTEREST PAYMENT DATE" means the Stated Maturity of each installment of interest on the Securities, which shall be on the last day of each calendar month of each year commencing November 30, 1994 until the principal of the Securities is paid or duly provided for. "JUNIOR SUBORDINATED PAYMENT" has the meaning specified in Section 1102. "LIMITED PARTNERSHIP AGREEMENT" has the meaning specified in the first paragraph of this instrument. "MATURITY", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "NON-STOCK FUNDAMENTAL CHANGE" has the meaning specified in Section 1202. "NOTICE OF CONVERSION" means the notice to be given by a holder of Preferred Securities to the Conversion Agent directing the Conversion Agent to exchange such Preferred Securities for Securities and to convert such Securities into Common Stock on behalf of such holders. "NOTICE OF EXCHANGE" has the meaning specified in Section 1401. "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. -8- "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "OUTSTANDING", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, EXCEPT: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 306, converted into Common Stock pursuant to Section 1201, exchanged for Series A Preferred Stock pursuant to Section 1401 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to -9- the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "PARENT GUARANTEE" has the meaning specified in the Recitals to this instrument. "PAYING AGENT" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "PAYMENT BLOCKAGE PERIOD" has the meaning specified in Section 1103. "PERSON" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "PREDECESSOR SECURITY" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "PREFERRED SECURITIES" has the meaning specified in the Recitals to this instrument. "PROCEEDING" has the meaning specified in Section 1102. "PURCHASED SHARES" has the meaning specified in Section 1202. "PURCHASER STOCK PRICE" has the meaning specified in Section 1202. "REDEEMABLE INTEREST" of any Person means any equity security of or other ownership interest in such Person that by its terms or otherwise is required to be redeemed prior to the Stated Maturity of the principal of the Securities or is or may be redeemable at the option of the holder thereof at any time prior to the Stated Maturity of the principal of the Securities; PROVIDED, HOWEVER, that interests which are redeemable solely for any equity security of or other ownership interest in such Person that by its terms or otherwise is not required to be redeemed -10- prior to the Stated Maturity of the principal of the Securities shall not constitute Redeemable Interests. "REDEMPTION DATE", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "REFERENCE DATE" has the meaning specified in Section 1202. "REFERENCE MARKET PRICE" has the meaning specified in Section 1202. "REGULAR RECORD DATE" for the interest payable on any Interest Payment Date means the Business Day next preceding such Interest Payment Date. "RESPONSIBLE OFFICER", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SECURITIES" has the meaning specified in the Recitals to this instrument. "SECURITIES PAYMENT" has the meaning specified in Section 1102. "SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings specified in Section 305. "SENIOR INDEBTEDNESS" means the principal of, premium, if any, interest on and any other payment due pursuant to any of the following, whether Incurred on or prior to the date hereof or hereafter Incurred: -11- (i) all obligations of the Company for money borrowed (including all obligations of the Company under the Bank Agreement, including all reborrowings, if any, by the Company); (ii) all obligations of the Company evidenced by notes, debentures, bonds or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses; (iii) all Capital Lease Obligations of the Company; (iv) all reimbursement obligations of the Company with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Company; (v) all obligations of the Company issued or assumed as the deferred purchase price of property or services, including all obligations under master lease transactions pursuant to which the Company or any of its subsidiaries have agreed to be treated as owner of the subject property for federal income tax purposes (but excluding trade accounts payable, accrued liabilities resulting from the sale of extended service plans, or accrued liabilities arising in the ordinary course of business); (vi) all payment obligations of the Company under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including any such obligations Incurred by the Company solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate Indebtedness of the Company; (vii) all obligations of the Company under secured inventory financing credit lines; (viii) all obligations of the type referred to in clauses (i) through (vii) above of another Person and all dividends of another Person the payment of which, in either case, the Company has assumed or Guaranteed or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, Guarantor or otherwise; and -12- (ix) all amendments, modifications, renewals, extensions, refinancings, replacements and refundings by the Company of any such Indebtedness referred to in clauses (i) through (viii) above (and of any such amended, modified, renewed, extended, refinanced, refunded or replaced Indebtedness); PROVIDED, HOWEVER, that the following shall not constitute Senior Indebtedness: (A) any Indebtedness owed to a Person when such Person is a Subsidiary of the Company, (B) any Indebtedness which by the terms of the instrument creating or evidencing the same expressly provides that it is not superior in right of payment to the Securities, or (C) any Indebtedness to the extent Incurred in violation of this Indenture. For purposes of this definition, "INDEBTEDNESS" includes any obligation to pay principal, premium (if any), interest, penalties, reimbursement or indemnity amounts, fees and expenses (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-petition interest is allowed in such proceeding). Such Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. "SENIOR NONMONETARY DEFAULT" has the meaning specified in Section 1103. "SENIOR PAYMENT DEFAULT" has the meaning specified in Section 1103. "SERIES A PREFERRED STOCK" means the Series A Cumulative Convertible Preferred Stock par value $1.00 per share, of the Company having a liquidation preference of $5,000.00 per share. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "STATED MATURITY", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal, together with any accrued and unpaid interest (including Additional Interest), of such Security or such installment of interest is due and payable. "SUBSIDIARY" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or -13- indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "TRADING DAY" has the meaning specified in Section 1202. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "VICE PRESIDENT", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, -14- or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS; RECORD DATES. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. -15- (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY AND BEST BUY CAPITAL. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document -16- provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Judy Bartolini, (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company, or (3) Best Buy Capital by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to Best Buy Capital addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by Best Buy Capital. SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders -17- shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company or Best Buy Capital shall bind their respective successors and assigns, whether so expressed or not. SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -18- SECTION 111. BENEFITS OF INDENTURE. The Company's obligations under this Indenture and the Securities will also be for the benefit of the holders from time to time of the Preferred Securities. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness, the holders of Preferred Securities and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. SECTION 113. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert his Securities shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal or conversion of the Securities need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, or on such last day for conversion, PROVIDED that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE TWO Security Forms SECTION 201. FORMS GENERALLY. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or -19- endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these or other methods, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 202. FACE OF SECURITY. BEST BUY CO., INC. 6 1/2% Convertible Subordinated Debentures Due November 3, 2024 No. R-1 $288,227,848 Best Buy Co., Inc., a corporation duly organized and existing under the laws of the State of Minnesota (herein called "BEST BUY", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Best Buy Capital, L.P., or registered assigns, the principal sum of Two Hundred Eighty-eight million, Two Hundred Twenty-seven Thousand, Eight Hundred and forty-eight ($288,277,848) Dollars on the earliest of (i) November 3, 2024 or (ii) the date upon which Best Buy Capital, L.P., ("BEST BUY CAPITAL") is dissolved, wound up, liquidated or terminated, and to pay interest thereon at the rate of 6 1/2% per annum from November 3, 1994, payable monthly in arrears on the last day of each calendar month of each year (each an "INTEREST PAYMENT DATE"), commencing November 30, 1994, until the principal hereof is paid or made available for payment. Interest will compound monthly and will accrue at the rate of 6 1/2% per annum on any interest installment that is not paid at the end of any monthly interest period or when otherwise due ("ADDITIONAL INTEREST"). The amount of interest payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full monthly interest period, will be computed on the basis of the actual number of days elapsed in such period. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such -20- delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "BUSINESS DAY" shall mean any day other than a day on which banking institutions in New York City or Chicago are authorized or required by law to close. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Best Buy shall have the right at any time and from time to time during the term of this Security to extend interest payment periods for up to 60 months, during which periods interest will compound monthly and Best Buy shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which periods Best Buy may pay all interest then accrued and unpaid (together with Additional Interest); PROVIDED that during any such extended interest payment period neither Best Buy nor any majority-owned Subsidiary of Best Buy may declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any of its common or preferred stock (other than as a result of a reclassification of such common or preferred stock or the exchange or conversion of one class or series of common or preferred stock for another class or series of common or preferred stock), or make any guarantee payments with respect to the foregoing (other than payments under the Parent Guarantee or dividends or guarantee payments to Best Buy from a majority-owned Subsidiary of Best Buy). Prior to the termination of any such extended interest payment period, Best Buy may further extend the interest payment period, PROVIDED that such extended interest payment period -21- together with all such further extensions thereof may not exceed 60 months, nor may such extended interest payment period extend the Stated Maturity of this Security. After Best Buy has paid all accrued and unpaid interest (including Additional Interest) following an extended interest payment period, it may again extend interest payment periods for up to 60 months, subject to the preceding sentence. Best Buy shall give the Holder of this Security and the Trustee notice of its selection of an extended interest payment period five Business Days prior to the first scheduled Interest Payment Date on which the scheduled interest payment shall be deferred pursuant to such selection and, if Best Buy Capital is the Holder of this Security, no later than the last date on which Best Buy Capital would be required to notify the New York Stock Exchange of the record or payment date of the related dividend payment on the 6 1/2% Convertible Monthly Income Preferred Securities of Best Buy Capital. Payment of the principal of and interest on this Security will be made at the office or agency of Best Buy maintained for that purpose in Chicago, Illinois, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that at the option of Best Buy payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated by the Person entitled thereto as specified in the Security Register. Reference is hereby made to the further provisions of the Indenture summarized on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -22- IN WITNESS WHEREOF, Best Buy has caused this instrument to be duly executed under its corporate seal. Dated: November 3, 1994 BEST BUY CO., INC. By: /s/ Richard M. Schulze ---------------------------- Name: Richard M. Schulze Title: Chairman and Chief Executive Officer Attest: /s/ Elliot S. Kaplan ----------------------- Secretary -23- SECTION 203. FORM OF REVERSE OF SECURITY. This Security is one of a duly authorized issue of Securities of Best Buy, designated as its 6 1/2% Convertible Subordinated Debentures Due November 3, 2024 (herein called the "SECURITIES"), limited in aggregate principal amount to $288,227,848, issued and to be issued under an Indenture, dated as of November 3, 1994 (herein called the "INDENTURE"), among Best Buy, Best Buy Capital and Harris Trust and Savings Bank of Chicago, as Trustee (herein called the "TRUSTEE", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of Best Buy, Best Buy Capital, the Trustee, the holders of the Securities, the holders of Preferred Securities and the holders of Senior Indebtedness and of the terms upon which the Securities are, and are to be, authenticated and delivered. All terms used in this Security which are defined in the Indenture or in the Limited Partnership Agreement attached as Annex A thereto shall have the meanings assigned to them in the Indenture or the Limited Partnership Agreement, as the case may be. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default with respect to the Securities shall occur and be continuing, the principal of the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of Best Buy, Best Buy Capital and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of 66-2/3% in aggregate principal amount of the Securities at the time Outstanding and while the Preferred Securities are outstanding, the consent of holders of 66-2/3% in aggregate liquidation preference of -24- such Preferred Securities. Any such consent by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent is made upon this Security. Subject to and in compliance with the provisions of the Indenture, the Securities are convertible at any time on or before the close of business on the date of their Stated Maturity at the option of the Holder into fully paid and nonassessable shares of Common Stock of Best Buy at an initial conversion price of $45.00 aggregate principal amount of Securities per share of Common Stock of Best Buy, subject to adjustment as provided for in the Indenture. The Holder of the Securities will be entitled to receive the interest payable on the Securities on the Interest Payment Date notwithstanding the conversion thereof following the Regular Record Date immediately preceding such Interest Payment Date. Except as otherwise provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Securities being converted. Each conversion will be deemed to have been effected immediately prior to the close of business on the day on which notice was received by the Conversion Agent from a holder of the Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Limited Partnership Agreement and as provided in the Indenture. No fractional shares of the Common Stock of Best Buy will be issued as a result of conversion, but in lieu thereof, in the sole discretion of Best Buy, such fractional interest will be paid in cash by Best Buy. In the event that, following the Conversion Expiration Date (as defined in the Indenture), less than 5% of the original aggregate principal amount of the Securities remain Outstanding, such Securities shall be subject to redemption at the option of Best Buy upon not less than 30 days' nor more than 60 days' notice, at a Redemption Price equal to 100% of the principal amount, together with accrued and unpaid interest (including Additional Interest) to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. -25- The Company has covenanted to exercise such right to redeem if Best Buy Capital redeems its Preferred Securities. The Securities are exchangeable (in whole but not in part) at the request of the Holders of the Securities following the occurrence of an Exchange Event at the Exchange Price for Depositary Shares, each representing a fractional interest in a share of Best Buy Series A Preferred Stock as provided under the terms of the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of Best Buy, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed or to convert or exchange this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of Best Buy in Chicago, Illinois, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to Best Buy and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but Best Buy may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, Best Buy, the Trustee and any agent of Best Buy or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, -26- and neither Best Buy, the Trustee nor any such agent shall be affected by notice to the contrary. SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. Harris Trust and Savings Bank, ------------------------------ AS TRUSTEE By: /s/ K.O. Healey --------------------------- AUTHORIZED OFFICER ARTICLE THREE The Securities SECTION 301. TITLE AND TERMS. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $288,227,848, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906 or 1201. The Securities shall be known and designated as the "6 1/2% Convertible Subordinated Debentures Due November 3, 2024" of the Company. Their Stated Maturity shall be the earliest of November 3, 2024 or the date upon which Best Buy Capital is dissolved, wound-up, liquidated or terminated, and they shall bear interest at the rate of 6 1/2% per annum, from November 3, 1994 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable monthly, in arrears, on the last day of each calendar month of each year, commencing November 30, 1994 until the principal thereof is paid or made available for payment. Interest will compound monthly and will accrue at the rate of 6 1/2% per annum on any interest installment that is not paid when due or during an extension of an interest payment period as set forth below in this Section 301. In the event that any date on which interest is payable on the Securities is not a -27- Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The Company shall have the right, at any time and from time to time during the term of the Securities, to extend an interest payment period for up to 60 months, provided that during the period of any such extension, interest will continue to accrue and compound monthly. The Company shall have the right to make partial payments of interest during any such extended interest payment period. At the end of any such extended interest payment period, the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon). Prior to the termination of any such extended interest payment period, the Company may further extend the interest payment period, provided that such extended interest payment period together with all such further extensions thereof may not exceed 60 months and provided, further, that no extended interest payment period shall extend the Stated Maturity of the Securities. After the Company has paid all accrued and unpaid interest (including Additional Interest) following an extended interest payment period, it may again extend interest payment periods for up to 60 months, subject to the preceding sentence. The Company shall give the Holders of the Securities and the Trustee notice of its selection of an extended interest payment period five Business Days prior to the first scheduled Interest Payment Date on which the scheduled interest payment shall be deferred pursuant to such selection and, if Best Buy Capital is the Holder of the Securities, no later than the last date on which Best Buy Capital would be required to notify the New York Stock Exchange of the record or payment date of the related dividend payment on the Preferred Securities. In addition, at any time when any Preferred Securities are outstanding, the Company shall give Best Buy Capital notice of its selection of an extended interest payment period at least one Business Day prior to the earlier of (i) the Interest Payment Date and (ii) the date Best Buy Capital is required to give notice of the record or payment date of any Dividend payable on the Preferred Securities to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Preferred Securities, but in any event not less than two Business Days prior to such record date. The Company, as general partner of Best Buy Capital, shall give -28- notice of the Company's selection of an extended interest payment period to the holders of the Preferred Securities. The principal of and interest on the Securities shall be payable at the office or agency of the Company in Chicago, Illinois maintained for such purpose and at any other office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated by the Person entitled thereto as specified in the Security Register. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Eleven. The Securities shall be convertible as provided in Article Twelve. The Securities shall be redeemable as provided in Article Thirteen. The Securities shall be exchangeable as provided in Article Fourteen. SECTION 302. DENOMINATIONS. The Securities shall be issuable only in registered form without coupons and only in denominations of $50 and any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to -29- hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 304. TEMPORARY SECURITIES. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities -30- shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "SECURITY REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "SECURITY REGISTRAR" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. -31- No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1201 not involving any transfer. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. -32- The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not -33- less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and, if so listed, upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue (including in each such case Additional Interest), which were carried by such other Security. In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of -34- business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Securities being converted. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 307) interest (including Additional Interest) on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order. SECTION 310. COMPUTATION OF INTEREST. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period shorter than a full monthly interest period, shall be computed on the basis of the actual number of days elapsed in such period. -35- ARTICLE FOUR Satisfaction and Discharge SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company -36- and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest (including Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. -37- ARTICLE FIVE Remedies SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Eleven or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) failure to pay any principal of the Securities when due; (2) failure to pay any interest on the Securities, including any Additional Interest, when due and such failure continues for a period of 10 days; PROVIDED that a valid extension of the interest payment period by the Company pursuant to this Indenture shall not constitute a default in the payment of interest for this purpose; (3) failure by the Company to issue and deliver the Series A Preferred Stock or Common Stock upon an election to convert the Securities for Common Stock or exchange the Securities for Depositary Shares representing Series A Preferred Stock; (4) failure by the Company to perform in any material respect any other covenant herein for the benefit of the holders of Securities continued for a period of 60 days after written notice to the Company from any Holder of the Securities or any holder of Preferred Securities; (5) the dissolution, winding up, liquidation or termination of Best Buy Capital; or -38- (6) entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or Best Buy Capital in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or Best Buy Capital a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or Best Buy Capital under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or Best Buy Capital or of any substantial part of the property of either, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company or Best Buy Capital of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by either the Company or Best Buy Capital to the entry of a decree or order for relief in respect of itself in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against either the Company or Best Buy Capital, or the filing by either of them of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by either the Company or Best Buy Capital to the filing of such petition or to the appointment of or -39- taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or Best Buy Capital or of any substantial part of the property of either of them, or the making by either of them of an assignment for the benefit of creditors, or the admission by either of them in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or Best Buy Capital in furtherance of any such action. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities shall have the right to declare the principal of and the interest on all the Securities (including any Additional Interest) and any other amounts payable hereunder to be due and payable immediately, provided, however that if upon an Event of Default, the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Securities fail to declare the payment of all amounts on the Securities to be immediately due and payable, the holders of at least 25% in aggregate liquidation preference of Preferred Securities then outstanding shall have such right, by a notice in writing to the Company (and to the Trustee if given by Holders or the holders of Preferred Securities) and to enforce any and all other rights of Holders of Securities as creditors with respect to the Securities. Upon any such declaration such principal and all accrued interest shall become immediately due and payable. The Company expressly acknowledges that, under the terms of the Preferred Securities, the holders of outstanding Preferred Securities shall have the right to appoint a Special General Partner, which Special General Partner shall be authorized to exercise the right of the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities to accelerate the principal amount of the Securities and to enforce the Holders' other rights hereunder and under the Securities. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the -40- Trustee as hereinafter provided in this Article, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest (including any Additional Interest) on all Securities, (B) the principal of any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if (1) default is made in the payment of any interest (including any Additional Interest) on any Security when such interest -41- becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest (including any Additional Interest), and, to the extent that payment thereof shall be legally enforceable, interest on any overdue principal and on any overdue interest (including any Additional Interest), at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. -42- No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Subject to Article Eleven, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of and interest (including any Additional Interest) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest (including any Additional Interest), respectively. -43- SECTION 507. LIMITATION ON SUITS. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. -44- SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST AND TO CONVERT. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 307) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to convert such Security in accordance with Article Twelve and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. -45- SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, PROVIDED that (1) such direction shall not be in conflict with any rule of law or with this Indenture; and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. WAIVER OF PAST DEFAULTS. Subject to Section 1008 hereof, the Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of or interest (including any Additional Interest) on any Security; or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Inden- -46- ture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to receive the principal of and interest (including any Additional Interest) on any Security, convert any Security in accordance with Article Twelve or exchange any Security in accordance with Article Fourteen. SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. -47- ARTICLE SIX The Trustee SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. NOTICE OF DEFAULTS. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that in the case of any default of the character specified in Section 501(4), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; -48- (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and -49- (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. MAY HOLD SECURITIES. The Trustee, any Paying Agent, any Security Registrar, any Conversion Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Conversion Agent or such other agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation -50- shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 at its Corporate Trust Office in Chicago, Illinois. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance -51- with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for -52- at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; PROVIDED that, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and -53- certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee -54- (a) semiannually, not later than February 15 and August 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; EXCLUDING from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture -55- Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; PROVIDED that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an -56- entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and interest (including any Additional Interest) on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 1201 and exchange rights in accordance with Section 1401; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; (3) such consolidation or merger or conveyance, transfer or lease of properties or assets of the Company is permitted under, and does not give rise to any breach or violation of, the Limited Partnership Agreement or the Parent Guarantee; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. -57- SECTION 802. SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE Supplemental Indentures SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, Best Buy Capital, when authorized by a resolution of the General Partner, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or (4) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 1201; or -58- (5) to make provision with respect to the exchange rights of Holders pursuant to the requirements of Section 1401; or (6) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, PROVIDED that such action pursuant to this clause (6) shall not adversely affect the interests of the Holders or, so long as any of the Preferred Securities shall remain outstanding, the holders of the Preferred Securities. SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than 66 2/3% in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, Best Buy Capital, when authorized by resolution of the General Partner, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Security, or reduce the principal amount thereof or the rate of interest thereon, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or adversely affect the right to convert any Security as provided in Article Twelve (except as permitted by Section 901(4)), or adversely affect the right to exchange any Security as provided in Article -59- Fourteen (except as permitted by Section 901(5)), or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders, (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1008, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; PROVIDED, that, so long as any of the Preferred Securities remains outstanding, no such amendment shall be made that adversely affects the holders of the Preferred Securities, and no termination of this Agreement shall occur, and no waiver of any Event of Default or compliance with any covenant under this Agreement shall be effective, without the prior consent of the holders of at least 66-2/3% of the aggregate liquidation preference of the outstanding Preferred Securities unless and until the Subordinated Debentures and all accrued and unpaid interest (including any Additional Interest) thereon have been paid in full. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture -60- which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE TEN Covenants; Representations and Warranties SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST. The Company will duly and punctually pay the principal of and interest on the Securities in accordance with the terms of the Securities and this Indenture. -61- SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in Chicago, Illinois an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside Chicago, Illinois) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in Chicago, Illinois for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying -62- Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Security and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults -63- and the nature and status thereof of which they may have knowledge. SECTION 1005. EXISTENCE. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1006. MAINTENANCE OF PROPERTIES. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability -64- or validity is being contested in good faith by appropriate proceedings. SECTION 1008. ADDITIONAL COVENANTS. The Company agrees that neither it nor any of its Subsidiaries will declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any of its Common Stock or preferred stock (other than as a result of a reclassification of such Common Stock or preferred stock or the exchange or conversion of one class or series of Common Stock or preferred stock for another class or series of Common Stock or preferred stock), or make any guarantee payments with respect to the foregoing (other than payments under the Parent Guarantee or dividends or guarantee payments to the Company from a Subsidiary) if at such time (a) there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default hereunder or under the Securities, (b) the Company shall be in default with respect to its payment or other obligations under the Parent Guarantee or (c) the Company shall have given notice of its selection of an extended interest payment period as provided herein and such period, or any extension thereof, shall be continuing. The Company also covenants (i) to remain the General Partner of Best Buy Capital; PROVIDED that any permitted successor of the Company under the Limited Partnership Agreement may succeed to the Company's duties as General Partner, (ii) to cause at least 21% of the total value of Best Buy Capital and at least 21% of all interests in the capital, income, gain, loss, deduction and credit of Best Buy Capital to be held by the Company, as a General Partner of Best Buy Capital, (iii) not to voluntarily dissolve, wind-up or liquidate Best Buy Capital, (iv) to perform timely all of its duties as General Partner (including the duty to declare and pay Dividends on the Preferred Securities), (v) to maintain direct ownership of all partnership interests of Best Buy Capital other than the Preferred Securities and any Special General Partnership Interest, except as may be permitted by the Limited Partnership Agreement, (vi) to use its reasonable efforts to cause Best Buy Capital to remain a limited partnership and otherwise to continue to be treated as a partnership for United States federal income tax purposes and (vii) to issue Series A Preferred Stock in the form of Depositary Shares or Common Stock upon an election by Holders to exchange or convert the Securities. The Company also covenants that so long as any Securities are held by Best Buy Capital, the General Partner -65- shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Special General Partner, or exercising any trust or power conferred on the Special General Partner with respect to the Securities, (ii) waive any past default which is waivable under this Agreement, (iii) exercise any right to rescind or annul a declaration that the principal of all the Securities shall be due and payable, or (iv) consent to any amendment, modification or termination of the Securities or of this Indenture without, in each case, obtaining the prior approval of the holders of at least 66 2/3% or more of the aggregate liquidation preference of the Preferred Securities then outstanding, PROVIDED, HOWEVER, that where a consent under the Securities would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of the Preferred Securities. The General Partner shall not revoke any action previously authorized or approved by a vote of Preferred Securities, without the approval of the holders of Preferred Securities representing 66 2/3% or more of the aggregate liquidation preference of the Outstanding Preferred Securities. SECTION 1009. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants that: (a) It is a corporation, validly existing and in good standing under the laws of the State of Minnesota, with all power and authority (corporate and other) to own its properties and conduct its business as now being conducted. (b) It has full power and authority to enter into this Indenture and to incur and perform the obligations provided for herein, all of which have been duly authorized by all proper and necessary corporate action. (c) The execution and delivery of this Indenture and the performance by the Company of all its obligations hereunder will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, fiscal agency agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or subject, nor will this Indenture result in a violation of the provisions of the Company's Certificate of Incorporation or By-laws. -66- (d) This Indenture and the Securities have been duly authorized, executed and delivered by the Company and constitute the valid and legally binding obligation of the Company enforceable in accordance with their respective terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. ARTICLE ELEVEN Subordination of Securities SECTION 1101. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner herein-after set forth in this Article (subject to Article Four), the payment of the principal of and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness. This Article Eleven shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Holders of Senior Indebtedness need not prove reliance on the subordination provisions hereof. SECTION 1102. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon any payment or distribution of assets of the Company to creditors upon (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or -67- (c) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "PROCEEDING"); (1) the holders of Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due on or to become due on or in respect of all Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character whether in cash, property or securities (including any payment or distribution which may be payable or deliverable to Holders of the Securities made in respect of any other Indebtedness of the Company subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "JUNIOR SUBORDINATED PAYMENT"), on account of the principal of (and premium, if any) or interest on the Securities or on account of any purchase, redemption or other acquisition of Securities by the Company, any Subsidiary of the Company, the Trustee or any Paying Agent (all such payments, distributions, purchases, redemptions and acquisitions, whether or not in connection with a Proceeding, herein referred to, individually and collectively, as a "SECURITIES PAYMENT"); and (2) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders of the Securities or the Trustee would be entitled but for the provisions of this Article (including, without limitation, any Junior Subordinated Payment) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment to the holders of such Senior Indebtedness. -68- In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received in connection with any Proceeding any Securities Payment before all Senior Indebtedness is paid in full or payment thereof provided for in cash, then and in such event such Securities Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash after giving effect to any concurrent payment to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Eight. SECTION 1103. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. In the event that any Senior Payment Default (as defined below) shall have occurred, then no Securities Payment shall be made, nor shall any property of the Company or any Subsidiary of the Company be applied to the purchase, acquisition, retirement or redemption of the Securities, -69- unless and until such Senior Payment Default shall have been cured or waived in writing or shall have ceased to exist or all amounts then due and payable in respect of such Senior Indebtedness (including amounts that have become and remain due by acceleration) shall have been paid in full in cash. "SENIOR PAYMENT DEFAULT" means any default in the payment of principal of (or premium, if any) or interest on any Senior Indebtedness when due, whether at the stated maturity of any such payment or by declaration of acceleration, call for redemption, mandatory payment or prepayment or otherwise. In the event that any Senior Nonmonetary Default (as defined below) shall have occurred and be continuing, then, upon the receipt by the Company and the Trustee of written notice of such Senior Nonmonetary Default from the Designated Senior Holder of such certain Senior Indebtedness, no Securities Payment shall be made, nor shall any property of the Company or any Subsidiary of the Company be applied to the purchase, acquisition, requirement or redemption of the Securities, during the period (the "PAYMENT BLOCKAGE PERIOD") commencing on the date of such receipt of such written notice and ending (subject to any blockage of payments that may then or thereafter be in effect as the result of any Senior Payment Default) on the earlier of (i) the date on which the Senior Indebtedness to which such Senior Nonmonetary Default relates is discharged or such Senior Nonmonetary Default shall have been cured or waived in writing or shall have ceased to exist and any acceleration of Senior Indebtedness to which such Senior Nonmonetary Default relates shall have been rescinded or annulled or (ii) the 179th day after the date of such receipt of such written notice. No more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no Payment Blockage Period is in effect. Following the commencement of any Payment Blockage Period, the holders of the Senior Indebtedness will be precluded from commencing a subsequent Payment Blockage Period until the conditions set forth in the preceding sentence are satisfied. For all purposes of this paragraph, no Senior Nonmonetary Default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a subsequent Payment Blockage Period by holders of Senior Indebtedness or their representatives unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. "SENIOR NONMONETARY DEFAULT" means the occurrence or existence and continuance of any default (other than a -70- Senior Payment Default) or any event which, after notice or lapse of time (or both), would become an event of default (other than a Senior Payment Default), under the terms of any instrument or agreement pursuant to which any Senior Indebtedness is outstanding, permitting (after notice or lapse of time or both) one or more holders of such Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable. The provisions of this Section shall not apply to any Securities Payment with respect to which Section 1102 hereof would be applicable. SECTION 1104. PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent the Company, at any time except during the pendency of any Proceeding referred to in Section 1102 hereof or under the conditions described in Section 1103 hereof, from making Securities Payments. SECTION 1105. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. -71- SECTION 1106. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of the Securities the principal of and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 1107. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the Indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file a proper claim at least 30 days before the expiration of the time to file such claim, then the holders of the Senior Indebtedness and their agents, trustees or other representatives are authorized to do so (but shall in no event be liable for any failure to do so) for and on behalf of the Holders of the Securities. -72- SECTION 1108. NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) permit the Company to borrow, repay and then reborrow any or all of the Senior Indebtedness; (iii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iv) release any Person liable in any manner for the collection of Senior Indebtedness; (v) exercise or refrain from exercising any rights against the Company and any other Person; and (vi) apply any sums received by them to Senior Indebtedness. SECTION 1109. NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company, any holder of Senior Indebtedness, any Designated Senior Holder or from any trustee, fiduciary or agent -73- therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Security), then, anything herein contained to the contrary notwithstanding, but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Any notice required or permitted to be given to the Trustee by a holder of Senior Indebtedness or by any Designated Senior Holder shall be in writing and shall be sufficient for every purpose hereunder if in writing and either (i) sent via facsimile to the Trustee, the receipt of which shall be confirmed via telephone, or (ii) mailed, first class postage prepaid, or sent by overnight carrier, to the Trustee addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address furnished in writing to such holder of Senior Indebtedness by the Trustee. Subject to the provisions of Section 601 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness or Designated Senior Holder (or a trustee, fiduciary or agent therefor to establish that such notice has been given by a holder of Senior Indebtedness or Designated Senior Holder or a trustee, fiduciary or agent therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness or Designated Senior Holder to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. -74- Notwithstanding anything else contained herein, no notice, request or other communication to or with the Trustee shall be deemed given unless received by a Responsible Officer at the Trustee's principal corporate trust office. SECTION 1110. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601 hereof, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article, provided that the foregoing shall apply only if such court has been apprised of the provisions of this Article. SECTION 1111. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 1112. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior -75- Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607 hereof. SECTION 1113. ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that Section 1111 hereof shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. ARTICLE TWELVE Conversion of Securities SECTION 1201. CONVERSION RIGHTS. (a) The Securities are convertible, at the option of the Holder, at any time on or before the close of business at the Stated Maturity, unless previously exchanged pursuant to Article Fourteen, into fully paid and nonassessable shares of Common Stock of the Company at an initial conversion price of $45.00 aggregate principal amount of Securities per share of Common Stock, subject to adjustment as described in Section 1202. A Holder of Securities may convert any portion of the principal amount of the Securities into that number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing the principal amount of the Securities to be converted by such conversion price. (b) In order to convert a portion of the Securities, the Holder shall deliver to the Conversion Agent an irrevocable Notice of Conversion setting forth the principal amount of Securities to be converted, together with the name or names, if other than the Holder, in which -76- the shares of Common Stock should be issued upon conversion. In addition, a holder of Preferred Securities may exercise its right under the Limited Partnership Agreement to convert such Preferred Securities into Common Stock by delivering to the Conversion Agent such Preferred Securities and an irrevocable Notice of Conversion setting forth the information called for by the preceding sentence and directing it (i) to exchange such Preferred Security for a portion of the Securities held by Best Buy Capital (at an exchange rate of $50 principal amount of Securities for each Preferred Security) and (ii) to immediately convert such Securities, on behalf of such holder, into Common Stock of Best Buy pursuant to this Article Twelve; if such Notice of Conversion (accompanied by such Preferred Securities) is delivered before the close of business on the Conversion Expiration Date with respect to the Preferred Securities, Best Buy Capital shall deliver Securities held by it to the Conversion Agent for exchange in accordance with this paragraph, and the Conversion Agent shall immediately convert such Securities on behalf of such holders. So long as any Preferred Securities are outstanding, Best Buy Capital shall not convert any Securities except pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder of Preferred Securities. If a Notice of Conversion is given on the Regular Record Date, the Holder will be entitled to receive the interest payable on the portion of Securities to be converted on the subsequent Interest Payment Date notwithstanding the conversion thereof prior to such Interest Payment Date. Except as otherwise provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Securities being converted. Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received (the "CONVERSION DATE") by the Conversion Agent from the Holder or from a holder of the Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Limited Partnership Agreement, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Notice of -77- Conversion, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons. (c) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Securities are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at Maturity of the portion of Securities so converted and any unpaid interest accrued on such Securities at the time of such conversion. (d) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by the Company. (e) In the event of the conversion of any Security in part only, a new Security or Securities for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 305. (f) In effecting the conversion transactions described in this Section or the exchange transactions described in Article Fourteen hereof, the Conversion Agent is acting as agent of the holders of Preferred Securities (in the exchange of Preferred Securities for Securities) and as agent of the Holders of Securities (in the exchange of Securities for Common Stock or Series A Preferred Stock), as the case may be, directing it to effect such conversion or exchange transactions. The Conversion Agent is hereby authorized (i) to exchange Securities held by Best Buy Capital from time to time for Preferred Securities in connection with the conversion or exchange of such Preferred Securities in accordance with Articles Twelve and Thirteen hereof, (ii) to convert all or a portion of the Securities into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article Twelve and to deliver to Best Buy Capital a new Security or Securities for any resulting unconverted principal amount and (iii) to exchange all of the Securities following the occurrence of an Exchange Event for Depositary Shares representing Series A Preferred Stock in accordance with the provisions of Article Thirteen hereof and thereupon to deliver such Depositary Shares to the Persons entitled to receive them. -78- SECTION 1202. CONVERSION PRICE ADJUSTMENTS. (a) The conversion price shall be subject to adjustment from time to time as follows: (i) In case the Company shall pay or make a dividend or other distribution on any class or series of capital stock of the Company exclusively in Common Stock, the conversion price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution or exchange, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not pay any dividend or make any distribution on shares of any class or series of Capital Stock of the Company exclusively in Common Stock held in the treasury of the Company. (ii) In case the Company shall pay or make a dividend or other distribution on its Common Stock consisting exclusively of, or shall otherwise issue to all holders of its Common Stock, rights or warrants entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the conversion price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or -79- purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. In case any rights or warrants referred to in this subparagraph (ii) in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the conversion price shall be readjusted at the time of such expiration to the conversion price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iv) Subject to the last sentence of this subparagraph (iv), in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets (including securities, but excluding any rights or warrants referred to in subparagraph (ii) of this Section 1202(a), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subparagraph (i) of this Section 1202(a)), the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph (iv) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the date fixed for the payment of such distribution (the "REFERENCE DATE") less the fair market value (as determined in good faith by the Board of -80- Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. If the Board of Directors determines the fair market value of any distribution for purposes of this subparagraph (iv) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock pursuant to subparagraph (vii) of this Section 1202(a). For purposes of this subparagraph (iv), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any conversion price reduction required by this subparagraph (iv)) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further conversion price reduction required by subparagraph (i) or (ii) of this Section 1202(a), except (A) the Reference Date of such dividend or distribution as defined in this subparagraph (iv) shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution," "the date fixed for the determination of stockholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of subparagraphs (i) and (ii) of this Section 1202(a) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of subparagraph (i) of this Section 1202(a). (v) In case the Company shall pay or make a dividend or other distribution on its Common Stock exclusively in cash (excluding, in the case of any regular cash dividend on the Common Stock, the portion thereof that does not exceed the per share amount of the next preceding regular cash dividend on the Common Stock (as adjusted to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 1202(a)), or all of such regular cash dividend if the annualized amount thereof per share of Common Stock does -81- not exceed 15% of the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the Trading Day (as defined in Section 1202(e)) next preceding the date of declaration of such dividend), the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph (v) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed and not excluded as provided above applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution. (vi) In case a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of Best Buy's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) at the last time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds 10% of the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the Trading Day (as defined in Section 1202(e)) next succeeding the Expiration Time, the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph (vi) by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the -82- shares deemed so accepted, up to any such maximum, being referred to as the "PURCHASED SHARES") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price per share (determined as provided in subparagraph (vii) of this Section 1202(a)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (vii) For the purpose of any computation under subparagraphs (ii), (iv), (v) and (vi) of this Section 1202(a), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices (as defined in Section 1202(e)) for the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; PROVIDED, HOWEVER, that if another event occurs that would require an adjustment pursuant to subparagraph (i) through (vi), inclusive, the Board of Directors may make such adjustments to the Closing Prices during such five Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section 1202(a), in which case any such determination by the Board of Directors shall be set forth in a Board Resolution and shall be conclusive. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the New York Stock Exchange or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Prices were obtained without the right to receive such issuance or distribution, and (2) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (viii) The Company may make such reductions in the conversion price, in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 1202(a), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company from time to time may reduce the conversion price by any amount for any period of time if the period is at least -83- twenty (20) days, the reduction is irrevocable during the period, and the Board of Directors of the Company shall have made a determination that such reduction would be in the best interest of the Company, which determination shall be conclusive. Whenever the conversion price is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Securities a notice of the reduction at least fifteen (15) days prior to the date the reduced conversion price takes effect, and such notice shall state the reduced conversion price and the period it will be in effect. (ix) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in the conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of this subparagraph (ix) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (x) Whenever the conversion price is adjusted as herein provided: (1) the Company shall compute the adjusted conversion price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the transfer agent for the Preferred Securities; and (2) a notice stating the conversion price has been adjusted and setting forth the adjusted conversion price shall as soon as practicable be mailed by the Company to all record holders of Preferred Securities at their last addresses as they appear upon the stock transfer books of the Company. (b) RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE OF ASSETS. In the event that the Company shall be a party to any transaction (including without limitation any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company (other than a merger which does not result in a -84- reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange) pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each Security then outstanding shall have the right thereafter to convert such Security only into (i) in the case of any such transaction other than a Common Stock Fundamental Change (as defined in Section 1202(e)), the kind and amount of securities, cash and other property receivable upon such transaction by a holder of the number of shares of Common Stock of the Company into which such Security could have been converted immediately prior to such transaction, after giving effect, in the case of any Non-Stock Fundamental Change, to any adjustment in the conversion price required by the provision of Section 1202(d), and (ii) in the case of a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined pursuant to the provisions of Section 1202(d). The Company or the person formed by such consolidation or resulting from such merger or which acquired such assets or which acquires the Company's shares, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 1202. The above provisions shall similarly apply to successive transactions of the foregoing type. (c) PRIOR NOTICE OF CERTAIN EVENTS. In case: (i) the Company shall (1) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash that would not require an adjustment pursuant to 1202(a)(iv) or (v) or (2) authorize a tender or exchange offer that would require an adjustment pursuant to Section 1202(a)(vi); (ii) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; -85- (iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with the transfer agent for the Preferred Securities, and shall cause to be mailed to the holders of record of the Preferred Securities, at their last addresses as they shall appear upon the stock transfer books of the Company, at least fifteen days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, redemption, repurchase, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, repurchase, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (d) ADJUSTMENTS IN CASE OF FUNDAMENTAL CHANGES. Notwithstanding any other provision in this Section 1202 to the contrary, if any Fundamental Change (as defined in Section 1202(e)) occurs, then the conversion price in effect will be adjusted immediately after such Fundamental Change as described below. In addition, in the event of a Common Stock Fundamental Change (as defined in Section 1202(e)), each Security shall be convertible solely into common stock of the kind and amount received by holders of Common Stock as the result of such Common Stock Fundamental Change as -86- more specifically provided in the following clauses (d)(i) and (d)(ii). For purposes of calculating any adjustment to be made pursuant to this Section 1202(d) in the event of a Fundamental Change, immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change (as defined in Section 1202(e)), the conversion price of the Securities shall thereupon become the lower of (A) the conversion price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to this Section 1202, and (B) the result obtained by multiplying the greater of the Applicable Price (as defined in Section 1202(e)) or the then applicable Reference Market Price (as defined in Section 1202(e)) by a fraction of which the numerator shall be $50 and the denominator shall be an amount per Security determined by the General Partner in its sole discretion, after consultation with a nationally recognized investment banking firm, to be the equivalent of the hypothetical redemption price that would have been applicable if the Securities had been redeemable during such period; and (ii) in the case of a Common Stock Fundamental Change, the conversion price of the Securities in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to this Section 1202, shall thereupon be adjusted by multiplying such conversion price by a fraction of which the numerator shall be the Purchaser Stock Price (as defined in Section 1202(e)) and the denominator shall be the Applicable Price; PROVIDED, HOWEVER, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, is paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for common stock (and cash with respect to fractional interests) of the successor, acquiror or other third party, the conversion price of the Securities in effect immediately prior to such Common Stock Fundamental Change shall thereupon be adjusted by multiplying such conversion price by a fraction of which the numerator shall be one (1) and -87- the denominator shall be the number of shares of common stock of the successor, acquiror, or other third party received by a stockholder for one share of Common Stock as a result of such Common Stock Fundamental Change. (e) DEFINITIONS. The following definitions shall apply to terms used in this Section 1202: (1) "APPLICABLE PRICE" shall mean (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a stockholder for one share of Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the daily Closing Prices of the Common Stock for the ten (10) consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive securities, cash or other property in connection with such Non-Stock Fundamental Change or Common Stock Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such securities, cash or other property, in each case, as adjusted in good faith by the Board of Directors of Best Buy to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 1202(a). (2) "CLOSING PRICE" of any common stock on any day shall mean the last reported sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way of such common stock, in each case on the principal national securities exchange on which such common stock is listed, if the common stock is listed on a national securities exchange, or the National Market System of the National Association of Securities Dealers, Inc., or, if the common stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the common stock is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the common stock in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the -88- Board of Directors of Best Buy for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. (3) "COMMON STOCK FUNDAMENTAL CHANGE" shall mean any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors) of the consideration received by holders of Common Stock consists of common stock that for each of the ten consecutive Trading Days referred to with respect to such Fundamental Change in Section 1202(e)(1) above has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the National Market System of the National Association of Securities Dealers, Inc.; PROVIDED, HOWEVER, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Securities continue to exist as outstanding Securities, or (ii) not later than the occurrence of such Fundamental Change, the outstanding Securities are converted into or exchanged for convertible subordinated debentures of a corporation succeeding to the business of the Company, which convertible subordinated debentures have terms substantially similar to those of the Securities. (4) "FUNDAMENTAL CHANGE" shall mean the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive securities, cash or other property (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); PROVIDED, HOWEVER, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the conversion price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock of the Company shall be exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash or other property, but the adjustment shall be based upon the highest weighted average of consideration per share which a holder of Common Stock could have received in such transactions or events as a result of which more than 50% of the Common Stock of the Company shall have been exchanged for, converted into, or acquired for or -89- constitute solely the right to receive securities, cash or other property. (5) "NON-STOCK FUNDAMENTAL CHANGE" shall mean any Fundamental Change other than a Common Stock Fundamental Change. (6) "PURCHASER STOCK PRICE" shall mean, with respect to any Common Stock Fundamental Change, the average of the daily Closing Prices of the common stock received in such Common Stock Fundamental Change for the ten (10) consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive such common stock, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock, in each case, as adjusted in good faith by the Board of Directors to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 1202(a). (7) "REFERENCE MARKET PRICE" shall initially mean $25.00 and in the event of any adjustment to the conversion price other than as a result of a Non-Stock Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any such adjustment shall always be the same as the ratio of $25.00 to the initial conversion price per share. (8) "TRADING DAY" shall mean a day on which securities are traded on the national securities exchange or quotation system or in the over-the-counter market used to determine the Closing Price. (f) DIVIDEND OR INTEREST REINVESTMENT PLANS. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Securities were first issued, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to -90- which any of the adjustment provisions described above applies. There shall also be no adjustment of the conversion price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of Best Buy except as specifically described in this Section 1202. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the holder of the Securities. (g) CERTAIN ADDITIONAL RIGHTS. In case the Company shall, by dividend or otherwise, declare or make a distribution on its Common Stock referred to in Section 1202(a)(iv) or 1202(a)(v) (including, without limitation, dividends or distributions referred to in the last sentence of Section 1202(a)(iv)), the holder of the Securities, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the conversion price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Securities are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; PROVIDED, HOWEVER, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all holders so converting, the Company may, in lieu of distributing to such holder any portion of such distribution not consisting of cash or securities of the Company, pay such holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of Securities described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the holder of Securities so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such holder is so entitled, PROVIDED that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or -91- assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. ARTICLE THIRTEEN Redemption of Securities SECTION 1301. CONDITIONAL RIGHT OF REDEMPTION; MANDATORY REDEMPTION. In the event that, following the Conversion Expiration Date in respect of the Preferred Securities, less than 5% of the original aggregate principal amount of the Preferred Securities remain Outstanding, the Securities shall be subject to redemption at the option of the Company at the Redemption Price specified in the form of Security hereinbefore set forth, together with accrued interest (including Additional Interest) to the Redemption Date, provided that if the Company elects to redeem Securities, the aggregate principal amount of Securities so redeemed shall be not less than the aggregate liquidation preference of the Preferred Securities then outstanding. The Company covenants that if Best Buy Capital redeems the Preferred Securities in accordance with the terms thereof, the Company will exercise its foregoing right of redemption, shall redeem the Securities not later than the date of redemption of the Preferred Securities, and shall pay the Redemption Price therefor prior to 12:00 noon, New York City time on the date of such redemption. SECTION 1302. APPLICABILITY OF ARTICLE. Redemption of Securities at the election of the Company, as permitted by Section 1301, shall be made in accordance with such provision and this Article. SECTION 1303. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem Securities pursuant to Section 1301 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least [35] days and no more than 60 days prior to the Redemption Date fixed by the Company, notify the Trustee of such Redemption Date and of -92- the principal amount of Securities to be redeemed and provide a copy of the notice of redemption given to Holders of Securities to be redeemed pursuant to Section 1304. SECTION 1304. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 35 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, and (4) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1305. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent, (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1306. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date -93- (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. ARTICLE FOURTEEN Exchange SECTION 1401. OPTIONAL EXCHANGE FOR DEPOSITARY SHARES REPRESENTING SERIES A PREFERRED STOCK. For so long as any Preferred Securities are outstanding, the Securities shall be exchangeable at the request of Holders thereof, following an Exchange Election by a Majority in Liquidation Preference of the Preferred Securities for Depositary Shares (as such terms are defined in the Limited Partnership Agreement), each representing ownership of 1/100th of a fully paid and non-assessable share of Series A Preferred Stock, subject to the following terms and conditions: (a) The Conversion Agent, upon receiving irrevocable notice of an Exchange Election by the holders of a majority in Liquidation Preference of the Preferred Securities (a "Notice of Exchange"), shall promptly deliver a copy of such notice to the Company, the Trustee and Best Buy Capital. (b) All outstanding Preferred Securities shall be deemed to have been exchanged, immediately prior to the close of business on the date of the Exchange Election (the "exchange date"), for Securities held by Best Buy Capital, at an exchange rate of $50 principal amount of Securities for each Preferred Security, and Best Buy -94- Capital shall promptly deliver the Securities deemed to have been so exchanged to the Conversion Agent, on behalf of the holders of exchanged Preferred Securities. As promptly as practicable after the exchange date, the Company shall issue and deposit with the Depositary, pursuant to the Deposit Agreement, a certificate or certificates for the number of fully paid and non-assessable shares of Series A Preferred Stock issuable at the rate referred to in paragraph (c) below upon the exchange contemplated in such paragraph in return for a Depositary Receipt or Receipts issued by the Depositary evidencing a proportionate number of Depositary Shares in respect of the Series A Preferred Stock so deposited. The Company shall request that the Depositary Receipts be issued in the names of the holders of Preferred Securities designated in the Notice of Exchange. (c) The Company shall thereafter, promptly upon request by the Conversion Agent, exchange such Securities for Depositary Shares, each representing a 1/100th interest in a fully paid and non-assessable share of its Series A Preferred Stock and evidenced by Depositary Receipts, at the rate of one Depositary Share for each $50 principal amount of Securities (which rate is equivalent to one Depositary Share or 1/100th of a share of Series A Preferred Stock for each Preferred Security). Any accumulated and unpaid dividends on the Preferred Securities (including any Additional Dividends thereon) at the time of the Exchange Election shall from and after the time of such exchange be treated as accumulated and unpaid dividends on the Series A Preferred Stock issued in exchange for the Securities. The Person or Persons entitled to receive the Series A Preferred Stock issuable upon such exchange shall be treated for all purposes as the record holder or holders of such Series A Preferred Stock as of the exchange date. As promptly as practicable on or after the exchange date, the Company shall deliver at the office of the Conversion Agent the Depositary Receipt or Receipts representing the Series A Preferred Stock issuable upon such exchange. The Conversion Agent shall deliver such Depositary Receipt or Receipts to the Person or persons entitled to receive the same. (d) The Company will use its best efforts to have the Depositary Shares listed for trading on the New York Stock Exchange or such other securities exchange on which the Preferred Securities may be listed at the time of the Exchange Election. -95- ____________________ This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. BEST BUY CO., INC. By: /s/ Richard M. Schulze -------------------------------------- Richard M. Schulze Chairman and Chief Executive Officer BEST BUY CAPITAL, L.P. By: Best Buy Co., Inc., General Partner By: /s/ Richard M. Schulze -------------------------------------- Richard M. Schulze Chairman and Chief Executive Officer HARRIS TRUST AND SAVINGS BANK By: /s/ Judith M. Bartolini -------------------------------------- Judith M. Bartolini Vice President Attest: /s/ C. Patte --------------------------- -96- STATE OF Minnesota ) ss.: COUNTY OF Hennepin ) On the 3rd day of November, 1994, before me personally came Richard M. Schulze, to me known, who, being by me duly sworn, did depose and say that he is the Chairman and Chief Executive Officer of Best Buy Co., Inc., a corporation described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the Board of Directors of such corporation. [Notary Stamp] /s/ M. J. Rohr ------------------------------------- STATE OF Minnesota ) ss.: COUNTY OF Hennepin ) On the 3rd day of November, 1994, before me personally came Richard M. Schulze, to me known, who, being by me duly sworn, did depose and say that he is the Chairman and Chief Executive Officer of Best Buy Co., Inc., the General Partner of Best Buy Capital, L.P., a limited partnership described in and which, through the General Partner, executed the foregoing instrument; and that he signed his name thereto by authority of the Board of Directors of such General Partner. [Notary Stamp] /s/ M. J. Rohr ------------------------------------- -97- STATE OF Illinois ) ss.: COUNTY OF Cook ) On the 1st day of November, 1994, before me personally came Judith M. Bartolini, to me known, who, being by me duly sworn, did depose and say that she is a Vice President of Harris Trust and Savings Bank, a corporation described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the Board of Directors of such corporation. [Notary Stamp] /s/ T. Muzquiz ------------------------------------- STATE OF Illinois ) ss.: COUNTY OF Cook ) On the 1st day of November, 1994, before me personally came C. Potter, to me known, who, being by me duly sworn, did depose and say that she is a Vice President of Harris Trust and Savings Bank, one of the corporations described in and which executed the foregoing instrument; that she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that she signed her name thereto by like authority. [Notary Stamp] /s/ T. Muzquiz ------------------------------------- -98- EX-4.9 8 EXHIBIT 4.9 EXHIBIT 4.9 GUARANTEE AGREEMENT GUARANTEE AGREEMENT (this "Guarantee"), dated as of November 3, 1994, is executed and delivered by Best Buy Co., Inc., a corporation organized under the laws of the State of Minnesota ("Best Buy"), for the benefit of the Holders (as hereinafter defined) from time to time of the Preferred Securities (as hereinafter defined) of Best Buy Capital, L.P., a Delaware limited partnership ("Best Buy Capital" or the "Partnership"). WHEREAS, Best Buy Capital is issuing up to 4,600,000 of its 6 1/2% Convertible Monthly Income Preferred Securities, with a liquidation preference of $50 each (the "Preferred Securities"), and Best Buy desires to issue this Guarantee for the benefit of the Holders, as provided herein; WHEREAS, Best Buy Capital will purchase the Subordinated Debentures (as hereinafter defined) issued pursuant to the Indenture (as hereinafter defined) with substantially all of the proceeds from the issuance and sale of the Preferred Securities and its other partnership interests (the "Partnership Interests"); and WHEREAS, Best Buy desires hereby to unconditionally and irrevocably agree, to the extent set forth herein, to pay to the Holders the Guarantee Payments (as hereinafter defined) and to perform the other obligations set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase Best Buy hereby agrees shall benefit Best Buy, Best Buy executes and delivers this Guarantee for the benefit of the Holders. Article I DEFINITIONS As used in this Guarantee, the terms set forth below shall, unless the context otherwise requires, have the following meanings. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Amended and Restated Agreement of Limited Partnership of Best Buy Capital L.P., dated as of November 3, 1994 (the "Limited Partnership Agreement"). 1.1 "Additional Dividends" means Dividends that shall accumulate on any Dividend arrearages in respect of the Preferred Securities at the rate of 6 1/2% per annum compounded monthly. 1.2 "Best Buy Common Stock" shall mean the shares of common stock, par value $.10 per share, of Best Buy. 1.3 "Best Buy Preferred Stock" shall mean the Series A Cumulative Convertible Preferred Stock of Best Buy, liquidation preference $5,000 per share. 1.4 "Conversion Agent" shall mean Harris Trust and Savings Bank and its successors, acting as agent of the Holders in effecting the conversion of Preferred Securities into shares of Best Buy Common Stock or the exchange of Preferred Securities for Depositary Shares, in each case as and in the manner set forth in the Limited Partnership Agreement. 1.5 "Deposit Agreement" shall mean the Deposit Agreement, dated as of November 3, 1994, among Best Buy, the Depositary and the holders from time to time of the Depositary Receipts. 1.6 "Depositary" shall mean Harris Trust and Savings Bank and its successors and assigns. 1.7 "Depositary Receipt" shall mean one of the depositary receipts, issued by the Depositary under the Deposit Agreement, each representing any number of whole Depositary Shares. 1.8 "Depositary Share" shall mean one of the depositary shares, each representing a one one-hundredth (1/100th) interest in a share of Best Buy Preferred Stock deposited with the Depositary pursuant to the Deposit Agreement. 1.9 "Dividends" means the cumulative cash distributions from the Partnership with respect to the Interests represented by the Preferred Securities, accumulating from November 3, 1994 and payable monthly in arrears on the last day of each calendar month of the year, commencing November 30, 1994. 1.10 "General Partner" means Best Buy in its capacity as general partner in Best Buy Capital or any permitted successor general partner in Best Buy Capital admitted as such pursuant to the applicable provisions of the Limited Partnership Agreement. 1.11 "Guarantee Payments" shall mean the following payments, without duplication, to the extent not paid by Best Buy Capital: (a) any accumulated and unpaid Dividends (including any Additional Dividends accrued thereon) which have been theretofore declared on the Preferred Securities from funds legally available therefor; (b) the Redemption Price (including all accumulated and unpaid Dividends and distributions) payable with respect to Preferred Securities called for redemption by Best Buy Capital out of funds legally available therefor; and (c) upon a liquida- -2- tion of Best Buy Capital, the lesser of (i) the Liquidation Distribution and (ii) the amount of assets of Best Buy Capital available for distribution to Holders in liquidation of Best Buy Capital. 1.12 "Holder" shall mean any holder from time to time of any Preferred Securities of Best Buy Capital; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include Best Buy or any Subsidiary thereof, either directly or indirectly. 1.13 "Indenture" shall mean the Indenture, dated as of November 3, 1994, among Best Buy, Best Buy Capital and Harris Trust and Savings Bank, as trustee. 1.14 "Liquidation Distribution" shall mean the aggregate of the stated liquidation preference of $50 per Preferred Security and all accumulated and unpaid dividends and distributions (whether or not declared) to the date of payment, including any Additional Dividends accrued thereon. 1.15 "Redemption Price" shall have the meaning ascribed to such term in the Limited Partnership Agreement. 1.16 "Subordinated Debentures" shall mean the 6 1/2% Convertible Subordinated Debentures issued pursuant to the Indenture and sold by Best Buy to the Partnership in connection with the issuance and sale by the Partnership of the Preferred Securities. The Subordinated Debentures will evidence the loans to be made by the Partnership to Best Buy from time to time of the proceeds received by the Partnership from the issuance and sale of the Preferred Securities and substantially all of the Partnership Interests. 1.17 "Subsidiary" of any Person means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries, or by such Person and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. -3- Article II GUARANTEE 2.1 GENERAL. Best Buy irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments, as and when due (except to the extent paid by Best Buy Capital), regardless of any defense, right of set-off or counterclaim which Best Buy Capital may have or assert. This Guarantee is continuing, irrevocable, unconditional and absolute. Best Buy's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Best Buy to the Holders or by causing Best Buy Capital to pay such amounts to the Holders. 2.2 WAIVER OF CERTAIN RIGHTS. Best Buy hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 2.3 OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of Best Buy under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by Best Buy Capital of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by Best Buy Capital; (b) the extension of time for the payment by Best Buy Capital of all or any portion of the Dividends, distributions, Additional Dividends, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities; (c) any, failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of Best Buy Capital granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or -4- readjustment of debt of, or other similar proceedings affecting, Best Buy Capital or any of the assets of Best Buy Capital; (e) any invalidity of, or defect or deficiency in, any of the Preferred Securities; or (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred. There shall be no obligation of the Holders to give notice to, or obtain any consent of, Best Buy with respect to the happening of any of the foregoing. 2.4 HOLDERS MAY PROCEED DIRECTLY AGAINST BEST BUY. This Guarantee is a guarantee of payment and not of collection. A Holder may enforce this Guarantee directly against Best Buy, and Best Buy waives any right or remedy to require that any action be brought against Best Buy Capital or any other person or entity before proceeding against Best Buy. Subject to Section 2.5 hereof, all waivers herein contained shall be without prejudice to the Holders' right at the Holders' option to proceed against Best Buy Capital, whether by separate action or by joinder. Best Buy agrees that this Guarantee shall not be discharged except by payment of the Guarantee Payments in full. 2.5 SUBROGATION. Best Buy shall be subrogated to all (if any) rights of the Holders against Best Buy Capital in respect of any amounts paid to the Holders by Best Buy under this Guarantee and shall have the right to waive payment of any amount of dividends or distributions in respect of which payment has been made to the Holders by Best Buy pursuant to Section 2.1 hereof; PROVIDED, HOWEVER, that Best Buy shall not (except to the extent required by mandatory provisions of law) exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of a payment under this Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to Best Buy in violation of the preceding sentence, Best Buy agrees to pay over such amount to the Holders. 2.6 INDEPENDENT OBLIGATIONS. Best Buy acknowledges that its obligations hereunder are independent of the obligations of Best Buy Capital with respect to the Preferred Securities and that Best Buy shall be liable as principal and sole debtor under this Guarantee to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 2.3 hereof. -5- 2.7 TERMINATION. This Guarantee shall terminate and be of no further force and effect upon full payment of the Redemption Price of all Preferred Securities then outstanding, upon full payment of the amounts payable to the Holders upon liquidation of Best Buy Capital or upon the conversion or exchange (in the manner provided in the Limited Partnership Agreement) of all Preferred Securities into Best Buy Common Stock or Depositary Shares representing Best Buy Preferred Stock, as the case may be, and the distribution of such stock or Depositary Shares to the Holders of the Preferred Securities then outstanding; PROVIDED, HOWEVER, that this Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Guarantee for any reason whatsoever. Best Buy agrees to indemnify each Holder and hold it harmless from and against any loss it may suffer in such circumstances. Article III CERTAIN COVENANTS OF BEST BUY 3.1 DIVIDENDS AND OTHER PAYMENTS. So long as any Preferred Securities remain outstanding, neither Best Buy, nor any Subsidiary of Best Buy, shall declare or pay any dividend or distribution on, or redeem, purchase or otherwise acquire or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock) or make any Guarantee Payments with respect to the foregoing (other than payments under this Guarantee or dividends or Guarantee Payments to Best Buy by a Subsidiary of Best Buy), if at such time Best Buy has exercised its option to extend the interest payment period on the Subordinated Debentures and such extension is continuing, Best Buy shall be in default with respect to its payment or other obligations hereunder or there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Subordinated Debentures. Best Buy shall take all actions necessary to ensure the compliance of its Subsidiaries with this Section 3.1. 3.2 CERTAIN OTHER COVENANTS. Best Buy covenants that, so long as any Preferred Securities remain outstanding it shall: (a) maintain direct 100% ownership of the Partnership Interests and any other interests in Best Buy Capital other than the Preferred Securities (except as permitted in the Limited Partnership Agreement); (b) cause at least 21% of the total value of Best Buy Capital and at least 21% of all interest in the capital, income, gain, loss, deduction and credit of Best Buy -6- Capital to be held by Best Buy as General Partner; (c) not voluntarily dissolve, wind up or liquidate itself or Best Buy Capital; (d) remain the General Partner of Best Buy Capital and timely perform all of its duties as General Partner (including the duty to cause Best Buy Capital to declare and pay dividends on the Preferred Securities), unless a permitted successor General Partner is appointed pursuant to the Limited Partnership Agreement; and (e) subject to the terms of the Preferred Securities, use reasonable efforts to cause Best Buy Capital to remain a Delaware limited partnership and otherwise continue to be treated as a partnership for United States federal income tax purposes. Article IV SUBORDINATION 4.1 SUBORDINATION. Best Buy covenants and agrees, and each holder of Preferred Securities by his acceptance of such Preferred Securities shall be deemed to acknowledge and agree that for all purposes (including any bankruptcy, insolvency, or reorganization of Best Buy) this Guarantee constitutes an unsecured obligation of Best Buy ranking (i) subordinate and junior in right of payment to all liabilities of Best Buy, (ii) PARI PASSU with the most senior preferred shares now or hereafter issued by Best Buy and with any guarantee now or hereafter entered into by Best Buy in respect of any preferred or preference stock of any affiliate of Best Buy and (iii) senior to Best Buy Common Stock and any other class or series of capital stock issued by Best Buy or any of its affiliates which by its express terms ranks junior in the payment of dividends and amounts on liquidation, dissolution and winding-up to the Preferred Securities. Article V CONVERSION AND EXCHANGE OF PREFERRED SECURITIES 5.1 ISSUANCE OF BEST BUY COMMON STOCK. Best Buy hereby agrees that, upon the request of the Conversion Agent, on behalf of one or more Holders of Preferred Securities, to convert Subordinated Debentures into Best Buy Common Stock in accordance with the terms of the Limited Partnership Agreement, Best Buy shall deliver to the Conversion Agent certificates representing the full number of shares of Best Buy Common Stock issuable upon conversion of such Subordinated Debentures in accordance with the terms of the Indenture and such Subordinated Debentures. Best Buy has reserved and will keep available for issuance, solely for the purpose of effecting the conversion of the Subordinated Debentures, the full number of shares of Best Buy Common Stock -7- deliverable upon the conversion of all outstanding Preferred Securities not theretofore converted. 5.2 VALIDITY OF BEST BUY COMMON STOCK. All shares of Best Buy Common Stock delivered by Best Buy upon such conversion will be duly and validly issued and fully paid and nonassessable. 5.3 ISSUANCE OF BEST BUY PREFERRED STOCK AND DEPOSITARY SHARES. Best Buy hereby agrees that, upon the making of an Exchange Election by the Holders of a majority in outstanding liquidation preference of the Preferred Securities in accordance with the terms of the Limited Partnership Agreement, it will issue one one-hundredth (1/100th) of a share of Best Buy Preferred Stock in respect of each $50 principal amount of Subordinated Debentures then outstanding. Best Buy further agrees to deposit as soon as may be practicable after the Exchange Election the full number of shares of Best Buy Preferred Stock so issuable with the Depositary and to cause to be delivered to the Conversion Agent the Depositary Receipts representing Depositary Shares issued in respect of the deposited shares of Best Buy Preferred Stock. Best Buy shall reserve and keep available for issuance, solely for the purpose of effecting such exchange, the full number of shares of Best Buy Preferred Stock issuable upon exchange of all outstanding Preferred Securities. 5.4 VALIDITY OF BEST BUY PREFERRED STOCK AND DEPOSITARY SHARES. All shares of Best Buy Preferred Stock issued by Best Buy upon such exchange will be duly and validly issued and fully paid and nonassessable. Upon due issuance by the Depositary of Depositary Receipts evidencing the Depositary Shares against the deposit of shares of Best Buy Preferred Stock in accordance with the provisions of the Deposit Agreement, such Depositary Receipts will be duly and validly issued and will entitle the holders thereof to the rights specified in such Depositary Receipts and in the Deposit Agreement. 5.5 TERMINATION OF OBLIGATION TO ISSUE BEST BUY COMMON STOCK AND BEST BUY PREFERRED STOCK. Best Buy's obligations under this Article V to issue Best Buy Common Stock shall terminate upon the termination of the right of Holders of Preferred Securities to request the Conversion Agent to effect such conversion as set forth in the Limited Partnership Agreement and, with respect to a particular Holder, upon such conversion. Best Buy's obligations under this Article V to issue Best Buy Preferred Stock shall terminate upon the termination of the right of Holders of Preferred Securities to make an Exchange Election as set forth in the Limited Partnership Agreement and upon such exchange. -8- Article VI MISCELLANEOUS 6.1 THIRD PARTY BENEFICIARIES. All of Best Buy's obligations under this Guarantee shall be directly enforceable by the Holders from time to time of the Preferred Securities. Each Holder of Preferred Securities is an intended third-party beneficiary of this Guarantee. 6.2 SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of Best Buy and shall inure to the benefit of the Holders. Except as permitted by Section 6.4 hereof, Best Buy shall not assign its rights or delegate its obligations hereunder without the prior approval of the Holders of not less than 66-2/3% of the aggregate liquidation preference of all Preferred Securities then outstanding. 6.3 AMENDMENTS. This Guarantee may only be amended by an instrument in writing signed by Best Buy with the prior approval of the Holders of not less than 66-2/3% of the aggregate liquidation preference of all Preferred Securities then outstanding. 6.4 MERGER, CONSOLIDATION OR SALE OF ASSETS. Best Buy, without the consent of any Holders of Preferred Securities, may merge or consolidate with or into another entity or may permit another entity to merge or consolidate with or into Best Buy, and may sell, transfer or lease all or substantially all of Best Buy's assets to another entity, if (a) at such time no Event of Default (as defined in the Indenture) shall have occurred and be continuing, or would occur as a result of such merger, consolidation or sale, transfer or lease and (b) the successor is an entity organized under the laws of the United States or any state thereof, becomes the General Partner, assumes all of Best Buy's obligations under this Guarantee and has a net worth equal to at least 10% of the total capital contributions to Best Buy Capital. 6.5 NOTICES. Any notice, request or other communication required or permitted to be given hereunder to Best Buy shall be given in writing by delivering the same against receipt therefor by registered mail, hand delivery, facsimile transmission (confirmed by registered mail) or telex, addressed to Best Buy, as follows (and if so given, shall be deemed given when mailed; upon receipt of facsimile confirmation, if sent by facsimile transmission; or upon receipt of an answer-back, if sent by telex): -9- Best Buy Co., Inc. 7075 Flying Cloud Drive Eden Prairie, Minnesota 55344 Attention: Chief Financial Officer Telecopy: (612) 947-1141 Any notice, request or other communication required or permitted to be given hereunder to the Holders shall be given by Best Buy in the same manner as notices are sent by Best Buy Capital to the Holders. 6.6 GENDERS. The masculine and neuter genders used herein shall include the masculine, feminine and neuter genders. 6.7 GUARANTEE NOT SEPARATELY TRANSFERABLE. This Guarantee is solely for the benefit of the Holders and is not separately transferable from the Preferred Securities. 6.8 GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 6.9 SEVERABILITY. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.10 HEADINGS. The Article and section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, Best Buy has caused this Guarantee to be duly executed as of the day and year first above written. BEST BUY CO., INC. By: /s/ Richard M. Schulze -------------------------------------- Richard M. Schulze Chairman and Chief Executive Officer -10- EX-4.10 9 EXHIBIT 4.10 EXHIBIT 4.10 DEPOSIT AGREEMENT dated as of November 3, 1994 among BEST BUY CO., INC., a Minnesota corporation, HARRIS TRUST AND SAVINGS BANK, an Illinois corporation, AND THE HOLDERS FROM TIME TO TIME OF THE RECEIPTS DESCRIBED HEREIN. WHEREAS, it is desired to provide, as hereinafter set forth in this Deposit Agreement, for the deposit of shares of Series A Cumulative Convertible Preferred Stock, par value $1.00 per share (liquidation preference $5,000 per share), of BEST BUY CO., INC. with the Depositary (as defined herein) for the purposes set forth in this Deposit Agreement and for the issuance hereunder of Receipts (as defined herein) by the Depositary evidencing Depositary Shares (as defined herein) in respect of the Stock (as defined herein) so deposited; and WHEREAS, the Receipts are to be substantially in the form of EXHIBIT A hereto, with such appropriate insertions, modifications and omissions as provided in this Deposit Agreement; NOW, THEREFORE, in consideration of the premises contained herein and such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS The following definitions shall for all purposes, unless otherwise indicated, apply to the respective terms used in this Deposit Agreement and the Receipts (as defined herein): "Certificate" shall mean the Certificate of Designation of Best Buy Co., Inc. of Series A Cumulative Convertible Preferred Stock filed with the Secretary of State of the State of Minnesota establishing the Stock as a series of preferred stock of the Company, as it may be amended from time to time in accordance with its terms. "Common Stock" shall mean the Company's Common Stock, par value $.10 per share. "Company" shall mean Best Buy Co., Inc., a Minnesota corporation, and its successors. "Deposit Agreement" shall mean this Deposit Agreement as amended or supplemented from time to time in accordance with the terms hereof. "Depositary" shall mean Harris Trust and Savings Bank, an Illinois corporation, and any successor Depositary hereunder. "Depositary Shares" shall mean the Depositary Shares, each representing a one-one hundredth (1/100th) interest in a share of Stock and evidenced by a Receipt. "Depositary's Agent" shall mean an agent appointed by the Depositary pursuant to Section 7.05. "Depositary's Office" shall mean the principal office of the Depositary at which at any particular time its depositary business shall be administered. "Receipt" shall mean one of the depositary receipts, whether in definitive or temporary form, issued hereunder by the Depositary, each representing any number of whole Depositary Shares. "Record Holder" or "Holder" with respect to a Receipt shall mean the individual, entity or person in whose name a Receipt is registered on the books of the Depositary or any register of any Registrar maintained for such purpose at a given time. "Registrar" shall mean any bank or trust company appointed by the Depositary to register ownership and transfers of Receipts as herein provided (and may include the Depositary). "Stock" shall mean shares of the Company's Series A Cumulative Convertible Preferred Stock, par value $1.00 per share (liquidation preference $5,000.00 per share). -2- ARTICLE II FORM OF RECEIPTS, DEPOSIT OF STOCK, EXECUTION AND DELIVERY, TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS SECTION 2.01. FORM AND TRANSFER OF RECEIPTS. Definitive Receipts shall be engraved or printed or lithographed with steel-engraved borders and shall be substantially in the form set forth in EXHIBIT A hereto, with such appropriate insertions, modifications and omissions, as hereinafter provided. Pending the preparation of definitive Receipts, the Depositary, upon the written order of the Company delivered in compliance with Section 2.02, shall execute and deliver temporary Receipts, which shall be printed, lithographed, typewritten, mimeographed or otherwise substantially of the tenor of the definitive Receipts in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the persons executing such Receipts may determine, as evidenced by their execution of such Receipts. If temporary Receipts are issued, the Company and the Depositary will cause definitive Receipts to be prepared without unreasonable delay. After the preparation of definitive Receipts, the temporary Receipts shall be exchangeable for definitive Receipts upon surrender of the temporary Receipts at the Depositary's Office. Upon surrender for cancellation of any one or more temporary Receipts, the Depositary shall execute and deliver in exchange therefor definitive Receipts representing the same number of Depositary Shares as represented by the surrendered temporary Receipt or Receipts registered in the name (and only the name) of the Holder of the temporary Receipt. Such exchange shall be made at the Company's expense (and without any charge therefor to the Holder). Until so exchanged, the temporary Receipts shall in all respects be entitled to the same benefits under this Deposit Agreement, and with respect to the Stock, as definitive Receipts. Receipts shall be executed by the Depositary by the manual signature of one of its duly authorized officers; PROVIDED, that such signature may be a facsimile if a Registrar for the Receipts (other than the Depositary) shall have been appointed and such Receipts are countersigned by manual signature of a duly authorized officer of the Registrar. No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose unless it shall have been executed manually by a duly authorized officer of the Depositary or, if a Registrar for the Receipts (other than the Depositary) shall have been appointed, by facsimile signature of a duly authorized -3- officer of the Depositary and countersigned manually by a duly authorized officer of such Registrar. The Depositary shall record on its books each Receipt so signed and delivered as hereinafter provided. The manual or facsimile signatures of individuals who were at any time proper officers of the Depositary or the Registrar, as the case may be, shall constitute adequate signatures hereunder, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the delivery of Receipts bearing such signatures or did not hold such offices on the date of delivery of such Receipts. Receipts shall be in denominations of any number of whole Depositary Shares. Receipts may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Deposit Agreement as may be required by the Depositary and approved by the Company or required to comply with any applicable law or regulation or with the rules and regulations of any securities exchange upon which the Stock, the Depositary Shares or the Receipts may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Receipts are subject. Title to any Receipt (and to the Depositary Shares evidenced by such Receipt) that is properly endorsed, or accompanied by a properly executed instrument of transfer, shall be transferable by delivery of such Receipt with the same effect as if such receipt were a negotiable instrument; PROVIDED, HOWEVER, that until transfer of a Receipt shall be registered on the books of the Registrar, on behalf of the Depositary, as provided in Section 2.04, the Depositary may, notwithstanding any notice to the contrary, treat the Record Holder as the absolute owner thereof for the purpose of determining the person entitled to distributions of dividends or other distributions with respect to the Stock or to any notice provided for in this Deposit Agreement and for all other purposes. The Depositary shall not lend any Stock deposited hereunder. SECTION 2.02. DEPOSIT OF STOCK; EXECUTION AND DELIVERY OF RECEIPTS IN RESPECT THEREOF. Subject to the terms and conditions of this Deposit Agreement, the Company may from time to time deposit shares of Stock with the Depositary under this Deposit Agreement by delivery to the Depositary a certificate or certificates representing the -4- Stock to be deposited; PROVIDED, HOWEVER, that other than in the case of splits, combinations or other reclassifications affecting the Stock, or in the case of dividends or other distributions of Stock, if any, there shall be deposited with the Depositary hereunder not more than 46,000 shares of Stock. Such certificate or certificates representing the Stock shall be properly endorsed or accompanied, if required by the Depositary, by a duly executed instrument of transfer or endorsement, in form satisfactory to the Depositary, together with all such certifications as may be required by the Depositary in accordance with the provisions of this Deposit Agreement, and together with a written order of the Company directing the Depositary to execute and deliver to the person or persons named in such order a Receipt or Receipts evidencing in the aggregate the number of Depositary Shares representing such deposited Stock. All Stock deposited by the Company with the Depositary shall be held by the Depositary at the Depositary's Office or at such other place or places as the Depositary shall determine. If required by the Depositary, Stock presented for deposit at any time (except for the initial deposit of Stock and any subsequent deposit by the Company), whether or not the register of shareholders of the Company is closed, shall also be accompanied by an agreement or assignment, or other instrument satisfactory to the Depositary, that will provide for the prompt transfer to the Depositary or its nominee of any dividend or right to subscribe for additional Stock or to receive other property that any person in whose name the Stock is or has been registered may thereafter receive upon or in respect of such deposited Stock, or in lieu thereof such agreement of indemnity or other agreement as shall be satisfactory to the Depositary. Upon receipt by the Depositary of a certificate or certificates representing Stock deposited with the Depositary by the Company in accordance with the provisions of this Section 2.02, together with the other documents required as above specified, and upon recordation of the Stock so deposited on the books of the Company in the name of the Depositary, the Depositary shall execute and deliver, to the person or persons named in the written order delivered to the Depositary referred to in the first paragraph of this Section 2.02, a Receipt or Receipts evidencing in the aggregate the number of Depositary Shares relating to the Stock so deposited. Such Receipt or Receipts shall be registered by the Depositary or the Registrar in such name or names as may be requested by the person or persons named in the written order of the Company -5- delivered to the Depositary. The Depositary shall execute and deliver such Receipts at the Depositary's Office or such other offices, if any, as such person may designate. Delivery at other offices shall be at the risk and expense of the person requesting such delivery. In each case, delivery will be made only upon payment by the Company to the Depositary of all taxes and other governmental charges and any fees payable in connection with such deposit and the transfer of the deposited Stock. The Company shall deliver to the Depositary from time to time such quantities of blank Receipts as the Depositary may request to enable it to perform its obligations under this Deposit Agreement. SECTION 2.03. REDEMPTION OF STOCK. Whenever the Company shall elect to redeem shares of Stock in accordance with the Certificate, it shall (unless otherwise agreed in writing with the Depositary) give the Depositary in its capacity as Depositary not less than ten days' prior notice of the proposed date of the mailing of a notice of redemption of Stock to Holders of Receipts to be effected in connection with a redemption of Stock and of the number of such shares of Stock held by the Depositary to be redeemed as hereinafter provided. On the date of any such redemption of Stock, the Depositary shall redeem (using the proceeds received by the Depositary from the redemption of the Stock) the number of Depositary Shares representing such redeemed Stock. The Depositary shall, as directed by the Company, mail, first class postage prepaid, a notice of the redemption of Stock and the proposed simultaneous redemption of the Depositary Shares representing the Stock to be redeemed, not less than 30 and not more than 60 days prior to the date fixed for redemption (the "Redemption Date") of such Stock and Depositary Shares. Such notice shall be mailed to the Record Holders on the record date fixed for such redemption pursuant to Section 4.04 hereof of the Receipts evidencing the Depositary Shares to be so redeemed, at the addresses of such Holders as the same appear on the records of the Depositary; but neither failure to mail any such notice to one or more such Holders nor any defect in any notice shall affect the sufficiency of the proceedings for redemption. The Company shall provide the Depositary with such notice, and each such notice shall state: the record date for such redemption; the Redemption Date; that all outstanding Depositary Shares are to be redeemed or converted; the place or places where Receipts evidencing Depositary Shares to be redeemed are to be surrendered for redemption; and that dividends in respect of the Stock represented by the Depositary Shares to be redeemed will cease to accrue on such Redemption Date unless the Company -6- shall default in delivering the money or other property payable by the Company at the time and place specified in such notice. Notice having been mailed by the Depositary as aforesaid, from and after the Redemption Date (unless the Company shall have failed to redeem the shares of Stock to be redeemed by it as set forth in the Company's notice provided for in the preceding paragraph), all dividends in respect of the shares of Stock so called for redemption shall cease to accrue (except as otherwise provided in the Certificate), the Depositary Shares being redeemed shall be deemed no longer to be outstanding, all rights of the Holders of Receipts evidencing such Depositary Shares (except the right to receive the amounts payable upon redemption) shall, to the extent of such Depositary Shares, cease and terminate. Upon surrender in accordance with such notice of the Receipts evidencing any such Depositary Shares (properly endorsed or assigned for transfer, if the Depositary shall so require), the Holders of such Receipts shall receive for each such Depositary Share an amount of cash or other property equal to one-one hundredth (1/100th) of the redemption price per share payable with respect to the Stock redeemed. The foregoing shall be subject further to the terms and conditions of the Certificate. The Depositary shall not be required (a) to issue, transfer or exchange any Receipts for a period beginning at the close of business on the day the Company first publicly announces the redemption of Stock and ending at the close of business on the day the Depositary mails the notices of redemption of Depositary Shares or (b) to transfer or exchange for another Receipt any Receipt evidencing Depositary Shares called or being called for redemption. SECTION 2.04. REGISTRATION OF TRANSFER OF RECEIPTS. Subject to the terms and conditions of this Deposit Agreement, the Registrar, on behalf of the Depositary, shall register on its books transfers of Receipts from time to time upon notice to the Registrar by the Depositary of the surrender of a Receipt for transfer by the Holder in person or by duly authorized attorney, which Receipt in each case must be properly endorsed or accompanied by a properly executed instrument of transfer or endorsement together with evidence of the payment of any transfer taxes as may be required by law. Upon surrender of a properly endorsed Receipt or a Receipt accompanied by an instrument of transfer or endorsement, the Depositary shall execute a new Receipt or Receipts evidencing the same aggregate number of Depositary Shares as those evidenced by the Receipt or Receipts surrendered and deliver such new -7- Receipt or Receipts to or upon the order of the transferee named in the endorsement or instrument of transfer. SECTION 2.05. SPLIT-UPS AND COMBINATIONS OF RECEIPTS, SURRENDER OF RECEIPTS AND WITHDRAWAL OF STOCK. Upon surrender of a Receipt or Receipts at the Depositary's Office or at such other office as it may designate for the purpose of effecting a split-up or combination of such Receipt or Receipts, the Depositary will execute and deliver a new Receipt or Receipts to the Holder thereof or to such Holder's order in the denominations requested, evidencing the aggregate number of Depositary Shares evidenced by the Receipt or Receipts surrendered. Any Holder of at least 100 Depositary Shares which have not been previously called for redemption may withdraw the number of whole shares of Stock underlying such Depositary Shares and all money and other property, if any, represented thereby by surrendering such Receipt or Receipts at the Depositary's Office or at such other offices as the Depositary may designate for such withdrawals. Thereafter, without unreasonable delay, the Depositary shall deliver to such Holder, or to the person or persons designated by such Holder as hereinafter provided, the number of whole shares of Stock and all money and other property, if any, represented by the Receipt or Receipts so surrendered for withdrawal, but Holders of such whole shares of Stock will not thereafter be entitled to deposit such Stock hereunder or to receive Depositary Shares therefor. If the Receipt or Receipts delivered by the Holder to the Depositary in connection with such withdrawal shall evidence in the aggregate a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of Stock to be so withdrawn, the Depositary shall at the same time, in addition to such number of whole shares of Stock and such money and other property, if any, to be so withdrawn, deliver to such Holder, or (subject to Sections 2.04 and 3.02) upon his order, a new Receipt evidencing such excess number of Depositary Shares. Delivery of the Stock and the money and other property being withdrawn may be made by the delivery of such certificates, documents of title and other instruments as the Depositary may deem appropriate. If the Stock and the money and other property being withdrawn are to be delivered to a person or persons other than the Record Holder of the Receipt or Receipts being surrendered for withdrawal of Stock, such Holder shall execute and deliver to the Depositary a written order so directing the Depositary and the Depositary may require that the Receipt or Receipts surrendered by such Holder for withdrawal of such shares of Stock be properly endorsed in -8- blank or accompanied by a properly executed instrument of transfer in blank. Delivery of the Stock and the money and other property, if any, represented by Receipts surrendered for withdrawal shall be made by the Depositary at the Depositary's Office, except that, at the request, risk and expense of the Holder surrendering such Receipt or Receipts and for the account of the Holder thereof, such delivery may be made at such other place as may be designated by such Holder. SECTION 2.06. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER, SURRENDER AND EXCHANGE OF RECEIPTS. As a condition precedent to the execution and delivery, registration of transfer, split-up, combination, surrender or exchange of any Receipt, the Depositary, any of the Depositary's Agents or the Company may require payment to it of a sum sufficient for the payment (or, in the event that the Depositary or the Company shall have made such payment, the reimbursement to it) of any taxes, charges or expenses payable by the Holder of a Receipt pursuant to Sections 3.02 and 5.07, may require the production of evidence satisfactory to it as to the identity and genuineness of any signature and may also require compliance with the rules and regulations of any governmental body, any stock exchange or any applicable self-regulatory body, including, without limitation, the National Association of Securities Dealers, Inc. (the "NASD") or such procedures, if any, as the Depositary or the Company may establish consistent with the provisions of this Deposit Agreement. The delivery of Receipts against Stock deposited with the Depositary may be suspended, the registration of transfer of Receipts may be refused and the registration of transfer, surrender, exchange, split-up or combination of outstanding Receipts may be suspended and the deposit of Stock may be refused (i) during any period when the register of shareholders of the Company is closed or (ii) if any such action is deemed necessary by the Depositary, any of the Depositary's Agents or the Company at any time or from time to time because of any requirement of law or of any government, governmental body or commission, stock exchange or the NASD. SECTION 2.07. LOST RECEIPTS, ETC. If any mutilated Receipt is surrendered to the Depositary, the Depositary shall execute and deliver in exchange therefor a new Receipt of like form and tenor in exchange and substitution for such mutilated Receipt. In case any Receipt shall be destroyed, lost or stolen, the Depositary -9- shall execute and deliver a Receipt to the Holder thereof of like form and tenor in exchange and substitution for such destroyed or lost or stolen Receipt, upon (i) the filing by the Holder thereof with the Depositary of evidence satisfactory to the Depositary of such destruction or loss or theft of such Receipt, of the authenticity thereof and of such Holder's ownership thereof and (ii) the Holder's furnishing the Depositary with reasonable indemnification satisfactory to such Depositary and (iii) payment of any expenses including fees, charges and expenses of the Depositary in connection with such execution and delivery. Every new Receipt issued pursuant to this Section 2.07 in lieu of any mutilated, destroyed, lost or stolen Receipt shall constitute an original additional contractual obligation under this Deposit Agreement, whether or not the mutilated, destroyed, lost or stolen Receipt shall be at any time enforceable by anyone. SECTION 2.08. CANCELLATION AND DESTRUCTION OF SURRENDERED RECEIPTS. All Receipts surrendered to the Depositary or any Depositary's Agent shall be canceled by the Depositary. Except as prohibited by applicable law or regulation, the Depositary is authorized to destroy all Receipts so cancelled. SECTION 2.09. CONVERSION OF STOCK INTO COMMON STOCK. At any time when the Stock is convertible into Common Stock, Receipts may be surrendered with written instructions to the Depositary to instruct the Company to cause the conversion of any specified number of whole or fractional shares of Stock represented by the Depositary Shares evidenced thereby into whole shares of Common Stock at the conversion price then in effect for the Stock (and, therefore, for the Depositary Shares) specified in the Certificate, as such conversion price may be adjusted by the Company from time to time as provided in the Certificate. Subject to the terms and conditions of this Deposit Agreement and the Certificate, a Holder of a Receipt or Receipts evidencing Depositary Shares representing whole or fractional shares of Stock may surrender such Receipt or Receipts at the Depositary's Office or to such office or to such Depositary's Agents as the Depositary may designate for such purpose, together with a notice of conversion duly completed and executed, thereby directing the Depositary to instruct the Company to cause the conversion of the number of shares or fractions thereof of underlying Stock specified in such notice of conversion into shares of Common Stock, and an assignment of such Receipt or Receipts to the Company or in blank, duly completed and executed. If more than one Receipt shall be delivered for conversion at one time by the same Holder, the number of whole shares of Common Stock -10- issuable upon conversion thereof shall be computed on the basis of the aggregate number of Receipts so delivered. Upon receipt by the Depositary of a Receipt or Receipts, together with notice of conversion, duly completed and executed, directing the Depositary to instruct the Company to cause the conversion of a specified number of shares or fractions thereof of Stock and an assignment of such Receipt or Receipts to the Company or in blank, duly completed and executed, if the Stock is at such time convertible into Common Stock, the Depositary shall instruct the Company to cause (i) the conversion of the Depositary Shares evidenced by the Receipts so surrendered for conversion as specified in the written notice to the Depositary and (ii) the delivery to the Holders of such Receipts of a certificate or certificates evidencing the number of whole shares of Common Stock and the amount of money, if any, to be delivered to the Holders of Receipts surrendered for conversion in lieu of fractional shares of Common Stock otherwise issuable. The Company shall as promptly as practicable after receipt thereof cause the delivery of (i) a certificate or certificates evidencing the number of whole shares of Common Stock into which the Stock represented by the Depositary Shares evidenced by such Receipt or Receipts has been converted, and (ii) any money or other property to which the Holder is entitled. Upon such conversion the Depositary shall (i) deliver to the Holder a Receipt evidencing the number of Depositary Shares, if any, which such Holder has elected not to convert and evidencing the number of Depositary Shares, if any, in excess of the number of Depositary Shares representing Stock which has been so converted, (ii) cancel the Depositary Shares evidenced by Receipts surrendered for conversion and (iii) deliver to the Company or its transfer agent for the Stock for cancellation, the shares of Stock represented by the Depositary Shares evidenced by the Receipts so surrendered and so converted. The Record Holder of Depositary Shares on any dividend payment record date established by the Depositary pursuant to Section 4.04 shall be entitled to receive the dividend payable with respect to such Depositary Shares on the corresponding dividend payment date notwithstanding the subsequent conversion of the shares of Stock to which such Depositary Shares relate. Upon the conversion of any shares of Stock for which a request for conversion has been made by the Holder of Depositary Shares representing such shares, all dividends in respect of such Depositary Shares shall cease to accrue, such Depositary Shares shall be deemed no longer -11- outstanding, all rights of the Holders of the Receipts with respect to such Depositary Shares (except the right to receive the Common Stock, any cash payable with respect to any fractional shares of Common Stock as provided herein and any cash payable on account of accrued dividends and any Receipts evidencing Depositary Shares not so converted) shall terminate, and the Receipts evidencing such Depositary Shares shall be cancelled in accordance with Section 2.08 hereof. No fractional shares of Common Stock shall be issuable upon conversion of Stock underlying the Depositary Shares. If any Holder of Receipts surrendered with instructions to the Depositary for conversion of the underlying Stock would be entitled to a fractional share of Common Stock upon such conversion, the Company shall cause to be delivered to such Holder an amount in cash for such fractional share as provided in the Certificate. ARTICLE III CERTAIN OBLIGATIONS OF THE HOLDERS OF RECEIPTS AND THE COMPANY SECTION 3.01. FILING PROOFS, CERTIFICATES AND OTHER INFORMATION. Except for the initial deposit of Stock by the Company and any subsequent deposit by the Company, any person presenting Stock for deposit or any Holder of a Receipt may be required from time to time to file such proof of residence, or other matters or other information, to obtain such guaranties of signature, to execute such certificates and to make such customary representations and warranties consistent with the terms of the Stock as the Depositary or the Company may reasonably deem necessary or proper. The Depositary or the Company may withhold the delivery, or delay the registration of transfer, conversion, redemption or exchange, of any Receipt or the distribution of any dividend or other distribution or the sale of any rights or of the proceeds thereof until such proof or other information is filed or such certificates are executed or such representations and warranties are made. SECTION 3.02. PAYMENT OF TAXES OR OTHER GOVERNMENTAL CHARGES. Holders of Receipts shall be obligated to make payments to the Depositary of certain charges and expenses as provided in Section 5.07. Registration of transfer of any Receipt and delivery of all money or other property, if any, represented by the Depositary Shares evidenced by such Receipt may be refused until any such payment due is made, and any dividends, -12- interest payments or other distributions may be withheld or all or any part of the Stock or other property represented by the Depositary Shares evidenced by such Receipt and not theretofore sold may be sold for the account of the Holder thereof (after attempting by reasonable means to notify such Holder prior to such sale), and such dividends, interest payments or other distributions or the proceeds of any such sale may be applied to any payment of such charges or expenses, the Holder of such Receipt remaining liable for any deficiency. SECTION 3.03. WARRANTY AS TO STOCK. The Company hereby represents and warrants to the Depositary that the Stock, when issued, will be validly issued, fully paid and nonassessable. Such representation and warranty shall survive the deposit of the Stock and the issuance of Receipts. SECTION 3.04. COVENANTS AND WARRANTIES AS TO COMMON STOCK. The Company covenants that it will keep reserved or otherwise available a sufficient number of authorized and unissued shares of Common Stock to meet conversion requirements in respect of the Stock and that it will give written notice to the Depositary of any adjustments in the conversion price as set forth in the Certificate. The Company represents and warrants that the Common Stock issued upon conversion, when issued, will be validly issued, fully paid and nonassessable. Such representation and warranty shall survive the conversion of the Stock into such Common Stock. ARTICLE IV THE DEPOSITED SECURITIES; NOTICES SECTION 4.01. CASH DISTRIBUTIONS. Whenever the Depositary shall receive any cash dividend or other cash distribution with respect to the Stock, the Depositary shall, subject to Section 3.02, distribute to Record Holders of Receipts on the record date fixed pursuant to Section 4.04 such amounts of such dividend or distribution as are applicable to the number of Depositary Shares evidenced by the Receipts held by such Holders; PROVIDED, HOWEVER, that if the Company or the Depositary shall be required to withhold and shall withhold any monies from any cash dividend or other cash distribution in respect of the Stock on account of taxes or as otherwise required by law, regulation or court order, the distribution in respect of Depositary Shares shall be reduced accordingly. The Depositary shall distribute or make available for -13- distribution, as the case may be, only such amount, however, as can be distributed without attributing to any Holder of Depositary Shares a fraction of one cent, and any balance not so distributable shall be held by the Depositary (without liability for interest thereon) and shall be added to and be treated as part of the next succeeding distribution to Record Holders of Receipts then outstanding. SECTION 4.02. DISTRIBUTIONS OTHER THAN CASH. Whenever the Depositary shall receive any property (including securities) for distribution in a form other than cash with respect to the Stock, the Depositary shall, subject to Section 3.02, distribute to Record Holders of Receipts on the record date fixed pursuant to Section 4.04 such amounts, as nearly as practicable, of such property (including securities) received by it as are applicable to the number of Depositary Shares evidenced by the Receipts held by such Holders, in any manner that the Depositary may deem equitable and practicable for accomplishing such distribution. If, in the opinion of the Depositary, such distribution cannot be made proportionately among such Record Holders, or if for any other reason (including any requirement that the Company or that Depositary withhold an amount on account of taxes or as otherwise required by law, regulation or court order) the Depositary deems, after consultation with the Company, such distribution not to be feasible, the Depositary may, with the approval of the Company, adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including the sale of the property thus received, or any part thereof, in a commercially reasonable manner. The net proceeds of any such sale shall, subject to Section 3.02, be distributed or made available for distribution, as the case may be, by the Depositary to Record Holders of Receipts in accordance with the provisions of Section 4.01 for a distribution received in cash. SECTION 4.03. SUBSCRIPTION RIGHTS, PREFERENCES OR PRIVILEGES. If the Company shall at any time offer or cause to be offered to the persons in whose names Stock is recorded on the books of the Company any rights, preferences or privileges to subscribe for or to purchase any securities or any rights, preferences or privileges of any other nature, such rights, preferences or privileges shall in each such instance be made available by the Depositary to the Record Holders of Receipts in such manner as the Depositary may determine, either by the issue to such Record Holders of warrants representing such rights, preferences or privileges or by such other method as may be approved by the Depositary in its discretion with the approval of the Company; PROVIDED, HOWEVER, that (i) if at the time of issue or offer -14- of any such rights, preferences or privileges the Depositary determines that it is not lawful or (after consultation with the Company) not feasible to make such rights, preferences or privileges available to Holders of Receipts by the issue of warrants or otherwise, or (ii) if and to the extent so instructed by Holders of Receipts who do not desire to exercise such rights, preferences or privileges, then the Depositary, in its discretion (with the approval of the Company, in any case where the Depositary has determined that it is not feasible to make such rights, preferences or privileges available), may, if applicable laws or the terms of such rights, preferences or privileges permit such transfer, sell such rights, preferences or privileges at public or private sale, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sales shall be distributed by the Depositary to the Record Holders of Receipts entitled thereto as provided by Section 4.01 in the case of a distribution received in cash. If any action under the laws of any jurisdiction or any governmental or administrative authorization, consent or permit is required in order for such rights, preferences or privileges to be made available to Holders of Receipts, the Company agrees with the Depositary that the Company will use its best efforts to take such action or obtain such authorization, consent or permit sufficiently in advance of the expiration of such rights, preferences or privileges to enable such Holders to exercise such rights, preferences or privileges. SECTION 4.04. NOTICE OF DIVIDENDS, ETC.; FIXING OF RECORD DATE FOR HOLDERS OF RECEIPTS. Whenever any cash dividend or other cash distribution shall become payable or any distribution of property (including securities) other than cash shall be made, or if rights, preferences or privileges shall at any time be offered with respect to Stock, or whenever the Depositary shall receive notice of (i) any meeting at which holders of Stock are entitled to vote or of which holders of Stock are entitled to notice or (ii) any election on the part of the Company to redeem any shares of stock, the Depositary, in each such instance, shall fix a record date (which shall be the same date as the record date fixed by the Company with respect to the Stock) for the determination of the Holders of Receipts who shall be entitled hereunder to receive a distribution in respect of such dividend, distribution, rights, preferences or privileges or the net proceeds of the sale thereof, or to give instructions for the exercise of voting rights at any such meeting, or to receive notice of such meeting. -15- SECTION 4.05. VOTING RIGHTS. Upon receipt of notice of any meeting at which the holders of Stock are entitled to vote, the Depositary shall, as soon as practicable thereafter, mail to the Record Holders of Receipts a notice which shall be provided by the Company and which shall contain (i) such information as is contained in such notice of meeting and (ii) a statement that the Record Holders at the close of business on the specified record date fixed pursuant to Section 4.04 will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Stock (or portion thereof) underlying their respective Depositary Shares and (iii) a brief statement to the manner in which such instructions may be given. Upon the written request of the Holders of Receipts on the applicable record date, the Depositary shall endeavor, insofar as practicable, to vote or cause to be voted, in accordance with the instructions set forth in such requests, the votes relating to the shares of Stock (or portion thereof) underlying the Depositary Shares evidenced by all Receipts as to which any particular voting instructions are received. The Company hereby agrees to take all necessary action in order to enable the Depositary to vote such Stock (or portion thereof) or cause such Stock (or portion thereof) to be voted. Absent specific instructions from the Holder of a Receipt, the Depositary will abstain from voting (but, at its discretion, not from appearing at any meeting with respect to such Stock unless directed to the contrary by the Holders of all the Receipts then outstanding) to the extent of the Stock (or portion thereof) underlying the Depositary Shares evidenced by such Receipt. SECTION 4.06. CHANGES AFFECTING DEPOSITED SECURITIES AND RECLASSIFICATIONS, RECAPITALIZATIONS, ETC. Upon any change in par or stated value, split-up, combination or any other reclassification of the Stock, or upon any recapitalization, reorganization, merger, amalgamation or consolidation to which the Company is a party or sale of all or substantially all of the Company's assets (each of the foregoing being referred to herein as a "Transaction"), the Depositary may with the approval of, and shall upon the instructions of, the Company, and (in either case) in such manner as to retain as nearly as possible the percentage ownership interest in Stock of Holders of Receipts immediately prior to such event, (i) make such adjustments in (a) the fraction of an interest in one share of Stock underlying one Depositary Share, (b) the ratio of the redemption price per Depositary Share to the redemption price of a share of Stock and (c) the ratio of the conversion price per Depositary Share to the conversion price of a share of Stock, in each case as may be necessary -16- to reflect fully the effects of such Transaction, and (ii) treat any securities received by the Depositary in exchange for, or upon conversion or in respect of, the Stock as new deposited securities so received in exchange for, or upon conversion or in respect of, the Stock. In any such case the Depositary may, with the approval of the Company, execute and deliver additional Receipts, or may call for surrender of all outstanding Receipts to be exchanged for new Receipts specifically describing such new deposited securities. Anything to the contrary herein or in the Receipt notwithstanding, Holders of Receipts shall have the right from and after the effective date of any such Transaction, to the extent that Holders of Stock had the right, prior to or on the applicable effective date, to convert, exchange or surrender shares of Stock into or for other stock, securities, property or cash, to surrender such Receipts to the Depositary with instructions to convert, exchange or surrender the Stock represented thereby only into or for, as the case may be, the kind and amount of shares of stock and other securities and property and cash into which such Stock represented by such Receipts has been converted or for which such Stock might have been exchanged or surrendered immediately prior to the effective date of such Transaction. SECTION 4.07. INSPECTION OF REPORTS. The Depositary shall make available for inspection by Holders of Receipts during normal business hours at the Depositary's office, and at such other places as it may from time to time deem advisable, any reports and communications received from the Company that are both received by the Depositary as the holder of Stock and made generally available to the holders of Stock. SECTION 4.08. LIST OF RECEIPT HOLDERS. Promptly upon request by, and at the expense of, the Company, the Depositary shall furnish to it a list, as of a specified date, of the names and addresses of all persons in whose names Receipts are registered on the books of the Depositary, and the amount of Stock represented thereby. -17- ARTICLE V THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR AND THE COMPANY SECTION 5.01. MAINTENANCE OF OFFICES, AGENCIES AND TRANSFER BOOKS BY THE DEPOSITARY; REGISTRAR. Upon execution of this Deposit Agreement, the Depositary shall maintain, at the Depositary's Office, facilities for the execution and delivery, registration and registration of transfer, surrender and exchange of Receipts, and at the offices of the Depositary's Agents, if any, facilities for the delivery, registration of transfer, surrender and exchange of Receipts, all in accordance with the provisions of this Deposit Agreement. The Depositary shall, with the approval of the Company, appoint a Registrar for registration of such Receipts or Depositary Shares in accordance with any requirements of any applicable stock exchange in which the Receipts or the Depositary Shares are listed. Such Registrar (which may be the Depositary if so permitted by the requirements of such exchange) may be removed and a substitute Registrar appointed by the Depositary upon the request or with the approval of the Company. If the Receipts, the Depositary Shares or the Stock are listed on one or more other stock exchanges, the Depositary will, at the request of the Company, arrange such facilities for the delivery, registration, registration of transfer, surrender and exchange of such Receipts, such Depositary Shares or such Stock as may be required by law or applicable stock exchange regulation. The Registrar shall maintain books at the Depositary's Office for the registration and registration of transfer of Receipts or at such other place as shall be approved by the Company and of which the Holders of Receipts shall have reasonable notice, which books at all reasonable times during normal business hour shall be open for inspection by the Record Holders of Receipts; PROVIDED, that any such Holder requesting to exercise such rights shall certify in writing to the Registrar that such inspection shall be for a proper purpose reasonably related to such person's interest as an owner of Depositary Shares evidenced by the Receipts. The Depositary may cause the Registrar to close the books with respect to the Receipts, at any time or from time to time, when the register of shareholders of the Company is closed with respect to the Stock or when such action is deemed necessary or advisable by the Depositary, -18- any Depositary's Agent or the Company because of any requirement of law or of any government, governmental body or commission, stock exchange or any applicable self-regulatory body, including, without limitation, the NASD. SECTION 5.02. PREVENTION OF OR DELAY IN PERFORMANCE BY THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR OR THE COMPANY. Neither the Depositary nor any Depositary's Agent nor any Registrar nor the Company, nor any officers, directors, employees or agents thereof, shall incur any liability to any Holder of any Receipt if by reason of any provision of any present or future law, or regulation thereunder, of the United States of America or of any other governmental authority or by reason of any provision, present or future, of the Company's Amended and Restated Articles of Incorporation (including the Certificate) or by reason of any act of God, war or civil disorder, failure of power, fire or other casualty damage or governmental requirements or restrictions, the Depositary, the Depositary's Agent, the Registrar or the Company shall be prevented, delayed or forbidden from doing or performing any act or thing that the terms of this Deposit Agreement provide shall be done or performed; nor shall the Depositary, any Depositary's Agent, any Registrar or the Company, nor any officers, directors, employees or agents thereof, incur any liability or be subject to any obligation (i) by reason of any nonperformance or delay, caused as aforesaid, in the performance of any act or thing that the terms of this Deposit Agreement provide shall or may be done or performed, or (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement, except in the event of the negligence or misconduct of the party charged with such exercise or failure to exercise. SECTION 5.03. OBLIGATIONS OF THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR AND THE COMPANY. Neither the Depositary nor any Depositary's Agent nor any Registrar nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of the Stock, the Depositary Shares or the Receipts that in its opinion may involve it in expense or liability unless indemnity satisfactory to such party against all such expense and liability be furnished as required. Neither the Depositary nor any Depositary's Agent nor the Company, nor any officer, director, employee or agent thereof, assumes any obligation or shall be subject to any liability under this Deposit Agreement to Holders of Receipts other than to use its best judgment and good faith -19- in the performance of such duties as are specifically set forth in this Deposit Agreement. Neither the Depositary nor any Depositary's Agent nor any Registrar nor the Company, nor any officer, director, employee or agent thereof, shall be liable to any party hereto for any action or any failure to act by it with respect to this Deposit Agreement in reliance upon the written advice of legal counsel or accountants, or information from any person presenting stock for deposit, any Holder of a Receipt or other persons believed to be authorized or competent and on documents believed to be genuine. The Depositary, any Depositary's Agent, any Registrar and the Company, and any officer, director, employee or agent thereof, may each rely and shall each be protected in acting upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Depositary undertakes, and shall cause any Registrar to undertake, to perform such duties as are specifically set forth in this Deposit Agreement using its best efforts and in good faith. The parties hereto acknowledge that no implied covenants or obligations shall be read into this Deposit Agreement against the Depositary or any Registrar or against the Company with respect to the Depositary and any Registrar. The Depositary hereby indemnifies the Company against any liability that may arise out of acts performed or omitted by the Depositary or any Depositary's Agent due to its or their negligence or bad faith. The Depositary and its affiliates or subsidiaries, any Depositary's Agent and the Company (to the extent permitted by law) may own, buy, sell or deal in any class of securities of the Company and its affiliates and in Receipts or Depositary Shares. The Depositary and its affiliates or subsidiaries, and any Depositary's Agent may become pecuniarily interested in any transaction in which the Company or its affiliates or subsidiaries may be interested or contract with or lend money to the Company or its affiliates or subsidiaries or otherwise act as fully or as freely as if it were not the Depositary or the Depositary's Agent hereunder. The Depositary may also act as transfer agent or registrar of any of the securities of the Company and its affiliates or subsidiaries or act in any other capacity for the Company or its affiliates or subsidiaries. Neither the Depositary (or its officers, directors, employees or agents) nor any Depositary's Agent makes any representation or has any responsibility as to the validity of the Registration Statement pursuant to which the Depositary Shares are registered under the Securities Act of -20- 1933, as amended, the Stock, the Depositary Shares, the Receipts (except its signature thereon) or any instruments referred to therein or herein, or as to the correctness of any statement made therein except the number of Depositary Shares represented by such Receipts. The Depositary assumes no responsibility for the correctness of the description that appears in the Receipts, which can be taken as a statement of the Company summarizing certain provisions of this Deposit Agreement. Notwithstanding any other provision herein or in the Receipts, the Depositary makes no warranties or representations as to the validity, genuineness or sufficiency of any Stock at any time deposited with the Depositary hereunder or of the Depositary Shares or as to the value of the Depositary Shares. The Depositary shall not be accountable for the use or application by the Company of the Depositary Shares or the Receipts or the proceeds thereof. SECTION 5.04. RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF SUCCESSOR DEPOSITARY. The Depositary may at any time resign as Depositary hereunder by written notice of its election so to resign delivered to the Company, such resignation to take effect upon the appointment of a successor Depositary and its acceptance of such appointment as hereinafter provided. The Depositary may at any time be removed by the Company by notice of such removal delivered to the Depositary, such removal to take effect upon the appointment of a successor Depositary and its acceptance of such appointment as hereinafter provided. If the Depositary acting hereunder shall at any time resign or be removed, the Company shall, within sixty (60) days after the delivery of the notice of resignation or removal, as the case may be, appoint a successor Depositary, which shall be a bank or trust company having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000. Every successor Depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder and agreeing to become a party to this Deposit Agreement, and thereupon such successor Depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor and for all purposes shall be the Depositary under this Deposit Agreement, and such predecessor, upon payment of all sums due it and on the written request of the Company, shall execute and deliver an instrument transferring to such -21- successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and deliver all right, title and interest in the Stock and any monies or property held hereunder to such successor and shall deliver to such successor a list of the Record Holders of all outstanding Receipts. Any successor Depositary shall promptly mail notice of its appointment to the Record Holders of Receipts. Any corporation or other entity into or with which the Depositary may be merged, consolidated or converted, or to which the Depositary may sell all or substantially all its assets, shall be the successor of such Depositary without the execution or filing of any document or any further act. Such successor Depositary may authenticate the Receipts in the name of the predecessor Depositary or in the name of the successor Depositary. SECTION 5.05. CORPORATE NOTICES AND REPORTS. The Company agrees that it will deliver to the Depositary and the Depositary will, promptly after receipt thereof, transmit to the Record Holders of Receipts, in each case at the address furnished to it pursuant to Section 4.08, all notices and reports (including, without limitation, financial statements) required by law, the rules of any national securities exchange upon which the Stock, the Depositary Shares or the Receipts are listed or by the Company's Amended and Restated Articles of Incorporation (including the Certificate) or By-laws to be furnished by the Company to Holders of Stock. Such transmission will be at the Company's expense and the Company will provide the Depositary with such number of copies of such documents as the Depositary may reasonably request. In addition, the Depositary will transmit to Record Holders of Receipts at the Company's expense such other documents as may be requested by the Company. SECTION 5.06. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify the Depositary, any Depositary's Agent and any Registrar against, and hold each of them harmless from, any loss, liability or expense (including the reasonable costs and expenses of defending itself) that may arise out of (i) acts performed or omitted in connection with this Deposit Agreement and the Receipts (a) by the Depositary, any Registrar or any of their respective agents (including any Depositary's Agent) except for any liability arising out of gross negligence or willful misconduct on the respective parts of any such person or persons, or (b) by the Company or any of its agents, or (ii) the offer, sale or registration of the Depositary Shares, Receipts or the Stock -22- pursuant to the provisions hereof. This indemnification does not extend in favor of Holders of Receipts. SECTION 5.07. CHARGES AND EXPENSES. The Company shall pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. The Company shall pay all charges of the Depositary in connection with the initial deposit of the Stock and the initial issuance of the Depositary Shares, any redemption of the Stock and the issuance of shares of Common Stock upon the surrender of Receipts for conversion. All other transfer and other taxes and governmental charges shall be at the expense of Holders of Depositary Shares. If, at the request of a Holder of Receipts, the Depositary incurs charges or expenses for which it is not otherwise liable hereunder, such Holder will be liable for such charges and expenses. All other charges and expenses of the Depositary and any Depositary's Agent hereunder and of any Registrar (including, in each case, reasonable fees and expenses of counsel) incident to the performance of their respective obligations hereunder will be payable by the Company only after prior consultation and agreement between the Depositary and the Company and consent by the Company to the incurrence of such expenses, which consent shall not be unreasonably withheld. The Depositary shall present any statement for charges and expenses to the Company promptly, unless the Company shall agree otherwise. ARTICLE VI AMENDMENT AND TERMINATION SECTION 6.01. AMENDMENT. The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect which they may deem necessary or desirable; PROVIDED, HOWEVER, that no such amendment that shall materially and adversely alter the rights of the Holders of Receipts shall be effective unless such amendment shall have been approved by the Holders of at least 66-2/3% of the Depositary Shares then outstanding. Every Holder of an outstanding Receipt at the time any amendment becomes effective shall be deemed, by continuing to hold such Receipt, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right, subject to the provisions of Sections 2.05, 2.06 and 2.09 hereof, of any owner of any Depositary Shares to surrender any Receipt evidencing such Depositary Shares to the Depositary with instructions to cause the conversion of -23- such Receipt into Common Stock or to deliver to the Holder the Stock, all money and other property, if any, represented thereby, except in order to comply with mandatory provisions of applicable law or the rules and regulations of any governmental body, agency or commission, the NASD or any applicable stock exchange. SECTION 6.02. TERMINATION. This Agreement may be terminated by the Company or the Depositary only after (i) all outstanding Depositary Shares shall have been redeemed pursuant to Section 2.03, (ii) there shall have been made a final distribution in respect of the Stock in connection with any liquidation, dissolution or winding up of the Company and such distribution shall have been distributed to the Holders of Depositary Shares pursuant to Section 4.01 or 4.02, as applicable, or (iii) each share of Stock shall been converted into shares of Common Stock. Upon the termination of this Deposit Agreement, the parties hereto shall be discharged from all obligations under this Deposit Agreement except for their respective obligations under Sections 5.03, 5.06 and 5.07. ARTICLE VII MISCELLANEOUS SECTION 7.01. COUNTERPARTS. This Deposit Agreement may be executed in any number of counterparts, and by each of the parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed an original, but all of which counterparts when taken together shall constitute one and the same instrument. SECTION 7.02. EXCLUSIVE BENEFIT OF PARTIES. This Deposit Agreement is for the exclusive benefit of the parties hereto, and their respective successors hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. SECTION 7.03. INVALIDITY OF PROVISIONS. If any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or modified thereby. SECTION 7.04. NOTICES. All notices hereunder shall be deemed given by a party hereto if in writing and -24- delivered personally or by telegram or facsimile transmission or by registered or certified mail (return receipt requested) to the other party at the following address for such party (or at such other address as shall be specified by like notice): If to the Company to: 7075 Flying Cloud Drive Eden Prairie, Minnesota 55344 Telecopy: (612) 947-2706 Attention: Chief Financial Officer If to the Depositary to: 311 West Monroe, 12th Floor Chicago, Illinois 60606 Telecopy: Attention: Any notices given to any Holder of a Receipt hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if (i) personally delivered, (ii) sent by first-class mail, or (iii) sent by telegram, telex, telecopier or facsimile transmission and confirmed by first-class letter. Such notice shall be addressed to such Holder at the address of such Holder as it appears on the books of the Depositary or, if such Holder shall have timely filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address designated in such request. Delivery of a notice sent by first class mail, or by telegram or telex or telecopier or facsimile shall be deemed to be effected at the time when a duly addressed letter containing the same (or a duly addressed letter confirming an earlier notice in the case of a telegram or telex or telecopier or facsimile) is deposited, postage prepaid, in a post office letter box. The Depositary or the Company may, however, act upon any telegram or telex or telecopier message received by it from the other or from any Holder of a Receipt, notwithstanding that such telegram or telex or telecopier message shall not subsequently be confirmed by letter as aforesaid. SECTION 7.05. DEPOSITARY'S AGENTS. The Depositary may from time to time appoint any Depositary's Agent to act in any respect for the Depositary for the purposes of this Deposit Agreement and may at any time appoint additional Depositary's Agents and vary or terminate -25- the appointment of such Depositary's Agents. The Depositary will promptly notify the Company of any such action. SECTION 7.06. HOLDERS OF RECEIPTS ARE PARTIES. By acceptance of delivery of the Receipts, any Holder of such Receipt from time to time shall be deemed to have agreed to become a party to this Deposit Agreement and to be bound by all of the terms and conditions hereof and of the Receipts to the same extent as though such person executed this Agreement. SECTION 7.07. GOVERNING LAW. THIS DEPOSIT AGREEMENT AND THE RECEIPTS AND ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO APPLICABLE CONFLICTS OF LAW PROVISIONS). SECTION 7.08. INSPECTION OF DEPOSIT AGREEMENT. Copies of the Deposit Agreement shall be filed with the Depositary and the Depositary's Agents and shall be open to inspection during business hours at the Depositary's Office and the respective offices of the Depositary's Agents, if any, by any Holder of a Receipt. SECTION 7.09. HEADINGS. The headings of articles and sections in this Deposit Agreement and in the form of the Receipt set forth in EXHIBIT A hereto have been inserted for convenience only and are not to be regarded as a part of this Deposit Agreement or the Receipts or to have any bearing upon the meaning or interpretation of any provision contained herein or in the Receipts. -26- IN WITNESS WHEREOF, the Company and the Depositary have caused their duly authorized officers to execute and deliver this Deposit Agreement as of the day and year first above set forth, and all Holders of Receipts shall become parties hereto by and upon acceptance by them of delivery of Receipts issued in accordance with the terms hereof. BEST BUY CO., INC. By: /s/ Richard M. Schulze ------------------------------ Richard M. Schulze Chairman and Chief Executive Officer HARRIS TRUST AND SAVINGS BANK By: /s/ Judith M. Bartolini -------------------------------- Authorized Officer -27- EXHIBIT A DEPOSITARY RECEIPT FOR DEPOSITARY SHARES EACH REPRESENTING AN INTEREST IN ONE-ONE HUNDREDTH (1/100th) OF A SHARE OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK (Par Value $1.00 Per Share) OF BEST BUY CO., INC. (Incorporated under the Laws of the State of Minnesota) -------------------------------- Harris Trust and Savings Bank, a corporation duly organized and existing under the laws of the State of Illinois, with an office at the time of the execution of the Deposit Agreement (as defined below) at 311 W. Monroe, Chicago, Illinois 60606, as Depositary (the "Depositary"), hereby certifies that _______________________________ is the registered owner of _____________ Depositary Shares ("Depositary Shares"), each Depositary Share representing an interest in one-one hundredth (1/100th) of a share of Series A Cumulative Convertible Preferred Stock, par value $1.00 per share (the "Stock") of Best Buy Co., Inc., a corporation duly organized and existing under the laws of the State of Minnesota (the "Company"). Subject to the terms of the Deposit Agreement, each owner of a Depositary Share is entitled, proportionately, through the Depositary to all the rights and preferences of the Stock relating thereto, including dividend, voting, conversion, redemption and liquidation rights and preferences contained in the Certificate of Designation of Best Buy Co., Inc. of Series A Cumulative Convertible Preferred Stock adopted by the Company's Board of Directors setting forth the number, terms, powers, designations, rights, preferences, qualifications, restrictions and limitations of the Stock (the "Certificate"), copies of which are on file at the Depositary's Office. 1. THE DEPOSIT AGREEMENT. Depositary Receipts (the "Receipts"), of which this Receipt is one, are made available upon the terms and conditions set forth in the Deposit Agreement, dated as of November 3, 1994 (the "Deposit Agreement"), among the Company, the Depositary and all Holders from time to time of Receipts. The Deposit Agreement (copies of which are on file at the Depositary's Office) sets forth the rights of Holders of Receipts and the rights and duties of the Depositary and the Company in respect of the Stock deposited, and any and all other property and cash deposited from time to time, thereunder. The statements made on the face and the reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and are subject to the detailed provisions thereof, to which reference is hereby made. Unless otherwise expressly herein provided, all capitalized and undefined terms used herein shall have the meaning ascribed thereto in the Deposit Agreement. 2. REDEMPTION. Whenever the Company shall elect to redeem shares of Stock, it shall (unless otherwise agreed in writing with the Depositary) give the Depositary not less than 10 days' prior notice of the proposed date of the mailing of a notice of redemption of Stock to Holders of Receipts to be effected in connection with a redemption of Stock and of the number of such shares of Stock held by the Depositary to be redeemed as provided herein. On the date of any such redemption of Stock, the Depositary shall redeem (using the proceeds received by the Depositary from the redemption of the Stock) the number of Depositary Shares representing such redeemed Stock. The Depositary shall, as directed by the Company, mail, first-class postage prepaid, notice of the redemption of Stock and the proposed simultaneous redemption of the Depositary Shares representing the Stock to be redeemed, not less than 30 and not more than 60 days prior to the date fixed for redemption (the "Redemption Date") of such Stock and Depositary Shares. Such notice shall be mailed to the Holders of record of the Receipts evidencing Depositary Shares to be redeemed on the record date fixed for such redemption as provided in paragraph 11 below. Notice having been mailed as aforesaid, from and after the Redemption Date (unless the Company shall have failed to redeem the shares of Stock to be redeemed by it, as set forth in the Company's notice provided for above), the Depositary Shares called for redemption shall be deemed no longer to be outstanding and all rights of the Holders of Receipts evidencing such Depositary Shares (except the right to receive the redemption price) shall, to the extent of such Depositary Shares, cease and terminate. Upon surrender in accordance with said notice of the Receipts evidencing such Depositary Shares (properly endorsed or assigned for transfer, if the Depositary shall so require), the Holders of such Receipts shall receive for each such Depositary Share an amount of cash or other property equal to one-one hundredth (1/100th) of the redemption price per share payable with respect to the Stock redeemed. The foregoing shall be subject further to the terms and conditions of the Certificate. -2- 3. TRANSFER, SPLIT-UPS, COMBINATIONS. This Receipt is transferable on the books of the Depositary upon surrender of this Receipt to the Depositary, properly endorsed or accompanied by a properly executed instrument of transfer or endorsement, and upon such transfer the Depositary shall execute a new Receipt to or upon the order of the person entitled thereto, as provided in the Deposit Agreement. This Receipt may be split into other Receipts or combined with other Receipts into one Receipt, representing the same aggregate number of Depositary Shares as the Receipt or Receipts surrendered. Any Holder of at least one hundred (100) Depositary Shares which have not been previously called for redemption may withdraw the number of whole shares of Stock underlying such Depositary Shares and all money and other property, if any, represented thereby by surrendering such Receipt or Receipts at the Depositary's Office or at such other offices as the Depositary may designate for such withdrawals. Thereafter, holders of such whole shares will not be entitled to deposit such Stock and receive Depository Shares therefor. 4. CONVERSION RIGHTS. At any time when the Stock is convertible into Common Stock, this Receipt may be surrendered with written instructions to the Depositary to instruct the Company to cause the conversion of any specified number of whole or fractional shares of Stock represented by the Depositary Shares evidenced thereby into whole shares of Common Stock at the conversion price then in effect for the Stock (and, therefore, for the Depositary Shares) specified in the Certificate, as such conversion price may be adjusted by the Company from time to time as provided in the Certificate. Subject to the terms and conditions of the Deposit Agreement and the Certificate, a Holder of a Receipt or Receipts evidencing Depositary Shares representing whole or fractional shares of Stock may surrender such Receipt or Receipts at the Depositary's Office or to such office or to such Depositary's Agents as the Depositary may designate for such purpose, together with a notice of conversion duly completed and executed, thereby directing the Depositary to instruct the Company to cause the conversion of the number of shares or fractions thereof of underlying Stock specified in such notice of conversion into shares of Common Stock, and an assignment of such Receipt or Receipts to the Company or in blank, duly completed and executed. Upon receipt by the Depositary of a Receipt or Receipts, together with notice of conversion, duly completed and executed, directing the Depositary to instruct the Company to cause the conversion of a specified number of shares or fractions thereof of Stock into Common Stock and -3- an assignment of such Receipt or Receipts to the Company or in blank, duly completed and executed, if the Stock is at such time convertible into Common Stock, the Depositary shall instruct the Company (i) to cause the conversion of the Depositary Shares evidenced by the Receipts so surrendered for conversion as specified in the written notice to the Depositary and (ii) to cause the delivery to the Holders of such Receipts a certificate or certificates evidencing the number of whole shares of Common Stock, and the amount of money, if any, to be delivered to the Holders of Receipts surrendered for conversion in lieu of fractional shares of Common Stock otherwise issuable. The Company shall as promptly as practicable after receipt thereof cause the delivery of (i) a certificate or certificates evidencing the number of whole shares of Common Stock into which the Stock represented by the Depositary Shares evidenced by such Receipt or Receipts has been converted, and (ii) any money or other property to which the Holder is entitled. Upon such conversion, the Depositary shall (i) deliver to the Holder a Receipt evidencing the number of Depositary Shares, if any, which such Holder has elected not to convert and evidencing the number of Depositary Shares, if any, in excess of the number of Depositary Shares representing Stock which has been so converted, (ii) cancel the Depositary Shares evidenced by Receipts surrendered for conversion and (iii) deliver to the Company or its transfer agent for the Stock for cancellation the shares of Stock represented by the Depositary Shares evidenced by the Receipts so surrendered and so converted. The Holder of Depositary Shares on any dividend payment record date established by the Depositary shall be entitled to receive the dividend payable with respect to such Depositary Shares on the corresponding dividend payment date notwithstanding the subsequent conversion of the shares of Stock to which such Depositary Shares relate. Upon the conversion of any shares of Stock for which a request for conversion has been made by the Holder of Depositary Shares representing such shares, all dividends in respect of such Depositary Shares shall cease to accrue, such Depositary Shares shall be deemed no longer outstanding, all rights of the Holder of the Receipt with respect to such Depositary Shares (except the right to receive the Common Stock, any cash payable with respect to any fractional shares of Common Stock as provided herein and any cash payable on account of accrued dividends and any Receipts evidencing Depositary Shares not so converted) shall terminate, and the Receipt evidencing such Depositary Shares shall be cancelled. -4- 5. SUSPENSION OF DELIVERY, TRANSFER, ETC. The transfer, split-up, combination or surrender of this Receipt may be suspended and except as otherwise provided in the Deposit Agreement, the deposit of Stock may be refused during any period when the register of shareholders of the Company is closed, or if any such action is deemed necessary or advisable by the Depositary, any agent of the Depositary or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission, or under any provision of the Deposit Agreement. 6. WARRANTY BY COMPANY. The Company warrants that the Stock when issued and any shares of Common Stock issuable upon conversion of the Stock (which the Company shall keep available for issuance), will be validly issued, fully paid and nonassessable. 7. AMENDMENT. The form of the Receipts and any provisions of the Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect which they may deem necessary or desirable; PROVIDED, HOWEVER, that no such amendment that shall materially and adversely alter the rights of the Holders of Receipts shall be effective unless such amendment shall have been approved by the Holders of at least 66 2/3% of the Depositary Shares then outstanding. A Holder of a Receipt at the time any amendment so becomes effective shall be deemed, by continuing to hold such Receipt, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. 8. CHARGES OF DEPOSITARY. The Company will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements, and all charges of the Depositary in connection with the initial deposit of the Stock, the initial issuance of the Depositary Shares, the redemption of the Stock at the option of the Company, and the issuance of shares of Common Stock upon the surrender of Receipts for conversion. All other transfer and other taxes and other governmental charges shall be at the expense of Holders of Depositary Shares. 9. TITLE TO RECEIPTS. This Receipt (and the Depositary Shares evidenced hereby), when properly endorsed or accompanied by a properly executed instrument of transfer, is transferable by delivery with the same effect as in the case of a negotiable instrument; PROVIDED, HOWEVER, that until transfer of a Receipt shall be registered on the books of the Registrar, on behalf of the -5- Depositary, the Depositary may, notwithstanding any notice to the contrary, treat the record Holder hereof at such time as the absolute owner hereof for the purpose of determining the person entitled to distributions of dividends or other distributions or to any notice provided for in the Deposit Agreement, and for all other purposes. 10. DIVIDENDS AND DISTRIBUTIONS. Whenever the Depositary receives any cash dividend or other cash distribution on the Stock, the Depositary will, subject to the provisions of the Deposit Agreement, make such distribution to the Receipt Holders in proportion to the number of Depositary Shares held by them; PROVIDED, HOWEVER, that the amount distributed will be reduced by any amounts required to be withheld by the Company or the Depositary on account of taxes or as otherwise required pursuant to law, regulations or court order. Other distributions received on the Stock may by distributed to Holders of Receipts as provided in the Deposit Agreement. 11. FIXING OF RECORD DATE. Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or if rights, preferences or privileges shall at any time be offered with respect to Stock, or whenever the Depositary shall receive notice of any meeting at which holders of Stock are entitled to vote or of which holders of Stock are entitled to notice, the Depositary shall in each instance fix a record date (which shall be the record date fixed by the Company with respect to the Stock), for the determination of the Holders of Receipts who shall be entitled to receive such dividend, distribution, rights, preferences, privileges or the net proceeds of the sale thereof, or to give instructions for the exercise of voting rights at any such meeting, or who shall be entitled to notice of such meeting. 12. VOTING RIGHTS. Upon receipt of notice of any meeting at which Holders of Stock are entitled to vote, the Depositary shall, as soon as practicable thereafter, mail to the Record Holders of Receipts a notice which shall be provided by the Company which shall contain (i) such information as is contained in such notice of meeting, (ii) a statement informing Holders of record at the close of business on a specified record date that they may instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Stock (or portion thereof) relating to their respective Depositary Shares and (iii) a brief statement as to the manner in which such instructions may be given. Upon the written request of a Holder of a Receipt on such record date, the Depositary shall endeavor -6- insofar as practicable to vote or to cause to be voted the amount of Stock (or portion thereof) relating to such Receipt in accordance with the instructions set forth in such request. Absent specific instructions from the Holder of a Receipt, the Depositary will abstain from voting (but, at its discretion, not from appearing at any meeting with respect to such Stock unless directed to the contrary by the Holders of all the Receipts then outstanding) to the extent of the Stock (or portion thereof) underlying the Depositary Shares evidenced by such Receipt. 13. CHANGES AFFECTING DEPOSITED SECURITIES. Upon any change in par or stated value, split-up, combination or any, other reclassification of the Stock or upon any recapitalization, reorganization, merger, amalgamation or consolidation to which the Company is a party, or upon the sale of all or substantially all of the Company's assets, the Depositary may with the approval of, and shall upon the instructions of, the Company, and (in either case) in such manner as to retain as nearly as possible the percentage ownership interest in Stock of Holders of Receipts immediately prior to such event, (i) make such adjustments in (a) the fraction of an interest in one share of Stock underlying one Depositary Share, (b) the ratio of the redemption price per Depositary Share to the redemption price of a share of Stock, and (c) the ratio of the conversion price per Depositary Share to the conversion price of a share of Stock, in each case as may be necessary fully to reflect the effects of such change, and (ii) treat any securities received by the Depositary in exchange for, or upon conversion or in respect of, the Stock as new deposited securities so received in exchange for, or upon conversion or in respect of, such Stock. In any such case the Depositary may in its discretion, with the approval of the Company, execute and deliver additional Receipts, or may call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing such new deposited securities. Anything to the contrary herein or in the Depositary Agreement notwithstanding, Holders of Receipts shall have the right from and after the effective date of any such transaction, to the extent that holders of Stock had the right, prior to or on the applicable effective date, to convert, exchange or surrender shares of Stock into or for other stock, securities, property or cash, to surrender such Receipts to the Depositary with instructions to convert, exchange or surrender the Stock represented thereby only into or for, as the case may be, the kind and amount of shares of stock and other securities and property and cash into which the Stock represented by such Receipts has been -7- converted or for which such Stock might have been exchanged or surrendered immediately prior to the effective date of such transaction. 14. LIABILITY AND OBLIGATIONS OF THE DEPOSITARY, THE DEPOSITARY'S AGENTS OR THE COMPANY. Neither the Depositary nor any Depositary's Agent nor any Registrar nor the Company, nor any officer, director, employee or agent thereof, shall incur any liability to any Holder of any Receipt if by reason of any provision of any present or future law, or regulation thereunder, of the United States of America or of any other governmental authority or by reason of any provision, present of future, of the Company's Articles of Incorporation (including the Certificate) or by reason of any act of God, war or civil disorder, failure of power, fire or other casualty damage or governmental requirements or restrictions, the Depositary, the Depositary's Agent, the Registrar or the Company shall be prevented or forbidden from doing or performing any act or thing that the terms of the Deposit Agreement provide shall be done or performed; nor shall the Depositary, any Depositary's Agent, any Registrar or the Company, nor any officer, director, employee or agent thereof, incur any liability or be subject to any obligation (i) by reason of nonperformance or delay, caused as aforesaid, in performance of any act or thing that the terms of the Deposit Agreement provide shall or may be done or performed, or (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement, except in the event of the negligence or misconduct of the party charged with such exercise or failure to exercise. Neither the Depositary nor any Depositary's Agent nor the Company, nor any officer, director, employee or agent thereof, assumes any obligation or shall be subject to any liability under the Deposit Agreement to Holders of Receipts other than to use its best judgment and good faith in the performance of such duties as are specifically set forth in the Deposit Agreement. Neither the Depositary nor any Depositary's Agent nor any Registrar nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of the Stock, the Depositary Shares or the Receipts that in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all such expense and liability be furnished. The Deposit Agreement contains various other exculpatory, indemnification and related provisions, to which reference is hereby made. 15. RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary may at any time (i) resign by written notice of its election so to resign delivered to the Company, such -8- resignation to take effect upon the appointment of a successor Depositary and its acceptance of such appointment, or (ii) be removed by the Company, such removal to take effect upon the appointment of a successor Depositary and its acceptance of such appointment. 16. TERMINATION OF DEPOSIT AGREEMENT. The Deposit Agreement may be terminated by the Company or the Depositary upon or after the occurrence of any of the following events: (i) all outstanding Depositary Shares shall have been redeemed; (ii) there shall have been made a final distribution in respect of the Stock in connection with any liquidation, dissolution or winding up of the Company and such distribution shall have been distributed to the Holders of Receipts; or (iii) each share of Stock shall have been converted into shares of Common Stock. 17. GOVERNING LAW. THIS RECEIPT AND THE DEPOSIT AGREEMENT AND ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND THEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO APPLICABLE CONFLICTS OF LAW PROVISIONS). This receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or obligatory for any purpose unless this Receipt shall have been executed manually by a duly authorized officer of the Depositary or, if a Registrar for the Receipts (other than the Depositary) shall have been appointed, by facsimile signature of a duly authorized officer of the Depositary and countersigned manually by a duly authorized officer of such Registrar. THE DEPOSITARY IS NOT RESPONSIBLE FOR THE VALIDITY OF ANY DEPOSITED STOCK. THE DEPOSITARY ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF THE FOREGOING DESCRIPTION, WHICH CAN BE TAKEN AS A STATEMENT OF THE COMPANY SUMMARIZING CERTAIN PROVISIONS OF THE DEPOSIT AGREEMENT THAT APPEARS IN THE DEPOSITARY RECEIPTS. THE DEPOSITARY MAKES NO WARRANTIES OR REPRESENTATIONS AS TO THE VALIDITY, GENUINENESS OR SUFFICIENCY OF ANY STOCK AT ANY TIME DEPOSITED WITH THE -9- DEPOSITARY HEREUNDER OR OF THE DEPOSITARY SHARES (EXCEPT ITS SIGNATURE HEREON), OR AS TO THE VALUE OF THE DEPOSITARY SHARES. Dated: HARRIS TRUST AND SAVINGS BANK By: --------------------------- Authorized Officer -10- NOTICE OF CONVERSION The undersigned hereby irrevocably exercises the option to convert this Receipt or a portion hereof below designated into shares of Common Stock of Best Buy Co., Inc. in accordance with the terms of the Certificate referred to in this Receipt, and directs the Depositary to instruct the Company that the shares of Common Stock issuable and deliverable upon the conversion, together with any check in payment of accrued and unpaid dividends or in lieu of fractional shares, and any Receipts representing any unconverted Depositary Shares be issued and delivered to the undersigned unless, in the case of such shares of Common Stock or Receipts, a different name has been indicated below. If shares of Common Stock or Receipts are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Dated: -------------- ------------------------------ Signature of Holder (must conform in all respects to the name of the Holder appearing on the face hereof) Signature Guaranteed By: ------------------------------ Number of Depositary Shares to be Converted ------------------------- Fill in for registration of shares of Common Stock and/or Receipts if to be issued otherwise than to Holder. Social Security or Other ------------------------- Taxpayer Identifying Number (Name) ------------------------- ------------------------- (Address) ------------------------- Print name and address (including zip code number) -11- EX-10.2 10 EXHIBIT 10.2 BEST BUY CO., INC. 1987 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN A. PURPOSE. The purpose of this Directors' Non-Qualified Stock Option Plan ("Plan") is to further the growth and general prosperity of Best Buy Co., Inc. ("Company") by enabling current directors of the Company, who have been or are serving on the Board of Directors and upon whose judgment, initiative and effort the Company was or is largely dependent for the successful conduct of its business, to acquire shares of the common stock of the Company under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal involvement in the Company. Options granted under the Plan are intended to be options which do not meet the requirements of Section 422A of the Internal Revenue Code of 1986, as amended. B. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Committee"). Subject to such orders and resolutions not inconsistent with the provisions of this Plan as may from time to time be issued or adopted by the Board of Directors, the Committee shall have full power and authority to interpret the Plan. All decisions and determinations made by the Committee pursuant to the provisions of the Plan and applicable orders and resolutions of the Board of Directors shall be final. Each option granted shall be evidenced by a written agreement containing such terms and conditions as may be approved by the Committee and which shall not be inconsistent with the Plan and the orders and resolutions of the Board of Directors with respect thereto. C. ELIGIBILITY, PARTICIPATION AND GRANTS. Options shall be granted under the Plan to current members of the Company's Board of Directors. The Committee shall grant to each director (i) on such date as he or she first becomes a director of the Company, an option to purchase 5,000 shares, and (ii) annually, at the first regular meeting of the Board of Directors, an option to purchase 5,000 shares. D. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below, an aggregate of 900,000 shares of $0.10 par value common stock of the Company shall be subject to this Plan from authorized but unissued shares of the Company. Such number and kind of shares shall be appropriately adjusted in the event of any one or more stock splits, reverse stock splits or stock dividends hereafter paid or declared with respect to such stock. If, prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by the Company pursuant to this Plan, such repurchased shares shall again become available for issuance under the Plan. Any shares which, after the effective date of this Plan, shall become subject to valid outstanding options under this Plan may, to the extent of the release of any such shares from option by termination or expiration of option(s) without valid exercise, be made the subject of additional options under this Plan. E. NO ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Except as expressly provided herein, in the event of a merger, consolidation, reorganization, stock dividend, stock split, or other change in corporate structure or capitalization affecting the common shares of the Company, there shall be no change in the number of shares subject to options to be granted thereafter pursuant to the Plan. F. TERMS AND CONDITIONS OF OPTIONS. The Committee shall have the power, subject to the limitations contained in this Plan, to prescribe any terms and conditions in respect of the granting or exercise of any option under this Plan and, in particular, shall prescribe the following terms and conditions: (1) Each option shall state the number of shares to which it pertains. (2) The price at which shares shall be sold to directors hereunder (the "Exercise Price") shall be the average of the closing price for the Company's stock, as quoted on the New York Stock Exchange, on the date immediately preceding the date of grant and the closing price for the stock on the date of grant. Payment of the Exercise Price shall be made at the time the shares are sold hereunder by certified or cashier's check payable to the Company. (3) An option shall be exercisable in whole or in part (but not as to less than twenty-five percent of the original aggregate amount of shares of common stock made subject to the option) with respect to the shares included therein until the earlier of (a) the close of business on the tenth day prior to the proposed effective date of (i) any merger or consolidation of the Company with any other corporation or entity as a result of which the holders of the common stock of the Company will own less than a majority voting control of the surviving corporation; (ii) any sale of substantially all of the assets of the Company or (iii) any sale of common stock of the Company to a person not a stockholder on the date of issuance of the option who thereby acquires majority voting control of the Company, subject to any such transaction -2- actually being consummated, or (b) 4:00 p.m., local standard time, in Minneapolis, Minnesota, on the date five (5) years after the date the option was granted. The Company shall give written notice to the optionee not less than 30 days prior to the proposed effective date of any of the transactions described in (a) above. (4) An option shall be exercised when written notice of such exercise has been given to the Company at its principal business office by the person entitled to exercise the option and full payment for the shares with respect to which the option is exercised has been received by the Company. Until the stock certificates are issued, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to optioned shares, notwithstanding the exercise of the option. G. OPTIONS NOT TRANSFERABLE. Options under the Plan may not be sold, pledged, assigned or transferred in any manner, whether by operation of law or otherwise, except by will, the laws of descent or a qualified domestic relations order. H. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the Company may amend this Plan from time to time as it may deem advisable and may at any time terminate the Plan, provided that any such termination of the Plan shall not adversely affect options already granted and such options shall remain in full force and effect as if the Plan had not been terminated. I. AGREEMENT AND REPRESENTATIONS OF PARTICIPANTS. As a condition precedent to the exercise of any option or portion thereof, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required under the Securities Act of 1933 or any other applicable law, regulation or rule of any governmental agency. In the event legal counsel to the Company renders an opinion to the Company that shares for options exercised pursuant to this Plan cannot be issued to the optionee because such action would violate any applicable federal or state securities laws, then in that event the optionee agrees that the Company shall not be required to issue said shares to the optionee and shall have no -3- liability to the optionee other than the return to optionee of amounts tendered to the Company upon exercise of the option. J. EFFECTIVE DATE AND TERMINATION OF THE PLAN. The Plan shall become effective as of May 1, 1987 if approved thereafter by the Stockholders of the Company. The Plan shall terminate on the earliest of: (1) The date when all the common shares available under the Plan shall have been acquired through the exercise of options granted under the Plan; or (2) Ten (10) years after the date of approval of the Plan by the Stockholders of the Company; or (3) Such other earlier date as the Board of Directors of the Company may determine. K. FORM OF OPTION. Options shall be issued in substantially the same form as Exhibit "A" attached hereto or in such other form as the Compensation Committee or the Board may approve. EX-10.4 11 EXHIBIT 10.4 CERTIFICATE OF RESOLUTIONS I, Elliot S. Kaplan, the Secretary of Best Buy Co., Inc., a Minnesota corporation, do hereby certify that the following resolution was duly adopted by the Directors of this corporation at a meeting held April 10, 1995, and that said resolution is still in full force and effect: RESOLVED: Subject to shareholder approval of the foregoing bonus program amendment, the bonuses payable pursuant to the bonus program for senior officers, as amended, in respect of fiscal 1996 shall be in amounts equal to the percentage of each officer's base salary set forth opposite the level of actual net income for fiscal 1996, as listed below; provided, however, that the Chief Executive Officer and the President, acting unanimously, shall be authorized in their discretion to reduce the bonus payable to a senior officer to the extent of 50% of the amount thereof for the failure of such officer to achieve his or her individual goals for fiscal 1996: Actual Net Income % Of Base Salary ---------- ---------------- At least Budget 25% At least 110.6% of Budget 30% At least 121.1% of Budget 35% At least 131.6% of Budget 40% At least 142.0% of Budget 45% At least 152.5% of Budget 50% At least 162.9% of Budget 55% At least 173.4% of Budget 60% Dated: May 17, 1995. /s/ Elliot S. Kaplan ------------------------------- Elliot S. Kaplan Secretary EX-11.1 12 EXHIBIT 11.1 Exhibit 11.1 BEST BUY CO., INC. COMPUTATION OF EARNINGS PER SHARE
February 25, February 26, February 27, For the years ended: 1995 1994 1993 ------------- ------------ ------------ Earnings: Earnings before cumulative effect of change in accounting principle available to common shares $57,651,000 $41,710,000 $19,855,000 Cumulative effect of change in accounting for income taxes (425,000) ------------- ------------ ------------ Net earnings available to common shares $57,651,000 $41,285,000 $19,855,000 ------------- ------------ ------------ ------------- ------------ ------------ Shares: Weighted average common shares outstanding 42,013,000 40,036,000 33,874,000 Adjustment: Assumed issuance of shares purchased under stock option plans 1,458,000 1,300,000 902,000 ------------- ------------ ------------ Common equivalent shares - Total 43,471,000 41,336,000 34,776,000 ------------- ------------ ------------ ------------- ------------ ------------ Earnings per share: Earnings before cumulative effect of change in accounting principle $1.33 $1.01 $.57 Cumulative effect of change in accounting for income taxes (.01) ----- ------ ---- Net earnings per share $1.33 $1.00 $.57 ----- ------ ---- ----- ------ ---- Note: The computation of earnings per share assuming full dilution is substantially the same as set forth above or is anti- dilutive.
EX-13.1 13 EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA ------------------------------------------------------------------------------------------------------------------------------ ($ in thousands, except per share amounts) FISCAL PERIOD 1995 1994(1) 1993 1992 1991(2) ------------------------------------------------------------------------------------------------------------------------------ STATEMENT OF EARNINGS DATA Revenues $5,079,557 $3,006,534 $1,619,978 $ 929,692 $ 664,823 Gross profit 690,393 456,925 284,034 181,062 141,657 Selling, general, and administrative expenses 568,466 379,747 248,126 162,286 130,681 Operating income 121,927 77,178 35,908 18,776 10,976 Earnings before cumulative effect of accounting change 57,651 41,710 19,855 9,601 4,540 Net earnings (loss) 57,651 41,285 19,855 9,601 (9,457) PER SHARE DATA Earnings before cumulative effect of accounting change $ 1.33 $ 1.01 $ .57 $ .33 $ .18 Net earnings (loss) 1.33 1.00 .57 .33 (.38) Common stock price: High 45 1/4 31 7/16 15 23/32 11 25/32 3 21/32 Low 22 1/8 10 27/32 4 23/32 2 21/32 1 1/2 Weighted average shares outstanding (000s) 43,471 41,336 34,776 28,848 24,852 OPERATING AND OTHER DATA Comparable store sales increase(3) 19.9% 26.9% 19.4% 14.0% 1.0% Number of stores (end of period) 204 151 111 73 56 Average revenues per store(4) $ 28,400 $ 22,600 $ 17,600 $ 14,300 $ 12,400 Gross profit percentage 13.6% 15.2% 17.5% 19.5% 21.3% Selling, general, and administrative expense percentage 11.2% 12.6% 15.3% 17.5% 19.7% Operating income percentage 2.4% 2.6% 2.2% 2.0% 1.6% Inventory turns(5) 4.7x 5.0x 4.8x 5.1x 4.5x BALANCE SHEET DATA (at period end) Working capital $ 609,049 $ 362,582 $ 118,921 $ 126,817 $ 64,623 Total assets 1,507,125 952,494 439,142 337,218 185,528 Long-term debt, including current portion 240,965 219,710 53,870 52,980 35,695 Convertible preferred securities 230,000 Shareholders' equity 376,122 311,444 182,283 157,568 56,741 ------------------------------------------------------------------------------------------------------------------------------ This table should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto. (1) During fiscal 1994, the Company adopted FAS 109, resulting in a cumulative effect adjustment of ($425) or ($.01) per share. (2) During fiscal 1991, the Company changed its method of accounting for extended service plans, resulting in a cumulative effect adjustment of ($13,997), or ($.56) per share. (3) Comparable stores are stores open at least 14 full months. (4) Average revenues per store are based upon total revenues for the period divided by the weighted average number of stores open during such period. (5) Inventory turns are calculated based upon a rolling 12 month average of inventory balances.
5 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Best Buy made significant progress as an emerging national retailer in the fiscal year ended February 25, 1995 by opening 53 new stores in nine new states, including expansion for the first time to the East and West coasts. The Company also introduced a larger, redesigned store, known as Concept III. In addition to the new stores, the Company remodeled or relocated 30 stores in fiscal 1995 to accommodate expanded product offerings and the Concept III features. Revenues of $5.080 billion in fiscal 1995 were 69% higher than fiscal 1994 and were driven by the new stores, a comparable store sales increase of 20% and a full year of operations at the 40 stores opened in the prior year. Fiscal 1994 revenues of $3.007 billion represented an 86% increase over the $1.620 billion reported in fiscal 1993. Earnings of $57.7 million in fiscal 1995 were 38% higher than earnings reported in fiscal 1994, before the cumulative effect of an accounting change in that year. The impact on earnings of the increased revenues was reduced by the effects of increasing price competition and costs associated with the expansion effort undertaken during the year. Higher interest expense on borrowings used to support store expansion and increased inventory levels also impacted the growth in fiscal 1995 earnings. Earnings of $41.7 million in fiscal 1994, before the change in accounting, rose 110% over fiscal 1993 earnings of $19.9 million. Earnings per share were $1.33 in fiscal 1995, $1.01 in fiscal 1994 and $.57 in fiscal 1993. REVENUES The following table presents selected revenue and store data for each of the last three fiscal years. ($ in thousands)
1995 1994 1993 ------------------------------------------------------------------------ Revenues $5,079,557 $3,006,534 $1,619,978 Percentage increase in revenues 69% 86% 74% Comparable store sales increase 20% 27% 19% Average revenues per store $ 28,400 $ 22,600 $ 17,600 Number of stores open at end of year 204 151 111
The significant revenue growth experienced over the last several years continued in fiscal 1995 as the Company expanded the number of markets it serves and increased the average size of the stores it operates. Best Buy established strategic positions in fiscal 1995 on the West Coast by opening seven stores in the greater Los Angeles area and in the East with nine new stores in the Baltimore/Washington, D.C. market. The Company also opened ten stores in new markets in Ohio and another 27 stores including new markets in the Southeastern U.S. In addition to the new stores, the Company remodeled and expanded 18 stores and relocated another 12 stores to larger locations. Revenues from the new and remodeled/relocated stores in fiscal 1995, which were generally larger than the majority of the existing stores, along with the higher sales levels at existing stores resulted in a 26% increase in average revenues per store in fiscal 1995. Strong consumer spending in hard goods products prevailed through most of the year and combined with advancing technology in the computer category, to produce a comparable store sales increase of 20% for the year. Comparable store sales of computers increased 33% over the prior year and annual sales in the home office product category, which includes computers, grew to $1.9 billion or 37% of total sales in fiscal 1995. Entertainment software sales, which include compact discs, computer software and prerecorded cassettes and video tapes, increased by 107% to $729 million and represented 14% of total Company sales in fiscal 1995. The 86% increase in revenues in fiscal 1994 over fiscal 1993 was due to the addition of 40 new stores, including entries into Atlanta, Detroit and Phoenix, a full year of operations at the 38 stores opened in fiscal 1993 and a comparable store sales increase of 27%. The addition of name brands such as Apple, Compaq, Hewlett Packard and Toshiba to the Company's computer product category and the introduction of a new private label credit card program in June 1993 contributed to a 69% increase in comparable store sales of computers in fiscal 1994. Management believes that Company's private label credit card program has contributed to revenue growth by providing customers with convenient financing options. At February 25, 1995 there were approximately two million Best Buy credit card holders. The continued availability of financing programs is important to maintaining what the Company believes is a competitive advantage over certain of its warehouse format competitors. 6 Revenues from extended service plans were less than 1% of revenues in fiscal 1995 and 1994 and 1.3% of revenues in 1993. The Company's non-commissioned retail format, which has reduced emphasis on the sale of these plans, and the Company's value pricing of these plans has contributed to the decrease in significance of the revenues from these plans. Profit from extended service plans, before allocation of any selling, general and administrative expenses, was $13.0 million in fiscal 1995 compared with $12.5 million in 1994 and $12.0 million in 1993. The Company's Concept III store format, introduced in fiscal 1995, is designed to provide an interactive shopping experience with a greater assortment of products. The new and relocated/remodeled stores in fiscal 1995 were generally 45,000 square feet in size compared to principally 28,000 and 36,000 square foot stores at the end of fiscal 1994. In certain locations with a higher population density, the Company opened 58,000 square foot stores. These larger stores will enable the Company to provide customers with an even larger selection of products. The Concept III stores are able to present over 65,000 compact disc and prerecorded cassette titles, 12,000 prerecorded videos and 2,000 computer software titles, an assortment the Company believes is among the largest offered by any retailer. The Concept III stores will also utilize the additional space to expand the selection of higher profit margin accessory items and can accommodate broader product lines to include higher end products for the enthusiast. The Company has also introduced interactive information kiosks in certain of the Concept III stores, designed to provide customers with detailed information about product features and benefits using full motion videos and touch screen technology. Management continues to evaluate and refine the content and features of these Concept III stores to maximize their revenue and operating profit while providing customers with the most desirable shopping experience. The Company plans to open 47 new stores in fiscal 1996 and relocate or expand approximately 20 stores to larger facilities. The compounding effect of the high rates of comparable store sales growth experienced over the past four years, an expected slowing economy and the absence of significant new product introductions, will likely result in single digit same store sales growth in fiscal 1996, a rate that more closely reflects industry trends. Management expects that sales of computers and entertainment software will continue to have a significant impact on revenue growth from existing stores. Revenue growth in these two categories is dependent on the manufacturers' ability to meet consumer demand for new product technology and new entertainment software titles. In addition, revenue growth may be impacted by future increases in consumer interest rates and changes in consumers' expectations about the economy in general. COMPONENTS OF OPERATING INCOME The following table sets forth selected operating ratios for each of the last three fiscal years.
1995 1994 1993 ------------------------------------------------------------------------ Gross profit 13.6% 15.2% 17.5% Selling, general and administrative expenses 11.2% 12.6% 15.3% Operating income 2.4% 2.6% 2.2% Earnings before accounting change 1.1% 1.4% 1.2% ------------------------------------------------------------------------
Promotional pricing associated with the expansion into the new markets entered in fiscal 1995 and the continued increase in competition in existing markets contributed to the change in profit margins. The Company's retail strategy has been to be a price leader and maximize market share in the markets in which it operates. The increasing contribution of the lower margin computer product category to the total sales mix has also impacted margins over the last two years. The retail market for computers and related products is highly competitive and the Company competes not only with full service retailers but with discount warehouse style stores and mail order distributors. Technological advancements in the computer category have placed additional pressure on margins due to frequent changeover of models and features. The entertainment software category is also very competitive and the Company believes that its combination of low price and extensive selection affords the opportunity to gain market share and increase customer traffic. Competition in most of the markets in which the Company operates has increased as new competitors have entered the Company's existing markets and the Company has expanded into new, more competitive markets. Management expects that price competition in most product categories will remain strong in the coming fiscal year. Competition is expected to 7 increase in certain markets as competitors enter new markets currently served by the Company. The Company intends to use its market share position to focus on improving margins in fiscal 1996. An increased emphasis on customer service, assortment of accessory products and more fully featured products for the enthusiast are anticipated to impact margins. Management also expects that increasing sales volume will enable the Company to improve the pricing it obtains from vendors. Selling, general and administrative expenses declined to 11.2% of sales, compared to 12.6% and 15.3% in 1994 and 1993, respectively. The improvement in this ratio indicates that revenues have increased at a faster pace than the cost of operations. The improvement in this ratio in fiscal 1995 is particularly significant in light of the accomplishments during the year. Those accomplishments included the opening of 83 new or relocated/remodeled stores, commencement of operations in over 1.4 million additional square feet of distribution space at four distribution centers and the development of a new store format. The cost of these undertakings applied pressure on the Company's earnings for the year. The Company was able to continue to improve its leverage on costs such as advertising as stores were added to existing markets and higher revenues per store were generated. With comparable store sales slowing, and higher operating costs of new markets, the Company's opportunity to leverage operating expenses will not be as great in the future, particularly in the first half of fiscal 1996. Interest expense in fiscal 1995 increased over fiscal 1994 and fiscal 1993 as a result of business expansion over the past two years. Higher inventory levels and interest costs related to stores owned by the Company were the principal reasons for increased interest expense. Interest on bank borrowings also increased due to generally higher interest rates. Current year interest expense reflects a full year of interest on the $150 million of senior subordinated notes issued in October 1993 and four months of interest on the $230 million of convertible preferred securities issued in November 1994. The Company's effective tax rate of 38.7% in fiscal 1995 decreased slightly from the 39.0% in fiscal 1994 principally as a result of significantly higher jobs tax credits related to the increased number of employees hired in fiscal 1995. The tax laws providing for these credits expired at the end of 1994. Changes in the states in which the Company does business and the level of tax-exempt income has also impacted the Company's effective tax rate in the last three years. The Company adopted the provisions of FAS 109 "Accounting for Income Taxes," effective as of the beginning of fiscal 1994. The effect of the adoption was a charge to net earnings of $425,000 or $.01 per share. At February 25,1995 the Company had deferred tax assets of $24.2 million which are expected to be recovered through future taxable income. LIQUIDITY AND CAPITAL RESOURCES Best Buy strengthened its capital base in fiscal 1995 through a $230 million public offering of monthly income preferred securities and increased liquidity through an expansion of the Company's working capital credit facility from $125 million to $400 million. The convertible preferred securities, issued in November 1994, pay monthly distributions at the annual rate of 6.5% of the $50 liquidation preference and mature in November 2024. The Company also entered into a master lease facility which provided over $100 million in financing for retail store and distribution center development in fiscal 1995. Proceeds from these transactions and the proceeds of a $150 million senior subordinated note offering in October 1993 were used to support the Company's expansion and revenue growth in the current fiscal year. Cash flow from operations also improved in fiscal 1995 compared to 1994. In fiscal 1994, the $86 million in proceeds from a Common Stock offering, $44 million from the sale/leaseback of 17 stores, and the proceeds of the October 1993 senior subordinated note offering were used to provide the financing necessary for business expansion that year. In order to secure the desired store locations and assure timely completion of the store, the Company developed 27 of the new and relocated stores in fiscal 1995. Interim financing for this development was provided through working capital and the Company's master lease agreement. Upon completion of property development and opening of the retail stores, the Company generally enters into sale/leaseback transactions and recovers the cost of development. In addition to store development in fiscal 1995 the Company added over 1.4 million square feet of distribution capacity. The Company constructed a 700,000 square foot distribution center in Staunton, Virginia and leased a 310,000 square foot facility in Ontario, California to serve new markets. The Company also added a 240,000 8 square foot entertainment software distribution facility in Edina, Minnesota and expanded its existing facility in Ardmore, Oklahoma by 200,000 square feet. Current assets increased to $1.2 billion at February 25, 1995 compared to $765 million at February 26, 1994, primarily as a result of the increased inventory levels necessary to support the larger stores and higher sales volumes. The 53 new stores added approximately $200 million in inventory. Inventory turns were 4.7 times in fiscal 1995, down slightly from the prior year as a result of the start up of additional distribution facilities and increased inventories in the stores. Increases in trade payables and secured inventory financing arrangements at year end supported approximately 70% of the increase in inventory. Higher sales volumes in February 1995 as compared to February 1994 resulted in higher year-end receivables. The Company sells its receivables from sales on the Company's private label credit card, without recourse, to an unrelated third party. Spending related to development of certain operating retail locations and seven stores expected to be opened in fiscal 1996 also contributed to the increase in current assets over the prior fiscal year end. These costs are expected to be recovered through long-term financing in the next year. The Company currently has a revolving credit facility that provides for borrowings of $150 million throughout the year and an increase to $400 million on a seasonal basis from July through December. Borrowings under the facility are unsecured and are limited to certain percentages of inventories. The agreement requires that the maximum balance outstanding be reduced to $50 million for a period of 45 days, following the holiday season. This agreement expires in June 1996, and the Company has an option to request an extension of the facility for an additional year. The Company also has $180 million available under an inventory financing facility provided by a commercial credit corporation. Expansion plans for fiscal 1996 will mainly concentrate on developing the markets entered in fiscal 1995. The Company's plans include 47 new stores, the majority of which will be in existing markets, the relocation or remodeling of approximately 20 stores and the construction of an additional distribution center in Findlay, Ohio. The Company plans to add ten to twelve stores in the Los Angeles market to increase leverage on the advertising and distribution costs in place in that market. Fiscal 1996 store development plans also include the addition of stores in Baltimore/Washington, D.C., filling in of markets principally in Ohio and the Southeastern US and entry into Miami with seven stores. Conditions in certain markets will require that the Company acquire and develop the sites. The Company's practice is to lease, rather than own, its retail locations and it is expected that operating leases will be used for financing following construction. As of the end of fiscal 1995, the Company owned eight operating store locations as well as seven stores under development to be opened in the coming fiscal year. In addition to the stores under development at year-end, the Company expects that it will need to develop another 15 to 20 of the new and relocated stores to be opened in fiscal 1996. The new distribution center in Ohio is being developed by the Company and the development costs are expected to be recovered through a combination of sale/leaseback and other equipment financing. Each new store requires approximately $3.0 to $3.6 million in working capital for merchandise inventory (net of vendor financing), fixtures and leasehold improvements. Management expects that there will be adequate funds available to finance planned capital expenditures in fiscal 1996, net of amounts expected to be recovered through long-term real estate financing. Management believes that funds available from the Company's credit facility, vendors and real estate financing, along with cash on hand and anticipated cash flow from operations will be sufficient to support planned expansion and growth for the coming year. 9 QUARTERLY RESULTS AND SEASONALITY Similar to most retailers, the Company's business is seasonal. Revenues and earnings are lower during the first half of each fiscal year and are greater during the second half, which includes the year-end holiday selling season. The timing of new store openings and general economic conditions may affect future quarterly results of the Company. The following table sets forth the Company's unaudited quarterly operating results for each quarter of fiscal 1995 and 1994. ($ in thousands, except per share data)
FISCAL 1995 MAY 28 AUGUST 27 NOVEMBER 26 FEBRUARY 25 1994 1994 1994 1995 -------------------------------------------------------------------------------------- Revenues $849,403 $933,172 $1,349,871 $1,947,111 Gross profit 118,952 132,184 183,709 255,548 Operating income 11,686 17,659 38,013 54,569 Net earnings 4,241 7,600 17,702 28,108 Net earnings per share .10 .18 .41 .63 FISCAL 1994 MAY 29 AUGUST 28 NOVEMBER 27 FEBRUARY 26 1993 1993 1993 1994 -------------------------------------------------------------------------------------- Revenues $441,919 $562,980 $ 808,476 $1,193,159 Gross profit 74,476 94,198 121,108 167,143 Operating income 3,674 13,090 20,849 39,565 Net earnings 1,091 7,594 11,161 21,439 Net earnings per share .03 .18 .26 .50
The quarter ended May 29, 1993 includes the cumulative effect of a change in accounting for income taxes that reduced earnings by $425 ($.01 per share).
COMMON STOCK PRICES QUARTER 1ST 2ND 3RD 4TH -------------------------------------------------------------------------------------- Fiscal 1995 High $ 37 1/2 $ 36 5/8 $ 45 $ 45 1/4 Low 25 3/4 22 1/8 34 1/2 23 1/8 Fiscal 1994 High $ 16 5/32 $ 16 1/2 $ 31 7/16 $ 27 11/16 Low 11 7/32 10 27/32 16 3/32 18 13/16
Best Buy's Common Stock is traded on the New York Stock Exchange, symbol BBY. As of May 3, 1995, there were 2,109 holders of record of Best Buy Common Stock. The Company has not paid cash dividends on its Common Stock and does not presently intend to pay any dividends on its Common Stock for the foreseeable future. 10 CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- ($ in thousands, except per share amounts)
ASSETS FEBRUARY 25 February 26 1995 1994 -------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 144,700 $ 59,872 Receivables 84,440 52,944 Recoverable costs from developed properties 86,222 Merchandise inventories 907,677 637,950 Deferred income taxes 15,022 13,088 Prepaid expenses 2,606 756 ---------------------------------- Total current assets 1,240,667 764,610 PROPERTY AND EQUIPMENT Land and buildings 13,524 37,660 Leasehold improvements 93,889 55,279 Furniture, fixtures and equipment 191,084 122,683 Property under capital leases 27,096 17,870 ---------------------------------- 325,593 233,492 Less accumulated depreciation and amortization 88,116 60,768 ---------------------------------- Net property and equipment 237,477 172,724 OTHER ASSETS Deferred income taxes 9,223 7,078 Other assets 19,758 8,082 ---------------------------------- Total other assets 28,981 15,160 ---------------------------------- TOTAL ASSETS $ 1,507,125 $ 952,494 ---------------------------------- ----------------------------------
See notes to consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY FEBRUARY 25 February 26 1995 1994 -------------------------------------------------------------------------------------- CURRENT LIABILITIES Obligations under financing arrangements $ 81,755 $ 11,156 Accounts payable 406,682 294,060 Accrued salaries and related expenses 23,785 19,319 Accrued liabilities 65,757 37,754 Deferred service plan revenue and warranty reserve 24,942 19,146 Accrued income taxes 14,979 11,694 Current portion of long-term debt 13,718 8,899 ---------------------------------- Total current liabilities 631,618 402,028 DEFERRED SERVICE PLAN REVENUE AND WARRANTY RESERVE, LONG-TERM 42,138 28,211 LONG-TERM DEBT 227,247 210,811 CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY 230,000 SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none Common stock, $.10 par value: Authorized - 120,000,000 shares; Issued and outstanding 42,216,000 and 41,742,000 shares, respectively 4,221 2,087 Additional paid-in capital 228,982 224,089 Retained earnings 142,919 85,268 ---------------------------------- Total shareholders' equity 376,122 311,444 ---------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,507,125 $ 952,494 ---------------------------------- ----------------------------------
11 CONSOLIDATED STATEMENTS OF EARNINGS -------------------------------------------------------------------------------- ($ in thousands, except per share amounts)
FOR THE FISCAL YEARS ENDED FEBRUARY 25 February 26 February 27 1995 1994 1993 ---------------------------------------------------------------------------------------------------------- Revenues $ 5,079,557 $ 3,006,534 $ 1,619,978 Cost of goods sold 4,389,164 2,549,609 1,335,944 ------------------------------------------- Gross profit 690,393 456,925 284,034 Selling, general and administrative expenses 568,466 379,747 248,126 ------------------------------------------- Operating income 121,927 77,178 35,908 Interest expense, net 27,876 8,800 3,883 ------------------------------------------- Earnings before income taxes and cumulative effect of change in accounting principle 94,051 68,378 32,025 Income taxes 36,400 26,668 12,170 ------------------------------------------- Earnings before cumulative effect of change in accounting principle 57,651 41,710 19,855 Cumulative effect of change in accounting for income taxes (425) ------------------------------------------- NET EARNINGS $ 57,651 $ 41,285 $ 19,855 ------------------------------------------- ------------------------------------------- EARNINGS PER SHARE Earnings before cumulative effect of change in accounting principle $ 1.33 $ 1.01 $ .57 Cumulative effect of change in accounting for income taxes (.01) ------------------------------------------- NET EARNINGS PER SHARE $ 1.33 $ 1.00 $ .57 ------------------------------------------- ------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000) 43,471 41,336 34,776 ------------------------------------------- -------------------------------------------
See notes to consolidated financial statements. 12 CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------------------------------- ($ in thousands)
FOR THE FISCAL YEARS ENDED FEBRUARY 25 February 26 February 27 1995 1994 1993 ----------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings $ 57,651 $ 41,285 $ 19,855 Charges to earnings not affecting cash: Depreciation and amortization 38,570 22,412 14,832 Loss on disposal of property and equipment 760 719 545 Cumulative effect of change in accounting for income taxes 425 ------------------------------------------- 96,981 64,841 35,232 Changes in operating assets and liabilities: Receivables (31,496) (14,976) (21,987) Merchandise inventories (269,727) (387,959) (114,153) Deferred income taxes and prepaid expenses (5,929) (5,234) (2,063) Accounts payable 112,622 175,722 49,668 Other current liabilities 40,415 33,014 16,106 Deferred service plan revenues and warranty reserve 19,723 8,393 6,148 ------------------------------------------- Total cash used in operating activities (37,411) (126,199) (31,049) ------------------------------------------- INVESTING ACTIVITIES Additions to property and equipment (118,118) (101,412) (74,864) Recoverable costs from developed properties (86,222) Proceeds from sale/leasebacks 24,060 44,506 Increase in other assets (11,676) (6,592) (1,180) ------------------------------------------- Total cash used in investing activities (191,956) (63,498) (76,044) ------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of convertible preferred securities 230,000 Increase in obligations under financing arrangements 70,599 6,285 697 Long-term debt borrowings 21,429 160,310 29,700 Long-term debt payments (10,199) (6,977) (37,515) Common stock issued 2,366 86,513 4,860 (Payments) borrowings on revolving credit line, net (3,700) 3,700 ------------------------------------------- Total cash provided by financing activities 314,195 242,431 1,442 ------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 84,828 52,734 (105,651) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,872 7,138 112,789 ------------------------------------------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 144,700 $ 59,872 $ 7,138 ------------------------------------------- -------------------------------------------
See notes to consolidated financial statements. 13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -------------------------------------------------------------------------------- ($ in thousands)
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS ----------------------------------------------------------------------------------------------------------- BALANCES AT FEBRUARY 29, 1992 $ 1,122 $ 132,318 $ 24,128 Stock options exercised 27 2,311 Tax benefit from stock options exercised 2,522 Net earnings 19,855 ------------------------------------------- BALANCES AT FEBRUARY 27, 1993 1,149 137,151 43,983 Sale of common stock 234 85,294 Stock options exercised 10 977 Tax benefit from stock options exercised 1,363 Effect of 3-for-2 stock split 694 (696) Net earnings 41,285 ------------------------------------------- BALANCES AT FEBRUARY 26, 1994 2,087 224,089 85,268 Stock options exercised 45 2,321 Tax benefit from stock options exercised 4,661 Effect of 2-for-1 stock split 2,089 (2,089) Net earnings 57,651 ------------------------------------------- BALANCES AT FEBRUARY 25, 1995 $4,221 $228,982 $142,919 ------------------------------------------- -------------------------------------------
See notes to consolidated financial statements. INDEPENDENT AUDITOR'S REPORT -------------------------------------------------------------------------------- Shareholders and Board of Directors Best Buy Co., Inc. We have audited the accompanying consolidated balance sheets of Best Buy Co., Inc. as of February 25, 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Best Buy Co., Inc. for the years ended February 26, 1994 and February 27, 1993 were audited by other auditors whose report dated April 13, 1994 expressed an unqualified opinion on those statements, and included an explanatory paragraph that described the accounting change discussed in Note 8 to the consolidated financial statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Best Buy Co., Inc., at February 25, 1995, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes during the year ended February 26, 1994. /s/ Ernst & Young LLP Minneapolis, Minnesota April 19, 1995 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- ($ in thousands, except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS: The Company sells personal computer and other home office products, consumer electronics, entertainment software, major appliances and related accessories through its retail stores. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Best Buy Co., Inc. and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS: The Company considers all short-term investments with a maturity of three months or less when purchased to be cash equivalents. RECOVERABLE COSTS FROM DEVELOPED PROPERTIES: The costs of acquisition and development of properties which the Company intends to sell and lease back or recover from landlords within one year are included in current assets. MERCHANDISE INVENTORIES: Merchandise inventories are recorded at the lower of average cost or market. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost. Depreciation, including amortization of property under capital leases, is computed on the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, over the shorter of the estimated useful lives or lease terms. ACCOUNTS PAYABLE: Under the Company's cash management system, checks issued but not cleared through the bank account frequently result in a cash overdraft in the accounting records. Overdraft balances of $78,140 and $90,119 at February 25, 1995, and February 26, 1994, respectively, are included in accounts payable. PRE-OPENING COSTS: Costs incurred in connection with the opening of new stores are expensed in the year the store is opened. Pre-opening costs were $13,971, $7,335 and $6,231 in fiscal 1995, 1994, and 1993, respectively. DEFERRED SERVICE PLAN REVENUE AND WARRANTY RESERVE: Revenue from the sale of extended service contracts, net of direct selling expenses, is recognized straight-line over the life of the contract. Costs related to servicing the plans are expensed as incurred. Estimated costs of promotional contracts, included with products at no cost to the consumer, are accrued as warranty reserve at the time of product sale. EARNINGS PER SHARE: Earnings per share is computed based on the weighted average number of common shares outstanding during each period, adjusted for 1,458,000, 1,300,000 and 902,000 incremental shares assumed issued on the exercise of stock options in fiscal 1995, 1994 and 1993, respectively. All common share and per share information has been adjusted for the three-for-two stock split in September 1993 and the two-for-one stock split in April 1994. Fully diluted earnings per share assumes that the convertible preferred securities were converted into common stock and the interest expense thereon, net of related taxes, is added back to net income. References to earnings per share relate to fully diluted earnings per share. FISCAL YEAR: The Company's fiscal year ends on the Saturday nearest the end of February. All years presented contained 52 weeks. RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform to current year presentation. 2. OBLIGATIONS UNDER FINANCING ARRANGEMENTS The Company has a $180,000 inventory financing credit line. Borrowings are collateralized by a security interest in certain merchandise inventories approximating the outstanding borrowings. The line has provisions that give the financing source a portion of the cash discounts provided by the manufacturers. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- ($ in thousands, except per share amounts) 3. BORROWINGS
FEBRUARY 25 February 26 1995 1994 ----------------------------------------------------------------------- Senior subordinated notes $ 150,000 $ 150,000 Subordinated notes 21,904 21,904 Equipment financing loans 39,622 25,306 Obligations under capital leases 20,739 13,800 Contract for deed 8,700 8,700 --------------------------------- 240,965 219,710 Current portion of long term debt 13,718 8,899 --------------------------------- $ 227,247 $ 210,811 --------------------------------- ---------------------------------
CREDIT AGREEMENT: The Company has a credit agreement (the "Agreement") that contains a revolving credit facility under which the Company can borrow up to $400,000. The Agreement provides that up to $150,000 of the facility is available at all times and an additional $250,000 is available from July 1 to December 31. The Agreement expires in June 1996, and the Company has the option to request an extension of the Agreement for an additional year. Borrowings under the facility are unsecured. Interest on borrowings is at rates specified in the Agreement, as elected by the Company. The Company also pays certain commitment and agent fees. The Agreement contains covenants that require maintenance of certain financial ratios and place limits on owned real estate and capital expenditures. The Agreement also provides that once a year, the Company must repay any amounts outstanding, and for a period of not less than 45 days thereafter, the aggregate principal amount outstanding is limited to $50,000. There were no balances outstanding under the facility at February 25, 1995 and February 26, 1994. The weighted average interest rate under the Company's current and prior credit agreements was 6.21%, 4.44% and 5.10% for fiscal 1995, 1994 and 1993, respectively. SENIOR SUBORDINATED NOTES: In October 1993, the Company issued $150,000 of senior subordinated notes. The notes mature on October 1, 2000, and bear interest at 8.63%. The Company may, at its option, redeem the notes prior to maturity at 102.50% and 101.25% of par in 1998 and 1999, respectively. The Company may be required to offer early redemption in the event of a change in control, as defined. The notes are unsecured and subordinate to the prior payment of all senior debt, which approximates $196,000 at February 25, 1995. The indenture also contains provisions, which limit the amount of additional borrowings the Company may incur and limit the Company's ability to pay dividends and make other restricted payments. SUBORDINATED NOTES: The Company has an $18,000 unsecured, subordinated note outstanding which bears interest at 9.95% and matures on July 30, 1999. In addition, the Company has $3,904 of unsecured, subordinated notes due June 15, 1997 which bear interest at 9.00%. EQUIPMENT FINANCING LOANS: The equipment financing loans require monthly or quarterly payments and have maturity dates between June 1996 and December 1999. The interest rates on these loans range from 7.54% to 11.15%. Furniture and fixtures with a book value of $35,609 are pledged against these loans. OBLIGATIONS UNDER CAPITAL LEASES: The present value of future minimum lease payments relating to certain equipment and a distribution center has been capitalized. The capitalized cost is $27,095 and $17,870 at February 25, 1995, and February 26, 1994, respectively. The net book value of assets under capital leases was $20,176 and $13,439 at February 25, 1995 and February 26, 1994, respectively. CONTRACT FOR DEED: The Company purchased its corporate office building on a contract for deed. The contract for deed calls for semiannual interest payments of $430 with payment of the contract balance on June 12, 1996. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------------- ($ In thousands, except per share amounts) 8. INCOME TAXES In fiscal 1994, the Company adopted FASB Statement No. 109 "Accounting for Income Taxes" (FAS 109) and changed its method of accounting for income taxes from the deferred method to the liability method required by FAS 109. As permitted by FAS 109, prior years' financial statements have not been restated. The cumulative effect of the change as of February 28, 1993 was a charge to earnings of $425. FOLLOWING IS A RECONCILIATION OF THE PROVISION FOR INCOME TAXES TO THE FEDERAL STATUTORY RATE:
1995 1994 1993 ------------------------------------------------------------------------- Federal income tax at the statutory rate $32,918 $23,932 $10,888 State income taxes, net of federal benefit 4,759 3,320 1,412 Jobs tax credit (1,402) (293) (54) Tax exempt investment income (70) (341) (228) Other 195 359 152 Effect of tax rate change on deferred taxes (309) ---------------------------------------- Provision for income taxes $36,400 $26,668 $12,170 ---------------------------------------- ---------------------------------------- Effective tax rate 38.7% 39.0% 38.0% ---------------------------------------- ----------------------------------------
The provision for income taxes consists of the following:
1995 1994 1993 ------------------------------------------------------------------------ Current: Federal $32,435 $25,909 $12,129 State 8,044 5,882 2,628 ---------------------------------------- 40,479 31,791 14,757 ---------------------------------------- Deferred: Federal (3,495) (4,620) (2,118) State (584) (503) (469) ---------------------------------------- (4,079) (5,123) (2,587) ---------------------------------------- Provision for income taxes $36,400 $26,668 $12,170 ---------------------------------------- ----------------------------------------
Deferred taxes under FAS 109 are the result of differences between the basis of assets and liabilities for financial reporting and income tax purposes. Significant deferred tax assets and liabilities consist of the following:
FEBRUARY 25 February 26 1995 1994 -------------------------------------------------------------------------------------- Deferred service plan revenue and warranty reserve $26,396 $18,625 Inventory 2,332 3,326 Compensation and benefits 2,218 1,547 Other-net 1,289 766 ---------------------------- Total deferred tax assets 32,235 24,264 ---------------------------- Property and equipment 7,287 3,988 Other-net 703 110 ---------------------------- Total deferred tax liabilities 7,990 4,098 ---------------------------- Net deferred tax assets $24,245 $20,166 ---------------------------- ----------------------------
The deferred income tax benefit under the previous method of accounting for income taxes for fiscal 1993 is comprised of the following:
Deferred service plan revenue and warranty reserve $ (2,308) Depreciation expense 826 Inventory cost capitalization (497) Reserves for losses not currently deductible (558) Other (50) -------------- $ (2,587) -------------- --------------
The Company believes that the interest on the subordinated note referred to in Note 4 is deductible and that Best Buy Capital will be treated as a partnership for income tax purposes. Income taxes paid were $32,899, $25,442 and $7,174 in fiscal 1995, 1994 and 1993, respectively. 9. LEGAL PROCEEDINGS The Company is involved in various legal proceedings arising during the normal course of conducting business. Management believes that the resolution of these proceedings will not have any material adverse impact on the Company's financial condition. 19 EX-21.1 14 EXHIBIT 21.1 Exhibit 21.1 BEST BUY CO., INC. SUBSIDIARIES OF BEST BUY CO., INC. Best Buy Capital, L.P. BBC Property Co. EX-23.1 15 EXHIBIT 23.1 Consent of Independent Auditors--Ernst & Young, LLP We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1987 Employee Non-Qualified Stock Option Plan (Form 33-54871), the 1994 Full-Time Employee Non-Qualified Stock Option Plan (Form 33-54875), and the 1987 Directors' Non-Qualified Stock Option Plan (Form 33-54873) of Best Buy Co., Inc. of our report dated April 19, 1995, with respect to the consolidated financial statements of Best Buy Co., Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended February 25, 1995. /s/ Ernst & Young LLP Minneapolis, MN May 23, 1995 EX-23.2 16 EXHIBIT 23.2 INDEPENDENT AUDITOR'S CONSENT Deloite & Touche LLP Best Buy Co., Inc. Minneapolis, Minnesota We consent to the incorporation by reference in the Registration Statement of Best Buy Co., Inc. on Form S-8 of our report dated April 13, 1994 on the financial statements for the years ended February 26, 1994 and February 27, 1993, appearing in the Annual Report on Form 10-K of Best Buy Co., Inc. for the year ended February 25, 1995. Such report expresses an unqualified opinion and includes an explanatory paragraph regarding a change in the accounting method for income taxes during the year ended February 26, 1994. /s/ Deloitte & Touche LLP Minneapolis, MN May 23, 1995 EX-27 17 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements for the periods indicated and is qualified in its entirety by reference to such consolidated financial statements. 1,000 12-MOS FEB-25-1995 FEB-27-1994 FEB-25-1995 144,700 0 84,440 0 907,677 1,240,667 325,593 88,116 1,507,125 631,618 227,247 4,221 230,000 0 371,901 1,507,125 5,079,557 5,079,557 4,389,164 4,389,164 568,466 0 27,876 94,051 36,400 57,651 0 0 0 57,651 1.33 1.33