SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1995 Commission file number 0-6664
K-TEL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0946588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2605 Fernbrook Lane North, Minneapolis, Minnesota 55447-4736
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 559-6888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
At February 7, 1996 there were approximately 3,755,072 common shares
outstanding. K-tel International, Inc. shares are listed on the NASDAQ exchange.
For the quarter ended December 31, 1995, K-tel shares traded within the high and
low bid range of $3.50 to $5.00 compared to a range of $3.50 to $4.25 for the
comparable period in the prior year.
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the quarter ended December 31, 1995
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations
- Three and six months periods ended December 31, 1995 and 1994 3
Consolidated Balance Sheets
- December 31, 1995 and June 30, 1995 4
Consolidated Statements of Cash Flows - Six month periods ended
December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBITS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands - except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
------------- ------------- ------------- -------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 18,792 $ 19,719 $ 35,416 $ 33,480
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of goods sold 10,320 10,695 18,832 17,722
Advertising 3,113 3,590 5,848 5,909
Selling, general & administrative 5,138 5,139 10,127 9,502
------------- ------------- ------------- -------------
Total Costs and Expenses 18,571 19,424 34,807 33,133
------------- ------------- ------------- -------------
OPERATING INCOME 221 295 609 347
------------- ------------- ------------- -------------
NON-OPERATING INCOME (EXPENSE):
Interest income (31) 135 75 163
Interest expense (117) (131) (192) (146)
Foreign currency transaction gain (loss) (11) (61) (1) 15
------------- ------------- ------------- -------------
Total Non-operating Income (Expense) (159) (57) (118) 32
------------- ------------- ------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 62 238 491 379
PROVISION FOR INCOME TAXES (144) (161) (268) (236)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (82) $ 77 $ 223 $ 143
============= ============= ============= =============
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (.02) $ .02 $ .06 $ .04
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,717 3,797 3,792 3,803
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
(in thousands)
December 31, June 30,
1995 1995
-------------------- ------------------
(UNAUDITED)
ASSETS
- -------------------------------------------------------------------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 1,917 $ 2,154
Restricted cash 191 536
Accounts receivable, net 16,766 11,971
Inventories 8,349 7,382
Royalty advances 1,896 2,176
Prepaid expenses 1,697 2,108
Income tax refund receivable 435 540
-------------------- ------------------
Total Current Assets 31,251 26,867
-------------------- ------------------
Property and Equipment 3,000 2,820
Less-Accumulated depreciation and amortization (1,967) (1,797)
------- -------
Property and Equipment, net 1,033 1,023
Other Assets 880 747
-------------------- ------------------
$ 33,164 $ 28,637
==================== ==================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- -------------------------------------------------------------------------
Current Liabilities:
Line of credit $ 4,759 $ 2,516
Accounts payable 5,113 4,929
Accrued royalties 10,506 9,047
Reserve for returns 7,538 6,802
Other current liabilities 2,392 2,517
Income taxes payable 230 373
-------------------- ------------------
Total Current Liabilities 30,538 26,184
-------------------- ------------------
Common stock 37 37
Contributed capital 7,854 7,816
Accumulated deficit (4,698) (4,921)
Cumulative translation adjustment (567) (479)
-------------------- ------------------
Total Shareholders' Investment 2,626 2,453
-------------------- ------------------
$ 33,164 $ 28,637
==================== ==================
</TABLE>
<TABLE>
<CAPTION>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(in thousands)
December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 223 $ 143
Adjustments to reconcile net income to cash used for operating activities:
Depreciation and amortization 300 277
Changes in current operating items:
Restricted Cash 345 (39)
Accounts receivable (4,889) (3,176)
Inventories (1,024) (2,658)
Royalty advances 257 (760)
Prepaid expenses 375 (738)
Current liabilities 2,382 3,365
---------------- ----------------
Cash used for operating activities (2,031) (3,586)
---------------- ----------------
Cash flows from investing activities:
Property and equipment purchases (268) (185)
Proceeds from sale of property and equipment 58 46
Music catalog additions (217) (225)
Other (31) (12)
---------------- ----------------
Cash used for investing activities (458) (376)
---------------- ----------------
Cash flows from financing activities:
Proceeds from line of credit, net 2,243 3,464
Payment of note payable to Affiliate ---- (1,000)
Proceeds from exercise of stock options 38 14
---------------- ----------------
Cash provided by financing activities 2,281 2,478
Effect of exchange rates on cash and cash equivalents (29) 16
---------------- ----------------
Net decrease in cash and cash equivalents (237) (1,468)
Cash and cash equivalents at beginning of year 2,154 4,171
---------------- ----------------
Cash and cash equivalents at period end $ 1,917 $ 2,703
================ ================
</TABLE>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the six month period ended December 31,
1995 are not necessarily indicative of the results that may be expected
for the year as a whole. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K/A for the year ended June 30,
1995.
2. RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("Statement 121"), issued in March 1995 and effective for
fiscal years beginning after December 15, 1995, establishes accounting
standards for the recognition and measurement of impairment of
long-lived assets, and goodwill either to be held or disposed of.
Management believes the adoption of Statement 121 will not have a
material impact on the Company's financial position or results of
operations.
3. SALE OF CONSUMER ENTERTAINMENT BUSINESS
On July 24, 1995, the Board of Directors of the Company approved the
sale of its consumer entertainment business to a corporation controlled
by, Mickey Elfenbein, the Company's President (the Purchaser). The
Company proposed to sell its consumer entertainment business to the
Purchaser by selling to the Purchaser three domestic subsidiaries and
ten foreign subsidiaries (the "Entertainment Subsidiaries") which own
the master recording catalog rights to music recordings and through
which the Company operates its consumer entertainment products business
at a purchase price of $25,000,000, subject to certain adjustments. The
transaction was subject to shareholder approval, Purchaser obtaining
financing and the closing of a related transaction among K-5 Leisure
Products, Inc., a company owned by Philip Kives who is the Chairman of
the Company and owns approximately 66% of the Company's outstanding
shares. Pursuant to the terms of the sale transaction and the related
transaction, any party had the right to terminate if closing did not
occur by November 30, 1995. Subsequent to that date, the parties
continued their efforts to complete the transactions. However, on
January 11, 1996, the Company received written notice from K-5 Leisure
Products that it terminated the related transaction and therefore, the
sale transaction was also terminated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A. Results of Operations
The following tables set forth, for the periods indicated, certain
items from the Company's consolidated statements of operations expressed as a
percentage of net sales.
K-TEL INTERNATIONAL, INC.
RESULTS OF OPERATIONS BY GEOGRAPHIC REGION
(IN 000'S)
<TABLE>
<CAPTION>
Quarter Ended December 31, 1995
------------------------------------------------------------------------
North America Europe Total
------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 11,621 100% $ 7,171 100% $ 18,792 100%
Costs and expenses
Cost of goods sold 6,861 59% 3,459 48% 10,320 55%
Advertising 1,611 14% 1,502 21% 3,113 17%
Selling, general &
administrative 2,900 25% 1,890 26% 4,790 25%
---------- ------- ---------- ------- ---------- --------
Operating Income $ 249 2% $ 320 5% $ 569 3%
========== ======= ========== ======= ========== ========
</TABLE>
(TABLE CONTINUED)
Quarter Ended December 31, 1994
------------------------------------------------------------------------
North America Europe Total
------------------------------------------------------------------------
$ 10,053 100% $ 9,666 100% $ 19,719 100%
6,258 62% 4,437 46% 10,695 54%
1,144 11% 2,446 25% 3,590 18%
2,290 23% 2,512 26% 4,802 25%
---------- -------- ---------- -------- ---------- --------
$ 361 4% $ 271 3% $ 632 3%
========== ======== ========== ======== ========== ========
In addition to the operating amounts above the quarter ended December 31, 1995,
the parent holding company recorded $348,000 in expenses. For the quarter ended
December 31, 1994 the parent holding company recorded $337,000 in expenses. The
increase in costs was mainly due to increased legal and professional fees
associated with the proposed sale of the consumer entertainment business. (see
Note 3 to consolidated financial statements)
K-TEL INTERNATIONAL, INC.
RESULTS OF OPERATIONS BY GEOGRAPHIC REGION
(IN 000'S)
<TABLE>
<CAPTION>
Six Months Ended December 31, 1995
------------------------------------------------------------------------
North America Europe Total
------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 23,247 100% $ 12,169 100% $ 35,416 100%
Costs and expenses
Cost of goods sold 12,946 55% 5,886 48% 18,832 53%
Advertising 3,411 15% 2,437 20% 5,848 17%
Selling, general &
administrative 5,807 25% 3,537 29% 9,344 26%
---------- ------- ---------- ------- ---------- --------
Operating Income (Loss) $ 1,083 5% $ 309 3% $ 1,392 4%
========== ======= ========== ======= ========== ========
</TABLE>
(TABLE CONTINUED)
Six Months Ended December 31, 1994
------------------------------------------------------------------------
North America Europe Total
------------------------------------------------------------------------
$ 17,094 100% $ 16,386 100% $ 33,480 100%
10,275 60% 7,447 46% 17,722 53%
1,494 9% 4,415 27% 5,909 17%
4,133 24% 4,827 29% 8,960 27%
---------- -------- ---------- -------- ---------- --------
$ 1,192 7% $ (303) (2)% $ 889 3%
========== ======== ========== ======== ========== ========
In addition to the operating amounts above for the six months ended December 31,
1995, the parent holding company recorded $783,000 in expenses. For the six
months ended December 31, 1994 the parent holding company recorded $542,000 in
expenses. The increase in costs was mainly due to increased legal and
professional fees associated with the proposed sale of the consumer
entertainment business. (see Note 3 to consolidated financial statements)
A. Results of Operations
For the six months ended December 31, 1995 consolidated net sales were
$35,416,000 with operating income of $609,000 and net income of
$223,000 or $.06 per share. Consolidated net sales for the same period
last year were $33,480,000 with operating income of $347,000 and net
income of $143,000 or $.04 per share.
For the quarter ended December 31, 1995 consolidated net sales were
$18,792,000 with operating income of $221,000 and net loss of $82,000
or $.02 per share. For the same period last year, sales were
$19,719,000 with operating income of $295,000 and net income of $77,000
or $.02 per share.
Consolidated net sales increased $1,936,000 or 6% for the six months
ended December 31, 1995 over the previous year comparable period. North
American net sales were up 36% over the prior year comparable period
due primarily to U.S. music sales success in most of its widely diverse
and expanding product offerings covering nearly all genres of music, as
well as a currently successful direct response television music
infomercial. European sales were down from the prior year comparable
period due mainly to the closure of the Spanish entity at the end of
fiscal 1995. The North American sales increase more than offset the
European sales decrease for the six month period.
Consolidated net sales decreased $927,000 for the quarter ended
December 31, 1995 from the previous year comparable period. North
American sales increased and European sales decreased over the prior
year comparable period for the same reasons as described above. However
for the quarter ended December 31, 1995, the European sales decrease
more than offset the North American sales increase.
Cost of goods sold for the six months ended December 31, 1995 were 53%
of sales compared to 53% for the same period last year, and increased
to 55% for the quarter ended December 31, 1995 compared to 54% for the
previous year comparable period. For the six months and quarter ended
December 31, 1995, North American cost of goods sold, as a percentage
of sales, were less than the prior year comparable periods due mainly
to a successful music television direct response infomercial. Direct
response sales typically carry higher gross margins before advertising
than normal retail sales. European cost of goods sold for the six
months and quarter ended December 31, 1995 increased over prior year
due mainly to a change in business in the United Kingdom, to mostly
lower margin budget music product from a combination of music and
consumer convenience product in the prior year.
Consolidated advertising costs as a percent of sales were 17% for the
six months and quarter ended December 31, 1995. North American
advertising costs as a percent of sales for the six months and quarter
ended December 31, 1995 were greater than the previous year due mainly
to a successful direct response television music infomercial in the
current year (direct response television sales require higher levels of
advertising than retail sales) and a first quarter Canadian television
promotion supporting certain new music product releases. European
advertising costs as a percentage of sales for the six months and
quarter ended December 31, 1995 were less than the previous year due
primarily to the closure of the Spanish entity at the end of fiscal
1995. The Spanish entity sales were mainly direct response television
sales which require higher levels of advertising than retail sales.
Also contributing to the reduction in European advertising costs was
Germany which has had more success in direct response television
promotions in the current year than in the previous year.
Selling, general and administrative expenses for the six month period
ended December 31, 1995 were $10,127,000 or 29% of sales compared to
$9,502,000 or 28% of sales in the prior year comparable period. For the
quarter ended December 31, 1995, selling, general and administrative
expenses were $5,138,000 or 27% of sales compared to $5,139,000 or 26%
of sales in the prior year comparable period. North American selling,
general and administrative expenses were up $1,674,000 and $611,000 for
the six months and quarter ended December 31, 1995, respectively, in
support of sales growth. European selling, general and administrative
expenses were down $1,290,000 and $622,000 for the six months and
quarter ended December 31, 1995, respectively, due mainly to the
closure of the Spanish entity and the restructuring of the German
entity in the fourth quarter ended June 30, 1995. Also contributing to
the current year increase in selling, general and administrative
expenses from the previous year were increased parent holding company
legal and professional expenses associated with the proposed sale of
the consumer entertainment businesses (see Note 3 to the consolidated
financial statements).
Operating income increased to $609,000, for the six months ended
December 31, 1995, from $347,000 for the same period last year.
Operating income decreased to $221,000 from $295,000 for the quarter
ended December 31, 1995 as compared to the same period last year. For
the six months and quarter ended December 31, 1995, North American
operating income is down slightly from the prior year comparable
periods mainly due to selling, general and administrative expense
increases in support of sales growth. European operating income
increased for the six months and quarter ended December 31, 1995 from
the previous year comparable periods due mainly to restructuring of the
German operation and closedown of the Spanish subsidiary in the fourth
quarter ended June 30, 1995 resulting in significant operating
improvement in the current year. Consolidated operating income was also
impacted in the current year by increased parent holding company legal
and professional expenses associated with the proposed sale of the
consumer entertainment businesses (see Note 3 to the consolidated
financial statements).
The Company provided restructuring/closedown charges of $652,000 in
1995 relating to the Company's restructuring/closedown of its Spanish
and German operations. The restructuring/closedown was nearly completed
in the first two quarters of fiscal 1996 and the accrued charge should
accurately reflect the actual costs incurred to complete the
restructuring/closedown.
During the six month period ended December 31, 1995, the Company
experienced a foreign currency transaction loss of $1,000 compared to a
gain of $15,000 experienced in the comparable period in the prior year.
For the quarter ended December 31, 1995, the Company experienced a
foreign currency translation loss of $11,000 compared to a previous
year second quarter loss of $61,000. The Company has a policy to reduce
its foreign currency exchange exposure by hedging its exposure through
the use of forward contracts. Most of the Company's foreign currency
transaction exposure is due to certain European subsidiaries
liabilities which are payable to the Company's U.S. parent or U.S.
subsidiaries. In accordance with generally accepted accounting
principles the payable balances are adjusted quarterly to the local
currency equivalent of the U.S. dollar. Gains or losses resulting from
these intercompany liabilities remain unrealized until such time the
underlying liabilities are settled.
The provision for income taxes was $268,000 and $144,000 for the six
months and quarter ended December 31, 1995, respectively, compared to
$236,000 and $161,000 for the comparable periods last year. Variations
in the Company's tax provision are a factor of the country of origin of
profits and the availability of net operating loss carryforwards.
Operating results for the six month period ended December 31, 1995 are
not necessarily indicative of the results that may be expected for the
year as a whole.
B. Liquidity and Capital Resources
During the six months ended December 31, 1995, cash and cash
equivalents decreased approximately $237,000 to $1,917,000. The overall
decrease in cash was primarily due to net increases in nearly all
current operating items which continued to be driven by sales growth
continuing through the second quarter of fiscal 1996. The related
collections and payments are expected to occur in the third and fourth
quarter of this fiscal year. Part of the cash decrease was offset by
proceeds received under the Company's working capital line of credit.
During the first six months of fiscal 1996 the Company purchased
approximately $711,000 of consumer convenience product from K-tel
International Ltd., a company owned by Mr. Philip Kives, the Chairman
of the Board. The Company owed approximately $381,000 to K-tel
International Ltd. at December 31, 1995. Also, K-tel International Ltd.
purchased approximately $132,000 from the Company during the first six
months ended December 31, 1995 and owed the Company $358,000 at
December 31, 1995. Outstanding balances are settled on a timely basis.
No interest will be charged on the related outstanding balances during
fiscal 1995.
Three of the Company's United States subsidiaries, K-tel International
(USA), Inc., Dominion Entertainment, Inc. and K-tel, Inc. (the
"Subsidiaries") have revolving credit agreements maturing November 30,
1996. The agreements provide for an asset based line of credit not to
exceed $5,500,000 in total, with availability based on a monthly
borrowing base derived from the Subsidiaries' accounts receivable and
inventory. Borrowings are collateralized by the assets of the
Subsidiaries, including accounts receivable, inventories, equipment and
Dominion Entertainment, Inc.'s owned music master recordings. The
Company has also guaranteed all borrowings of the Subsidiaries. The
amounts outstanding under these lines of credit were $4,759,000 at
December 31, 1995. The Subsidiaries are required to maintain minimum
levels of tangible net worth and certain other financial ratios. As of
December 31, 1995 the Subsidiaries were in compliance or have obtained
waivers for these covenants.
Management considers its cash needs for the current fiscal year to be
adequately covered by its operations, borrowings under the TCF lines of
credit or by funding from a company owned by Mr. Kives, the Chairman of
the Board of Directors of the Company. Although management is not privy
to the financial statements of the Chairman's other companies, he has
assured K-tel International, Inc. that he will fund its operations on
an as needed basis consistent with his past practices which have mainly
been by way of giving the Company open ended payment terms on product
purchased from his affiliate companies. On December 31, 1995, the
Company renewed its lines of credit with TCF through November 30, 1996.
On July 24, 1995, the Board of Directors of the Company approved the
sale of its consumer entertainment business to a corporation controlled
by the Company's President and Chief Executive Officer (the Purchaser).
The Company proposed to sell its consumer entertainment business to the
Purchaser by selling to the Purchaser three domestic subsidiaries and
ten foreign subsidiaries (the "Entertainment Subsidiaries") which own
the master recording catalog rights to music recordings and through
which the Company operates its consumer entertainment products business
at a purchase price of $25,000,000. The transaction was subject to
shareholder approval, Purchaser obtaining financing and the closing of
a related transaction among K-5 Leisure Products, Inc., a company owned
by Philip Kives who is the Chairman of the Company and owns
approximately 66% of the Company's outstanding shares. Pursuant to the
terms of the sale transaction and the related transaction, any party
had the right to terminate if closing did not occur by November 30,
1995. Subsequent to that date, the parties continued their efforts to
complete the transactions. However, on January 11, 1996, the Company
received written notice from K-5 Leisure Products that it terminated
the related transaction and therefore, the sale transaction was also
terminated.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
<TABLE>
<S> <C> <C>
10.36 Fourth Amendment to Revolving Credit
Agreement - K-tel USA and Dominion attached to this report as Exhibit 10.36
10.37 Third Amendment of Revolving Credit
Agreement - K-tel, Inc. attached to this report as Exhibit 10.37
10.38 Fifth Amendment to Revolving Credit
Agreement - K-tel USA and Dominion attached to this report as Exhibit 10.38
10.39 Fourth Amendment to Revolving Credit
Agreement - K-tel, Inc. attached to this report as Exhibit 10.39
11 Statement Regarding Computation of Earnings Per Share
27 Financial Data Schedule (SEC use)
</TABLE>
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
K-TEL INTERNATIONAL, INC.
REGISTRANT
/S/ PHILIP KIVES
PHILIP KIVES
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/S/ MICKEY ELFENBEIN
MICKEY ELFENBEIN
PRESIDENT
/S/ MARK DIXON
MARK DIXON
CHIEF FINANCIAL OFFICER
(principal accounting officer)
EXHIBIT 10.36
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND TO REVOLVING NOTE
This Fourth Amendment is made as of this 28th day of November, 1995, by
and between K-TEL INTERNATIONAL (USA), INC., a Minnesota corporation, having its
principal place of business in Plymouth, Minnesota ("K-Tel USA"), and DOMINION
ENTERTAINMENT, INC., a Minnesota corporation, having its principal place of
business in Plymouth, Minnesota ("Dominion"; K-Tel USA and Dominion are
sometimes herein collectively referred to as the "Borrowers" and each is
sometimes individually referred to as a "Borrower"), and TCF BANK MINNESOTA FSB,
a federally chartered stock savings bank (the "Bank").
RECITALS
A. The Borrowers and the Bank have entered into a Revolving Credit
Agreement dated as of July 22, 1994, as amended by a First Amendment to
Revolving Credit Agreement dated as of January 30, 1995, by a Second Amendment
to Revolving Credit Agreement and to Revolving Note dated as of July 20, 1995
and by a Third Amendment to Revolving Credit Agreement dated as of October 2,
1995 (as amended, the "Credit Agreement"), pursuant to which the Bank, subject
to the terms and conditions set forth therein, agreed to make revolving advances
to the Borrowers in the aggregate amount of up to $3,500,000.
B. The Borrowers' joint and several obligation to repay the revolving
advances made by the Bank under the Credit Agreement is evidenced by the
Borrowers' Revolving Note dated October 2, 1995, payable to the Bank's order in
the original principal amount of $3,500,000 (the "Note"), issued in substitution
for, and in replacement of, but not in payment of, the Borrowers' revolving note
dated January 30, 1995, payable to the Bank's order in the original principal
amount of $2,000,000.
C. The Borrowers have requested that the Bank extend the Commitment
Termination Date and the Maturity Date from November 30, 1995 to December 31,
1995.
D. The Bank is willing to grant the Borrowers' request subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. All capitalized terms used in this Fourth Amendment,
unless specifically defined herein, shall have the meanings given to such terms
in the Credit Agreement.
2. Amendment of Existing Definitions. The definitions of "Commitment
Termination Date" and "Maturity Date" in Section 1.1 of the Credit Agreement are
each hereby amended by deleting the date "November 30, 1995" as it appears
therein and by substituting therefor the date "December 31, 1995".
3. Note. The Note is hereby amended by deleting the date "November 30,
1995" as it appears in the first paragraph thereof and by substituting therefor
the date "December 31, 1995".
4. Conditions Precedent. The effectiveness of this Fourth Amendment
shall be subject to the condition precedent that the Bank shall have received
each of the following in form and substance acceptable to the Bank:
(a) Acknowledgment and Agreement of Guarantors attached below.
(b) Such other items as the Bank may require.
5. References. From and after the date of this Fourth Amendment: (i)
all references in the Loan Documents to "the Note" shall be deemed to refer to
the Note as amended by this Fourth Amendment; and (ii) all references in the
Credit Agreement to "this Agreement" shall be deemed to refer to the Credit
Agreement as amended by this Fourth Amendment.
6. No Other Changes. Except as explicitly amended by this Fourth
Amendment, all of the original terms and conditions of the Credit Agreement
shall remain in full force and effect.
7. No Waiver. The execution of this Fourth Amendment and acceptance of
any documents related thereto shall not be deemed to be a waiver of any Default
or Event of Default under the Credit Agreement or any other Loan Document,
whether or not known to the Bank and whether or not such Default or Event of
Default exists on the date of this Fourth Amendment.
8. Release. The Borrowers, and K-Tel International, Inc. and K-Tel,
Inc. by signing the Acknowledgement and Agreement of Guarantors set forth below,
each hereby absolutely and unconditionally releases and forever discharges the
Bank, and any and all participants, parent corporations, subsidiary
corporations, affiliated corporations, insurers, indemnitors, successors and
assigns thereof, together with all of the present and former directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal law or
otherwise, which the Borrower or any Guarantor has had, now has or has made
claim to have against any such person for or by reason of any act, omission,
matter, cause or thing whatsoever arising from the beginning of time to and
including the date of this Fourth Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
9. Expenses. The Borrowers hereby reaffirm their agreement under
Section 8.5 of the Credit Agreement. Without limiting the generality of the
foregoing, the Borrowers specifically agree to pay all fees and disbursements of
counsel to the Bank for the services performed by such counsel in connection
with the preparation of this Fourth Amendment and the documents and instruments
incidental thereto.
10. Counterparts. This Fourth Amendment and the Acknowledgment and
Agreement of Guarantors may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which counterparts, taken together, shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the date first above written.
K-TEL INTERNATIONAL (USA), INC.
By /s/ Mark Dixon
Its Vice President
DOMINION ENTERTAINMENT, INC.
By /s/ Mark Dixon
Its Vice President
TCF BANK MINNESOTA FSB
By /s/ Richard D. Larson
Its Vice President
And
By /s/ Ione M. Niebur
Its Commerical Banking Officer
EX1036.DOC
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, K-Tel International, Inc., and K-Tel, Inc., each a
guarantor of the indebtedness of K-Tel International (USA), Inc. and Dominion
Entertainment, Inc. (together, the "Borrowers") to the Bank pursuant to their
Guaranties dated as of July 22, 1994 and January 30, 1995, respectively, (the
"Guaranties"), each hereby (i) acknowledges receipt of the foregoing Fourth
Amendment; (ii) consents to the terms (including without limitation the release
set forth in paragraph 8 of the foregoing Fourth Amendment) and execution
thereof; (iii) reaffirms its obligations to the Bank pursuant to the terms of
its Guaranty; and (iv) acknowledges and agrees that the Bank may amend, restate,
extend, renew or otherwise modify the Credit Agreement and any indebtedness or
agreement of the Borrowers, or enter into any agreement or extend additional or
other credit accommodations, without notifying or obtaining the consent of the
undersigned and without impairing the liability of the undersigned under its
Guaranty for all of the present and future indebtedness of the Borrowers to the
Bank.
K-TEL INTERNATIONAL, INC.
By /s/ Mark Dixon
Its Vice President
K-TEL, INC.
By /s/ Mark Dixon
Its Vice President
EX1036.DOC
EXHIBIT 10.37
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND TO REVOLVING NOTE
This Third Amendment is made as of this 28th day of November, 1995, by
and between K-TEL, INC., a Minnesota corporation, having its principal place of
business in Plymouth, Minnesota ("Borrower"), and TCF BANK MINNESOTA FSB, a
federally chartered stock savings bank (the "Bank").
RECITALS
A. The Borrower and the Bank have entered into a Revolving Credit
Agreement dated as of January 30, 1995, as amended by a First Amendment to
Revolving Credit Agreement and to Revolving Note dated as of July 20, 1995 and
by Second Amendment to Revolving Credit Agreement dated as of October 2, 1995
(as amended, the "Credit Agreement"), pursuant to which the Bank, subject to the
terms and conditions set forth therein, agreed to make revolving advances to the
Borrower in the aggregate amount of up to $3,000,000.
B. The Borrower's obligation to repay the revolving advances made by
the Bank under the Credit Agreement is evidenced by the Borrower's Revolving
Note dated January 30, 1995, payable to the Bank's order in the original
principal amount of $3,000,000, as amended (the "Note").
C. The Borrower has requested that the Bank extend the Commitment
Termination Date and the Maturity Date from November 30, 1995 to December 31,
1995.
D. The Bank is willing to grant the Borrower's request subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. All capitalized terms used in this Third Amendment,
unless specifically defined herein, shall have the meanings given to such terms
in the Credit Agreement.
2. Amendment of Existing Definitions. The definitions of "Commitment
Termination Date" and "Maturity Date" in Section 1.1 of the Credit Agreement are
each hereby amended by deleting the date "November 30, 1995" as it appears
therein and by substituting therefor the date "December 31, 1995".
3. Note. The Note is hereby amended by deleting the date "November 30,
1995" as it appears in the first paragraph thereof and by substituting therefor
the date "December 31, 1995".
4. Conditions Precedent. The effectiveness of this Third Amendment
shall be subject to the condition precedent that the Bank shall have received
each of the following in form and substance acceptable to the Bank:
(a) Acknowledgment and Agreement of Guarantors attached below.
(b) Such other items as the Bank may require.
5. References. From and after the date of this Third Amendment: (i) all
references in the Loan Documents to "the Note" shall be deemed to refer to the
Note as amended by this Third Amendment; and (ii) all references in the Credit
Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement
as amended by this Third Amendment.
6. No Other Changes. Except as explicitly amended by this Third
Amendment, all of the original terms and conditions of the Credit Agreement
shall remain in full force and effect.
7. No Waiver. The execution of this Third Amendment and acceptance of
any documents related thereto shall not be deemed to be a waiver of any Default
or Event of Default under the Credit Agreement or any other Loan Document,
whether or not known to the Bank and whether or not such Default or Event of
Default exists on the date of this Third Amendment.
8. Release. The Borrower, and K-Tel International, Inc., K-Tel USA and
Dominion, by signing the Acknowledgement and Agreement of Guarantors set forth
below, each hereby absolutely and unconditionally releases and forever
discharges the Bank, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower or any Guarantor has had, now has
or has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Third Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
9. Expenses. The Borrower hereby reaffirms its agreement under Section
8.5 of the Credit Agreement. Without limiting the generality of the foregoing,
the Borrower specifically agrees to pay all fees and disbursements of counsel to
the Bank for the services performed by such counsel in connection with the
preparation of this Third Amendment and the documents and instruments incidental
thereto.
10. Counterparts. This Third Amendment and the Acknowledgment and
Agreement of Guarantors may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which counterparts, taken together, shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed as of the date first above written.
K-TEL, INC.
By /s/ Mark Dixon
Its Vice President
TCF BANK MINNESOTA FSB
By /s/ Richard D. Larson
Its Vice President
And
By /s/ Ione M. Niebur
Its Commerical Banking Officer
EX1037.DOC
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, K-Tel International, Inc., and K-Tel International
(USA), Inc., and Dominion Entertainment, Inc. each a guarantor of the
indebtedness of K-Tel, Inc. (the "Borrower") to the Bank pursuant to their
Guaranties dated as of January 30, 1995, respectively, (the "Guaranties"), each
hereby (i) acknowledges receipt of the foregoing Third Amendment; (ii) consents
to the terms (including without limitation the release set forth in paragraph 8
of the foregoing Third Amendment) and execution thereof; (iii) reaffirms its
obligations to the Bank pursuant to the terms of its Guaranty; and (iv)
acknowledges and agrees that the Bank may amend, restate, extend, renew or
otherwise modify the Credit Agreement and any indebtedness or agreement of the
Borrower, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under its Guaranty for
all of the present and future indebtedness of the Borrower to the Bank.
K-TEL INTERNATIONAL, INC.
By /s/ Mark Dixon
Its Vice President
K-TEL INTERNATIONAL (USA), INC.
By /s/ Mark Dixon
Its Vice President
DOMINION ENTERTAINMENT, INC.
By /s/ Mark Dixon
Its Vice President
EX1037.DOC
EXHIBIT 10.38
FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND TO REVOLVING NOTE
This Amendment is made as of this 28th day of December, 1995, by and
between K-TEL INTERNATIONAL (USA), INC., a Minnesota corporation, having its
principal place of business in Plymouth, Minnesota ("K-Tel USA"), and DOMINION
ENTERTAINMENT, INC., a Minnesota corporation, having its principal place of
business in Plymouth, Minnesota ("Dominion"; K-Tel USA and Dominion are
sometimes herein collectively referred to as the "Borrowers" and each is
sometimes individually referred to as a "Borrower"), and TCF BANK MINNESOTA FSB,
a federally chartered stock savings bank (the "Bank").
RECITALS
A. The Borrowers and the Bank have entered into a Revolving Credit
Agreement dated as of July 22, 1994, as amended by a First Amendment to
Revolving Credit Agreement dated as of January 30, 1995, by a Second Amendment
to Revolving Credit Agreement and to Revolving Note dated as of July 20, 1995,
by a Third Amendment to Revolving Credit Agreement dated as of October 2, 1995
and by a Fourth Amendment to Revolving Credit Agreement and to Revolving Note
dated as of November 28, 1995 (as amended, the "Credit Agreement"), pursuant to
which the Bank, subject to the terms and conditions set forth therein, agreed to
make revolving advances to the Borrowers in the aggregate amount of up to
$3,500,000.
B. The Borrowers' joint and several obligation to repay the revolving
advances made by the Bank under the Credit Agreement is evidenced by the
Borrowers' Revolving Note dated October 2, 1995, payable to the Bank's order in
the original principal amount of $3,500,000 (the "Note").
C. The Borrowers have requested that the Bank extend the Commitment
Termination Date to November 30, 1996 and make certain other changes to the
Credit Agreement.
D. The Bank is willing to grant the Borrowers' request subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless specifically
defined herein, shall have the meanings given to such terms in the Credit
Agreement.
2. Section 1.1 of the Credit Agreement is hereby amended by deleting
the existing definitions of "Commitment Amount", "Commitment Termination Date"
and "Interest Rate Spread" and by substituting therefor the following new
definitions:
"`Commitment Amount' means (i) $3,250,000 from the date of the
Fifth Amendment through and including February 29, 1996, (ii)
$3,000,000 from March 1, 1996 through and including June 30, 1996 and
(iii) $2,750,000 from July 1, 1996 through and including November 30,
1996."
"`Commitment Termination Date' means November 30, 1996 or the
earlier termination of the Commitment pursuant to Section 7.2 hereof."
"`Interest Rate Spread' means (i) one and one-half of one
percent (1.50%) through and including December 31, 1995 and (ii) one
and three-quarters of one percent (1.75%) from and after January 1,
1996."
3. Section 1.1 of the Credit Agreement is hereby amended by adding the
following new definitions of "Capital Base", "Fifth Amendment" and "Subordinated
Debt" in the appropriate alphabetical location:
"`Capital Base' of any Person means, at any date, the sum of
the Tangible Net Worth of such Person plus the Subordinated Debt of
such Person at such date."
"`Fifth Amendment' means that certain Fifth Amendment to
Revolving Credit Agreement and to Revolving Note dated as of
December 28th, 1995, between the Bank and the Borrowers."
"`Subordinated Debt' of any Person means indebtedness for
borrowed money of such Person which has been subordinated in right of
payment to such Person's indebtedness to the Bank on terms accepted in
writing by the Bank."
4. Section 5.7 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.7 Current Ratio of K-Tel USA. K-Tel USA will
maintain at all times the ratio of its Current Assets to Current
Liabilities at not less than 1 to 1.
5. Section 5.8 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.8 Debt to Capital Base Ratio of K-Tel USA. K-Tel
USA will maintain at all times the ratio of its Debt to Capital Base at
not more than 5.0 to 1."
6. Section 5.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.9 Debt to Capital Base Ratio of Dominion. Dominion
will maintain at all times the ratio of its Debt to Capital Base at not
more than .40 to 1."
7. Section 5.10 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.10 Capital Base of K-Tel USA. K-Tel USA will
maintain at all times its Capital Base in an amount not less than
$3,000,000."
8. Section 5.11 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.11 Capital Base of Dominion. Dominion will maintain
at all times its Capital Base in an amount not less than $2,300,000."
9. Section 6.7(b) of the Credit Agreement is hereby amended to read as
follows:
"(b) Accounts receivable from and advances to Affiliates of
K-Tel USA; provided, however, without the Bank's prior written consent,
(i) the aggregate amount of accounts receivable from and advances to
K-Tel, Inc. shall not exceed $3,000,000 in the aggregate at any time,
(ii) the aggregate amount of accounts receivable from and advances to
K-Tel International shall not exceed $6,000,000 in the aggregate at any
time, and (iii) the aggregate amount of accounts receivable from and
advances to all Affiliates of K-Tel USA other than K-Tel, Inc. and
K-Tel International shall not exceed $4,000,000 in the aggregate at any
time."
10. Section 6.13 of the Credit Agreement is hereby amended to read as
follows:
"Section 6.13 Capital Expenditures. Without the Bank's prior
written consent, neither Borrower will make any Capital Expenditure
(excluding any Capital Expenditure permitted below which is made to
acquire copyrights in Sound Recordings, Compilations and Compositions
or long-term licenses (having a term of more than 5 years) of
copyrights) during its fiscal year ended June 30, 1996 or in any fiscal
year thereafter. K-Tel USA will not make any Capital Expenditure to
acquire copyrights in Sound Recordings, Compilations and Compositions
or long-term licenses (having a term of more than 5 years) of
copyrights. Dominion will not make any Capital Expenditure to acquire
copyrights in Sound Recordings, Compilations or Compositions or
long-term licenses (having a term of more than 5 years) of copyrights
if, after giving effect to any such Capital Expenditure, (i) the
aggregate amount of Capital Expenditures made by Dominion to acquire
copyrights in Sound Recordings, Compilations, Compositions and
long-term licenses of copyrights would exceed $2,500,000 from the date
of this Agreement through the Commitment Termination Date or (ii) the
Borrowers would not be in compliance with all provisions of this
Agreement."
11. The Note is hereby amended by deleting the date "December 31, 1995"
as it appears in the first paragraph thereof and by substituting therefor the
date "November 30, 1996".
12. The effectiveness of this Amendment shall be subject to the
condition precedent that the Bank shall have received each of the following in
form and substance acceptable to the Bank:
(a) A certified copy of the resolutions of the Board of
Directors of K-Tel USA evidencing approval of this Amendment and the
other matters contemplated hereby, certified by the Secretary or
Assistant Secretary of K-Tel USA as being a true, correct and complete
copy thereof which has been duly adopted and is in full force and
effect, together with a certificate of such Secretary or Assistant
Secretary of K-Tel USA certifying the names and true signatures of the
officers of K-Tel USA authorized to sign this Amendment and the other
documents to be delivered by K-Tel USA hereunder.
(b) A certified copy of the resolutions of the Board of
Directors of Dominion evidencing approval of this Amendment and the
other matters contemplated hereby, certified by the Secretary or
Assistant Secretary of Dominion as being a true, correct and complete
copy thereof which has been duly adopted and is in full force and
effect, together with a certificate of such Secretary or Assistant
Secretary of Dominion certifying the names and true signatures of the
officers of Dominion authorized to sign this Amendment and the other
documents to be delivered by Dominion hereunder.
(c) A Certificate of the Secretary of K-Tel USA certifying as
to (1) the fact that the articles of incorporation and bylaws of K-Tel
USA, which were previously certified and delivered to the Bank continue
in full force and effect and have not been amended or otherwise
modified except as set forth in the Certificate to be delivered.
(d) A Certificate of the Secretary of Dominion certifying as
to (1) the fact that the articles of incorporation and bylaws of
Dominion, which were previously certified and delivered to the Bank
continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be
delivered.
(e) Acknowledgment and Agreement of Guarantors attached below.
(f) Such other items as the Bank may require.
13. From and after the date of this Amendment: (i) all references in
the Loan Documents to "the Note" shall be deemed to refer to the Note as amended
by this Amendment; and (ii) all references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended by this
Amendment.
14. Except as explicitly amended by this Amendment, all of the original
terms and conditions of the Credit Agreement shall remain in full force and
effect.
15. The execution of this Amendment and acceptance of any documents
related thereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or any other Loan Document, whether or not
known to the Bank and whether or not such Default or Event of Default exists on
the date of this Amendment.
16. The Borrowers, and K-Tel International, Inc. and K-tel, Inc. by
signing the Acknowledgement and Agreement of Guarantors set forth below, each
hereby absolutely and unconditionally releases and forever discharges the Bank,
and any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or equity or
upon contract or tort or under any state or federal law or otherwise, which the
Borrower or any Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
17. The Borrowers hereby reaffirm their agreement under Section 8.5 of
the Credit Agreement. Without limiting the generality of the foregoing, the
Borrowers specifically agree to pay all fees and disbursements of counsel to the
Bank for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
thereto.
18. This Amendment and the Acknowledgment and Agreement of Guarantors
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
K-TEL INTERNATIONAL (USA), INC.
By /s/ Mark Dixon
Its Vice President
DOMINION ENTERTAINMENT, INC.
By /s/ Mark Dixon
Its Vice President
TCF BANK MINNESOTA FSB
By /s/ Richard D. Larson
Its Vice President
And
By /s/ Jason Korstange
Its Senior Vice President
EX1038.DOC
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, K-Tel International, Inc., and K-Tel, Inc., each a
guarantor of the indebtedness of K-Tel International (USA), Inc. and Dominion
Entertainment, Inc. (together, the "Borrowers") to the Bank pursuant to their
Guaranties dated as of July 22, 1994 and January 30, 1995, respectively, (the
"Guaranties"), each hereby (i) acknowledges receipt of the foregoing Fifth
Amendment; (ii) consents to the terms (including without limitation the release
set forth in paragraph 16 of the foregoing Fifth Amendment) and execution
thereof; (iii) reaffirms its obligations to the Bank pursuant to the terms of
its Guaranty; and (iv) acknowledges and agrees that the Bank may amend, restate,
extend, renew or otherwise modify the Credit Agreement and any indebtedness or
agreement of the Borrowers, or enter into any agreement or extend additional or
other credit accommodations, without notifying or obtaining the consent of the
undersigned and without impairing the liability of the undersigned under its
Guaranty for all of the present and future indebtedness of the Borrowers to the
Bank.
K-TEL INTERNATIONAL, INC.
By /s/ Mark Dixon
Its Vice President
K-TEL, INC.
By /s/ Mark Dixon
Its Vice President
EX1038.DOC
EXHIBIT 10.39
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND TO REVOLVING NOTE
This Amendment is made as of this 28th day of December, 1995, by and
between K-TEL, INC., a Minnesota corporation, having its principal place of
business in Plymouth, Minnesota ("Borrower"), and TCF BANK MINNESOTA FSB, a
federally chartered stock savings bank (the "Bank").
RECITALS
A. The Borrower and the Bank have entered into a Revolving Credit
Agreement dated as of January 30, 1995, as amended by a First Amendment to
Revolving Credit Agreement and to Revolving Note dated as of July 20, 1995, by a
Second Amendment to Revolving Credit Agreement dated as of October 2, 1995 and
by a Third Amendment to Revolving Credit Agreement and to Revolving Note dated
as of November 28, 1995 (as amended, the "Credit Agreement"), pursuant to which
the Bank, subject to the terms and conditions set forth therein, agreed to make
revolving advances to the Borrower in the aggregate amount of up to $3,000,000.
B. The Borrower's obligation to repay the revolving advances made by
the Bank under the Credit Agreement is evidenced by the Borrower's Revolving
Note dated January 30, 1995, payable to the Bank's order in the original
principal amount of $3,000,000, as amended (the "Note").
C. The Borrower has requested that the Bank extend the Commitment
Termination Date to November 30, 1996 and make certain other changes to the
Credit Agreement.
D. The Bank is willing to grant the Borrower's request subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless specifically
defined herein, shall have the meanings given to such terms in the Credit
Agreement.
2. Section 1.1 of the Credit Agreement is hereby amended by deleting
the existing definitions of "Borrowing Base", "Commitment Amount", "Commitment
Termination Date", "Interest Rate Spread", "Subordinated Debt" and "Returns" and
by substituting therefor the following new definitions:
"`Borrowing Base' means, at any time, the lesser of the
Commitment Amount or the sum of
(i) 75% of Eligible Accounts, less Returns, computed on
the basis of the most recent Borrowing Base
Certificate furnished to the Bank under Section
5.1(e); plus
(ii) the lesser of (a) 40% of Eligible Inventory or (b)
$1,500,000, computed on the basis of the most recent
Borrowing Base Certificate furnished to the Bank
under Section 5.1(e); minus
(iii) the amount of all deposits made into the Borrower's
Collateral Account since the date of the most recent
Borrowing Base Certificate furnished to the Bank
under Section 5.1(e); minus
(iv) the amount of the Borrower's inventory reserve
maintained pursuant to Section 5.10, which inventory
reserve shall in no event be less than $300,000 at
any time."
"`Commitment Amount' means $2,500,000."
"`Commitment Termination Date' means November 30, 1996 or the
earlier termination of the Commitment pursuant to Section 7.2 hereof."
"`Interest Rate Spread' means (i) one and one-half of one
percent (1.50%) through and including December 31, 1995 and (ii) one
and three-quarters of one percent (1.75%) from and after January 1,
1996."
"`Subordinated Debt' of any Person means indebtedness for
borrowed money of such Person which has been subordinated in right of
payment to such Person's indebtedness to the Bank on terms accepted in
writing by the Bank; provided, however, for purposes of Section 5.8 and
5.9 of this Agreement, the Subordinated Debt of the Borrower shall not
include at any time any indebtedness for borrowed money owed by the
Borrower to K-Tel USA which is in excess of an aggregate amount of
$1,000,000."
"`Returns' means, as of the date of determination, 10% of the
Borrower's billed and unpaid Accounts."
3. Section 1.1 of the Credit Agreement is hereby amended by adding the
following new definitions of "Capital Base" and "Fourth Amendment" in the
appropriate alphabetical location:
"`Capital Base' of any Person means, at any date, the sum of
the Tangible Net Worth of such Person plus the Subordinated Debt of
such Person at such date."
"`Fourth Amendment' means that certain Fourth Amendment to
Revolving Credit Agreement and to Revolving Note dated as of December
28th, 1995, between the Bank and the Borrower."
4. Section 5.7 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.7 Current Ratio. The Borrower will maintain at all
times the ratio of its Current Assets to Current Liabilities at not
less than 1.0 to 1."
5. Section 5.8 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.8 Debt to Capital Base Ratio. The Borrower will
maintain at all times the ratio of its Debt to Capital Base Ratio at
not more than 9.0 to 1."
6. Section 5.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.9 Capital Base. The Borrower will maintain at all
times its Capital Base at not less than $550,000."
7. Article V of the Credit Agreement is hereby amended by adding the
following new Section 5.10 immediately following Section 5.9:
"Section 5.10 Minimum Inventory Reserve. The Borrower shall at
all times maintain an inventory reserve in an amount not less than
$300,000."
8. Section 6.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 6.9 Capital Expenditures. Without the Bank's prior
written consent, the Borrower will not make any Capital Expenditure if,
after giving effect to such Capital Expenditure, the aggregate amount
of Capital Expenditures made by the Borrower during its fiscal year
ended June 30, 1996 or in any fiscal year thereafter would exceed
$100,000 in the aggregate."
9. The effectiveness of this Amendment shall be subject to the
condition precedent that the Bank shall have received each of the following in
form and substance acceptable to the Bank:
(a) A certified copy of the resolutions of the Board of
Directors of the Borrower evidencing approval of this Amendment and
other matters contemplated hereby, certified by the Secretary or
Assistant Secretary of the Borrower as being a true, correct and
complete copy thereof which has been duly adopted and is in full force
and effect, together with a certificate of such Secretary or Assistant
Secretary of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to sign this Amendment and the
other documents to be delivered by the Borrower hereunder.
(b) A Certificate of the Secretary of the Borrower certifying
as to (1) the fact that the articles of incorporation and bylaws of the
Borrower, which were previously certified and delivered to the Lender
continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be
delivered.
(c) Acknowledgment and Agreement of Guarantors attached below.
(d) Such other items as the Bank may require.
10. From and after the date of this Amendment all references in the
Credit Agreement to "this Agreement" shall be deemed to refer to the Credit
Agreement as amended by this Amendment.
11. Except as explicitly amended by this Amendment, all of the original
terms and conditions of the Credit Agreement shall remain in full force and
effect.
12. The execution of this Amendment and acceptance of any documents
related thereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or any other Loan Document, whether or not
known to the Bank and whether or not such Default or Event of Default exists on
the date of this Amendment.
13. The Borrower, and K-Tel International, Inc., K-Tel International
(USA), Inc. and Dominion Entertainment, Inc., by signing the Acknowledgement and
Agreement of Guarantors set forth below, each hereby absolutely and
unconditionally releases and forever discharges the Bank, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower or any Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
14. The Borrower hereby reaffirms its agreement under Section 8.5 of
the Credit Agreement. Without limiting the generality of the foregoing, the
Borrower specifically agrees to pay all fees and disbursements of counsel to the
Bank for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
thereto.
15. This Amendment and the Acknowledgment and Agreement of Guarantors
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
K-TEL, INC.
By /s/ Mark Dixon
Its Vice President
TCF BANK MINNESOTA FSB
By /s/ Richard D. Larson
Its Vice President
And
By /s/ Jason Korstange
Its Senior Vice President
EX1039.DOC
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, K-Tel International, Inc., and K-Tel International
(USA), Inc., and Dominion Entertainment, Inc. each a guarantor of the
indebtedness of K-Tel, Inc. (the "Borrower") to the Bank pursuant to their
Guaranties dated as of January 30, 1995, respectively, (the "Guaranties"), each
hereby (i) acknowledges receipt of the foregoing Fourth Amendment; (ii) consents
to the terms (including without limitation the release set forth in paragraph 13
of the foregoing Fourth Amendment) and execution thereof; (iii) reaffirms its
obligations to the Bank pursuant to the terms of its Guaranty; and (iv)
acknowledges and agrees that the Bank may amend, restate, extend, renew or
otherwise modify the Credit Agreement and any indebtedness or agreement of the
Borrower, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under its Guaranty for
all of the present and future indebtedness of the Borrower to the Bank.
K-TEL INTERNATIONAL, INC.
By /s/ Mark Dixon
Its Vice President
K-TEL INTERNATIONAL (USA), INC.
By /s/ Mark Dixon
Its Vice President
DOMINION ENTERTAINMENT, INC.
By /s/ Mark Dixon
Its Vice President
EX1039.DOC
Exhibit 11
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
For the Quarters ended December 31, 1995 and 1994
1995 1994
------- -------
Primary earnings per share --
Weighted average number of issued
shares outstanding 3,717 3,711
Effect of:
Stock Incentive Plan -- 86
------- -------
Shares outstanding used to compute
primary earnings per share 3,717 3,797
======= =======
Net Income (Loss) $ (82) $ 77
======= =======
Primary earnings (loss) per share $ (.02) $ .02
======= =======
Fully diluted earnings per share --
Weighted average number of shares used for
primary earnings per share 3,717 3,797
Effect of:
Stock Incentive Plan -- 8
------- -------
Shares outstanding used to compute
fully diluted earnings per share 3,717 3,805
======= =======
Net Income (Loss) $ (82) $ 77
======= =======
Fully diluted earnings (loss) per share $ (.02) $ .02
======= =======
Exhibit 11
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
For the six months ended December 31, 1995 and 1994
1995 1994
------ ------
Primary earnings per share --
Weighted average number of issued
shares outstanding 3,713 3,710
Effect of:
Stock Incentive Plan 79 93
------ ------
Shares outstanding used to compute
primary earnings per share 3,792 3,803
====== ======
Net Income $ 223 $ 143
====== ======
Primary earnings per share $ .06 $ .04
====== ======
Fully diluted earnings per share --
Weighted average number of shares used
for primary earnings per share 3,792 3,803
Effect of:
Stock Incentive Plan -- --
------ ------
Shares outstanding used to compute
fully diluted earnings per share 3,792 3,803
====== ======
Net Income $ 223 $ 143
====== ======
Fully diluted earnings per share $ .06 $ .04
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,917
<SECURITIES> 0
<RECEIVABLES> 16,766
<ALLOWANCES> 0
<INVENTORY> 8,349
<CURRENT-ASSETS> 31,251
<PP&E> 3,000
<DEPRECIATION> (1,967)
<TOTAL-ASSETS> 33,164
<CURRENT-LIABILITIES> 30,538
<BONDS> 0
3,792
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,164
<SALES> 35,416
<TOTAL-REVENUES> 223
<CGS> 18,832
<TOTAL-COSTS> 34,807
<OTHER-EXPENSES> (118)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (192)
<INCOME-PRETAX> 491
<INCOME-TAX> (268)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
