<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______ to_______
Commission file number 1-11014
MUSICLAND STORES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-1623376
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Yellow Circle Drive, Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
(612) 931-8000
(Registrant's telephone number, including area code)
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 / /.
The number of shares outstanding of the Registrant's common stock as of April
30, 1996 was 34,301,956 shares.
Exhibit index on page 15.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition. 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 13
Signature 14
2
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<TABLE>
<CAPTION>
MUSICLAND STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Sales $ 383,570 $ 346,360
Cost of sales 253,737 224,116
------------ ------------
Gross profit 129,833 122,244
Selling, general and administrative expenses 139,489 118,945
Depreciation and amortization 11,559 10,766
Restructuring charge 35,000 -
------------ ------------
Operating loss (56,215) (7,467)
Interest expense 6,672 4,793
------------ ------------
Loss before income taxes (62,887) (12,260)
Income taxes (22,400) (5,946)
------------ ------------
Net loss $ (40,487) $ (6,314)
------------ ------------
------------ ------------
Loss per common share $ (1.21) $ (0.18)
------------ ------------
------------ ------------
Weighted average number of common shares outstanding 33,371 34,251
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
MUSICLAND STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
March 31, December 31,
----------------------------
1996 1995 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,393 $ 1,202 $ 1,971
Inventories 567,605 469,614 533,694
Deferred income taxes 26,700 14,665 17,400
Other current assets 33,179 15,283 20,840
------------- ------------- -------------
Total current assets 628,877 500,764 573,905
Property, at cost 441,876 386,795 446,100
Accumulated depreciation and amortization (136,344) (104,528) (127,783)
------------- ------------- -------------
Property, net 305,532 282,267 318,317
Goodwill 97,507 240,254 98,258
Other assets 6,022 6,354 6,477
------------- ------------- -------------
Total Assets $ 1,037,938 $ 1,029,639 $ 996,957
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks drawn in excess of bank balances $ 4,229 $ 16,975 $ 69,321
Short-term notes payable - 16,700 -
Revolver 296,000 206,000 53,000
Accounts payable 312,157 236,922 403,848
Restructuring reserve 31,391 - -
Other current liabilities 68,371 60,632 108,455
------------- ------------- -------------
Total current liabilities 712,148 537,229 634,624
Long-term debt 110,000 110,000 110,000
Other long-term liabilities 55,266 43,516 52,622
Deferred income taxes 5,200 4,840 3,900
Stockholders' equity:
Preferred stock ($.01 par value; authorized: 5,000,000 shares;
issued and outstanding: none) - - -
Common stock ($.01 par value; authorized: 75,000,000 shares;
issued and outstanding: March 31, 1996 and December 31,
1995, 34,296,956 shares; March 31, 1995, 34,261,856 shares) 343 343 343
Additional paid-in capital 254,350 254,159 254,350
Retained earnings (accumulated deficit) (85,398) 84,525 (44,911)
Deferred compensation (8,998) (8,998)
Common stock subscriptions (4,973) (4,973) (4,973)
------------- ------------- -------------
Total stockholders' equity 155,324 334,054 195,811
------------- ------------- -------------
Total Liabilities and Stockholders' Equity $ 1,037,938 $ 1,029,639 $ 996,957
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
MUSICLAND STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (40,487) $ (6,314)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 11,693 10,881
Restructuring charge 35,000 -
Disposal of property 57 991
Deferred income taxes (8,000) 275
Changes in operating assets and liabilities:
Inventories (33,911) 22,214
Other current assets (12,339) (5,685)
Accounts payable (91,691) (220,314)
Restructuring reserve (440) -
Other current liabilities (40,084) (59,516)
Other assets 308 (519)
Other long-term liabilities 3,404 2,774
----------- -----------
Net cash used in operating activities (176,490) (255,213)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (1,996) (16,020)
----------- -----------
FINANCING ACTIVITIES:
Increase (decrease) in checks drawn in excess of bank balances (65,092) 11,089
Increase in short-term notes payable - 16,700
Borrowings under revolver 243,000 206,000
Proceeds from sale of common stock - 68
----------- -----------
Net cash provided by financing activities 177,908 233,857
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (578) (37,376)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,971 38,578
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,393 $ 1,202
----------- -----------
----------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest $ 3,186 $ 1,586
Income taxes 9,358 17,286
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
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MUSICLAND STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Musicland Stores Corporation ("MSC" or the "Company") and its wholly owned
subsidiary, The Musicland Group, Inc. ("MGI") and MGI's wholly owned
subsidiaries.All material intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying interim consolidated financial statements of the Company
are unaudited; however, in the opinion of management, all adjustments necessary
for a fair presentation of such consolidated financial statements have been
reflected in the interim periods presented. Such adjustments consisted only of
normal recurring items. The Company's business is seasonal and, accordingly,
interim results are not indicative of results for a full year. The significant
accounting policies and certain financial information which are normally
included in financial statements prepared in accordance with generally accepted
accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted. The accompanying consolidated
financial statements of the Company should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K.
2. RESTRUCTURING CHARGE
During the first quarter of 1996, the Company began implementation of a
program designed to improve profitability and increase inventory turnover. A
pretax restructuring charge of $35,000 was recorded in the first quarter of 1996
to establish a reserve for the anticipated costs associated with the closing of
56 underperforming stores and certain facilities. The planned closings are
expected to be completed within a year and include 36 mall stores and 20 non-
mall stores. The restructuring charge includes $17,800 for anticipated non-cash
write-downs of leasehold improvements and certain equipment, net of unamortized
lease credits, and $17,200 of anticipated cash expenditures, primarily
consisting of estimated payments to landlords for the early termination of
operating leases and estimated legal and consulting fees. During the first
quarter of 1996, $3,609 of the restructuring reserve had been utilized,
principally related to the closing of nine mall stores and three non-mall
stores.
3. INCOME TAXES
The effective income tax rates for the three months ended March 31, 1996
and 1995 vary from the federal statutory rate principally as a result of
nondeductible goodwill amortization and state income taxes.
6
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MUSICLAND STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
4. LOSS PER COMMON SHARE
Loss per common share amounts are computed by dividing net loss by the
weighted average number of common shares outstanding. For purposes of loss per
share computations, shares of common stock under the Company's employee stock
ownership plan, established in the third quarter of 1995, are not considered
outstanding until they are committed to be released. Common stock equivalents
related to stock options are anti-dilutive due to the net loss in each period.
7
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Musicland Stores Corporation:
We have reviewed the accompanying consolidated balance sheets of Musicland
Stores Corporation (a Delaware corporation) and Subsidiaries as of March 31,
1996 and 1995, and the related consolidated statements of earnings and cash
flows for the three-month periods then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Musicland Stores Corporation and
Subsidiaries as of December 31, 1995, and, in our report dated April 10, 1996,
we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1995, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 29, 1996
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table presents certain sales and store data for the non-mall
based full-media superstores (Media Play and On Cue), the mall based music and
video sell-through stores (Sam Goody, Musicland and Suncoast Motion Picture
Company) and in total for the Company for the three months ended March 31, 1996
and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
PERCENT OF TOTAL
--------------------------
1996 1995 % CHANGE 1996 1995
------------ ------------ ------------ ------------ ------------
(DOLLARS AND SQUARE FOOTAGE IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES:
Non-mall stores $133.9 $91.4 46.5 % 34.9 % 26.4 %
Mall stores 246.4 251.7 (2.1) 64.2 72.7
Total (1) 383.6 346.4 10.7 100.0 100.0
COMPARABLE STORE SALES % CHANGE:
Non-mall stores (4.8)% 26.8 % N/A N/A N/A
Mall stores (2.3) 0.6 N/A N/A N/A
Total (1) (2.9) 3.5 N/A N/A N/A
STORE COUNT AT END OF PERIOD:
Non-mall stores 248 143 73.4 16.6 10.2
Mall stores 1,224 1,238 (1.1) 81.9 88.7
Total (1) 1,494 1,396 7.0 100.0 100.0
STORE SQUARE FOOTAGE AT END OF PERIOD:
Non-mall stores 5.4 3.1 76.7 54.8 40.9
Mall stores 4.4 4.4 0.6 44.6 58.5
Total (1) 9.9 7.5 31.9 100.0 100.0
</TABLE>
________________________________________
(1) The totals include other divisions which individually are not significant.
SALES. The expansion of non-mall stores accounted for most of the increase
in total sales in 1996. Comparable store sales decreases in both non-mall and
mall stores offset sales growth from the opening of new stores. Comparable
store sales results in the first quarter of 1996 were impacted by the lack of
strong product releases in music and video and the effects of bad weather,
particularly early in the quarter. Additionally, comparable store sales
performance in 1996 is against 1995 increases of 26.8% in non-mall stores and
0.6% in mall stores, which benefited from strong sales of the very successful
LION KING video released February 28, 1995.
The Company's stores continue to face increased competition from non-mall
discount stores, consumer electronics superstores and other music, video and
book specialty retailers expanding into non-mall multimedia superstores of their
own. The low prices offered by these non-mall stores create intense price
competition and adversely affect the performance of both the Company's non-mall
and mall stores. The Company anticipates that the challenging retail sales
environment will continue into the foreseeable future.
9
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GROSS PROFIT. Gross profit as a percentage of sales was 33.8% in the first
quarter of 1996 compared with 35.3% in the first quarter of 1995, a decrease of
1.5%. The higher proportion of sales from the low-price non-mall divisions
relative to total Company sales accounted for 0.8% of the decline. The lowering
of prices in mall stores and increased promotional pricing in both mall and non-
mall stores accounted for the balance of the decrease.
The Company's plan to pursue more aggressive marketing and merchandising
strategies is expected to increase sales volume but negatively impact gross
margin. Additionally, sales growth in the non-mall divisions will further
reduce gross margin in 1996 as their revenues increase as a percentage of the
Company's total sales. This decrease is expected to be partially offset by
lower operating expenses in the non-mall stores, principally related to
occupancy costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Increases in selling,
general and administrative expenses and depreciation and amortization in the
first quarter of 1996 compared with the first quarter of 1995 were primarily due
to the store expansion over the past twelve months. Selling, general and
administrative expenses as a percentage of sales were 36.4% in the first quarter
of 1996 compared with 34.3% in the first quarter of 1995, an increase of 2.1%.
Most of this increase was attributable to the decrease in comparable store sales
coupled with an increase in fixed occupancy costs related to the store expansion
over the past year. The shift in the mix of stores to non-mall stores, which
have a lower cost structure than mall stores, principally related to occupancy
costs, partially offset the expense margin increase. The Company expects that
fixed costs associated with new stores that have not achieved the sales level of
a mature store will continue to negatively impact earnings through the third
quarter of 1996.
RESTRUCTURING CHARGE. During the first quarter of 1996, the Company began
implementation of a program designed to improve profitability and increase
inventory turnover. A pretax restructuring charge of $35 million was recorded
in the first quarter of 1996 to establish a reserve for anticipated costs
associated with the closing of 56 underperforming stores and certain facilities.
The planned closings are expected to be completed within a year and include 36
mall stores and 20 non-mall stores. The restructuring charge includes $17.8
million for anticipated non-cash write-downs of leasehold improvements and
certain equipment, net of unamortized lease credits, and $17.2 million of
anticipated cash expenditures, primarily consisting of estimated payments to
landlords for the early termination of operating leases and estimated legal and
consulting fees. During the first quarter of 1996, $3.6 million of the
restructuring reserve had been utilized, principally related to the closing of
nine mall stores and three non-mall stores.
INTEREST EXPENSE. Interest expense in the first quarter of 1996 increased
$1.9 million over the first quarter of 1995. Interest expense increased $1.0
million due to higher average outstanding borrowings on the revolver and
increased $1.0 million due to an increase in the number of days revolver
borrowings were outstanding. For the three months ended March 31, 1996 and
1995, the average daily revolver balances, based upon the number of days
outstanding, were $232.5 million and $156.3 million, respectively, and the
weighted average interest rates on the revolver, based upon the average daily
balances, were 7.0% and 7.3%, respectively.
10
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In the first quarter of 1996, Moody's Investor's Service, Inc. and Standard
& Poor's Corporation lowered the Company's corporate credit rating and the
rating of its $110 million senior subordinated notes. This downgrade occurred
as a result of recent developments that include the weak retailing environment
coupled with the Company's increased capital requirements because of the
aggressive expansion of non-mall stores in previous years. As a result of the
lower credit rating and an amendment to the Company's credit agreement in April
1996, the annual facility fee rate will increase from 0.30% to 0.50% and the
margin added to variable interest rates on revolver borrowings will increase by
0.93%. "See Liquidity and Capital Resources."
INCOME TAXES. The effective income tax rates for the three months ended
March 31, 1996 and 1995 vary from the federal statutory rate principally as a
result of nondeductible goodwill amortization and state income taxes.
SEASONALITY. The Company's business is highly seasonal, with approximately
40% of the annual revenues and all of the net earnings generated in the fourth
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are internally generated cash and
borrowings under its revolving credit facility pursuant to the terms of its
credit agreement. The revolving credit facility permits borrowings of up to
$350 million (subject to certain limitations and except for the period from
March 29, 1996 through September 10, 1996, during which borrowings are limited
to $325 million) and expires in October 1999. The credit agreement contains
covenants that limit additional indebtedness, liens, capital expenditures and
cash dividends. Additionally, the Company must meet financial covenants
relating to fixed charge coverage, consolidated tangible net worth and debt to
total capitalization. In February 1995, the credit agreement was amended to
revise certain financial covenants and provide the Company with additional
flexibility.
In April 1996, the Company obtained an amendment to its credit agreement
that modified certain existing covenants and approved a restructuring charge of
up to $35 million. The amendment adds financial covenants which require the
Company to meet certain debt and trade payables to eligible inventory ratios and
to reduce outstanding borrowings under the facility to $25 million for one day
during the period from December 15, 1996 to February 15, 1997, and to zero for
one day during the period from December 15 to January 15 in each subsequent
year. The Company was in compliance with all covenants of the credit agreement,
as amended, at the end of the first quarter of 1996.
OPERATING ACTIVITIES. Net cash used in operating activities during the
three months ended March 31, 1996 and 1995 was $176.5 million and $255.2
million, respectively. The lower level of cash used in the first three months
of 1996 was primarily due to the early payments made to certain vendors near the
end of 1995 to obtain discounts. These payments caused the amount of checks
issued but not presented to banks for payment to exceed the Company's bank
balances at December 31, 1995 by $69.3 million. When the changes in checks
drawn in excess of bank balances are included, cash used in operating activities
during the three months ended March 31, 1996 and 1995 was $241.6 million and
$244.1 million, respectively. The most significant operating uses of cash
related to payments after December 31 for seasonal merchandise purchases, as
reflected by the aggregate net changes in inventories, accounts payable and
checks drawn in excess of bank balances during these periods of $190.7 million
and $187.0 million, respectively. Additionally, overall inventory levels have
increased as a result of the non-mall
11
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store expansion and the increase in number of full line mall based music and
video stores, or combo stores, all of which have higher inventory levels than
traditional mall stores.
Changes in the deferred income tax balances and most of the increase in
other current assets during the first three months of 1996 and 1995 from the
year end balances were due to the tax provision (benefit) recorded on the losses
in each quarter. Changes in other operating assets and liabilities are
primarily related to the seasonal nature of the business and store expansion.
INVESTING ACTIVITIES. Most of the Company's capital expenditures are for
store expansion. The Company has aggressively expanded in recent years.
Because of the weak retailing environment during 1995, which adversely impacted
the Company's performance, the Company plans to reduce capital spending to
approximately $25 million in 1996 and to a similar level in 1997. The Company
anticipates that these capital expenditures will be financed by internally
generated cash, borrowings under the revolving credit facility and, to a lesser
extent, landlord contributions and rent abatements. The Company plans to close
approximately 50 nonproductive mall based music stores in 1996, the majority of
which are at or near the end of their lease terms. In addition, the Company
plans to close 56 stores within the next year as part of its restructuring
program. In the first quarter of 1996, nine mall stores and three non-mall
stores were closed under this program. Assets from closed stores will be
redeployed either to new stores or to existing stores that are more profitable.
FINANCING ACTIVITIES. The Company's financing activities principally
consist of borrowings and repayments under its revolving credit facility. The
revolver balance is higher at March 31, 1996 compared to March 31, 1995 as a
result of the store expansion in 1995 and shift in focus to the more capital
intensive Media Play stores. The Company is obligated under operating leases
for its Franklin distribution facility and certain Media Play stores for
residual value guarantees of approximately $25 million and $12 million,
respectively, either at the end of the original four year lease terms in 1999
and 2000, respectively, or at the end of the respective one year renewal terms.
The Company expects that it will be able to obtain adequate financing to meet
its obligations under these lease agreements.
FORWARD-LOOKING STATEMENTS
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are
cautioned that all forward-looking statements involve risks and uncertainty. In
addition to the factors discussed above, among the factors that could cause
actual results to differ materially are the following: strength of new product
offerings, pricing strategies of competitors, effects of weather and overall
economic conditions, including inflation and consumer confidence.
12
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
4.2(c) Amendment No. 2 dated as of April 9, 1996 to the
Credit Agreement _____
10.2(d) Amendment No. 1 dated as of April 9, 1996 to the Lease
Guaranty dated May 12, 1995 between MGI, as Guarantor,
and Media Play Trust, as Landlord _____
10.2(e) Amendment No. 1 dated as of April 9, 1996 to the
Participation Agreement dated May 12, 1995 among
Natwest Leasing Corporation, as Owner Participant, Media
Play Trust, As Trust, Yasuda Bank and Trust Company
(U.S.A.), as Owner Trustee, National Westminster Bank PLC,
as Agent and Lender, Media Play, Inc., as Tenant and the
Long-Term Credit Bank of Japan, Ltd. Chicago Branch and
The Yasuda Trust & Banking Company, Ltd., Chicago Branch,
as Other Lenders _____
15. Letter re unaudited interim financial information _____
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31,
1996.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the period covered.
13
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SIGNATURE
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.
MUSICLAND STORES CORPORATION
By: \s\Reid Johnson
-------------------------------------
Reid Johnson
Executive Vice President and
Chief Financial Officer
(authorized officer, principal
financial and accounting officer)
Date: May 10, 1996
14
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EXHIBIT INDEX
PAPER (P)
EXHIBIT OR ELECTRONIC(E)
------- ----------------
4.2(c) Amendment No. 2 dated as of April 9, 1996 to the
Credit Agreement E
10.2(d) Amendment No. 1 dated as of April 9, 1996 to the Lease
Guaranty dated May 12, 1995 between MGI, as Guarantor,
and Media Play Trust, as Landlord E
10.2(e) Amendment No. 1 dated as of April 9, 1996 to the
Participation Agreement dated May 12, 1995 among
Natwest Leasing Corporation, as Owner Participant,
Media Play Trust, As Trust, Yasuda Bank and Trust
Company (U.S.A.), as Owner Trustee, National Westminster
Bank PLC, as Agent and Lender, Media Play, Inc., as
Tenant and the Long-Term Credit Bank of Japan, Ltd. Chicago
Branch and The Yasuda Trust & Banking Company, Ltd.,
Chicago Branch, as Other Lenders E
15. Letter re unaudited interim financial information E
27. Financial Data Schedules E
15
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EXHIBIT 4.2(c)
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of April 9, 1996 (this
"Second Amendment") amends the Credit Agreement dated as of October 7, 1994 (as
heretofore amended, the "Credit Agreement") among THE MUSICLAND GROUP, INC. (the
"Borrower"), MUSICLAND STORES CORPORATION ("MSC"), various banks (the "Banks")
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (in such capacity, the
"Agent"). Terms defined in the Credit Agreement are, unless otherwise defined
herein or the context otherwise requires, used herein as defined therein.
WHEREAS, the Borrower, MSC, the Banks and the Agent have entered into the
Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of the
Second Amendment Effective Date (as defined below), the Credit Agreement shall
be amended in accordance with Sections 1. 1 through 1.11 below:
1.1 AMENDMENTS TO DEFINITIONS. Section 1.1 shall be amended by:
(a) Amending the definitions of "Aggregate Available Commitment",
"Capital Expenditure", "CD Reference Banks", "Consolidated Net Worth", "Debt",
"EBITDA", "Eligible Inventory Limit", "Euro-Dollar Reference Banks", "Net
Income" and "Trademark Subsidiary" in their entireties to read as follows:
"Aggregate Available Commitment" means at any time the lesser of
(i) the aggregate amount of the Commitments of all Banks, (ii) the Eligible
Inventory Limit and (iii) with respect to the period from March 29, 1996
through September 10, 1996, $325,000,000.
"Capital Expenditure" means, with respect to any Person, any expense
or liability (including liabilities under Capital Leases) incurred or
expenditure made which, in accordance with generally accepted accounting
principles, is required to be capitalized on such Person's balance sheet.
"CD Reference Banks" means Bank of Tokyo Mitsubishi, Ltd., National
Westminster Bank Plc and Morgan Guaranty Trust Company of New York.
"Consolidated Net Worth" means, at any time, the consolidated
stockholder's equity of MSC and its Consolidated Subsidiaries (calculated
without
1
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giving effect to up to $35,000,000 of the 1996 Restructuring Charge) plus
Preferred Stock (excluding any Preferred Stock which is required to be
redeemed, in whole or in part, at any time prior to the date which is
91 days after the Termination Date).
"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, other than (x) trade
accounts payable arising in the ordinary course of business which do not
bear interest, which are payable in accordance with their original terms
or as may be extended in accordance with such Person's customary business
practices as of the date of this Agreement, and which in no event are more
than 30 days past the due date therefor and (y) trade accounts payable of
such Person which are subject to a bona fide dispute between such Person
and the Person claiming payment, (iv) all obligations of such Person as
lessee under Capital Leases, (v) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such
Person and (vi) all Debt of others Guaranteed by such Person.
"EBITDA" means, for any period, Net Income for such period PLUS to
the extent deducted in determining such Net Income, depreciation and
amortization expense, interest on Debt, and all Federal, state or foreign
income taxes PLUS any excess of Rent Expense over actual cash payments for
rent or MINUS any excess of actual cash payments for rent over Rent
Expense.
"Eligible Inventory Limit" means, as of any date, the lesser of
(a) the amount of Debt (as defined in the Senior Subordinated Indenture)
permitted to be incurred by the Borrower and its Subsidiaries pursuant to
Section 3.8(a)(i) (and, to the extent applicable, Section 3.8(a)(vii)) of
the Senior Subordinated Indenture and (b) an amount equal to the
percentage set forth below for such date of Eligible Inventory as of the
last day of the most recent fiscal month for which the Borrower has
delivered to the Agent an Eligible Inventory Certificate:
(i) during the fiscal months of May, June, July, August,
September and October, 60%; and
(ii) during the fiscal months of March and April of each
of 1996 and 1997, 55%; and
(iii) during all other fiscal months, 50%;
PROVIDED that at any time the Status is Level II Status or above, the
"Eligible Inventory Limit" shall be determined solely by reference to
clause (a) above.
"Euro-Dollar Reference Banks" means the principal London offices
of The Bank of Nova Scotia, Bank of Tokyo - Mitsubishi, Ltd., National
Westminster Bank plc and Morgan Guaranty Trust Company of New York.
2
<PAGE>
"Net Income" means for any period the net income of MSC and its
Consolidated Subsidiaries on a consolidated basis for such period minus all
dividends paid on Preferred Stock; PROVIDED that, in calculating such net
income, there shall be excluded (A) any net gains or net losses on the sale
or other disposition, not in the ordinary course of business, of
Investments and other capital assets, together with any related charges
for, reduction of or provisions for taxes thereon; (B) net gains arising
from the collection of the proceeds of insurance policies; (C) any income
or loss from any Subsidiary that is not a Consolidated Subsidiary;
(D) any net gains or net losses resulting from the defeasance of Debt;
(E) earnings from discontinued businesses; (F) up to $35,000,000 of the
1996 Restructuring Charge; (G) any adjustment of intangible assets
pursuant to the application of Financial Accounting Standards Board
Statement No. 121; and (H) any other extraordinary gains or losses.
"Trademark Subsidiary" means TMG-U.K. Delaware, Inc., a Delaware
corporation formerly known as MSC Trade Names, Inc.
(b) Adding the following definitions, each in the appropriate alphabetical
position:
"Consolidated Tangible Net Worth" means, at any time, Consolidated Net
Worth less the value of all goodwill, patents, trademarks, copyrights,
licenses, franchises and other intangible assets of MSC and its
Consolidated Subsidiaries.
"Debt and Trade Payables to Eligible Inventory Ratio" means, at any
time, the ratio of (a) (x) the sum (without duplication) of the Outstanding
Credit Extensions PLUS the outstanding principal amount of all Debt of MSC
and its Subsidiaries that has a maturity at such time of less than one year
(including any Debt that is payable on demand or, at the option of the
obligor thereof in its sole discretion, in less than one year) " all trade
accounts payable of MSC and its Subsidiaries less (y) the amount of all
cash on deposit in Borrower's concentration account and, to the extent it
is to be promptly transferred in the ordinary course of business to the
Borrower's concentration account, in all other demand deposit accounts of
the Borrower and its Subsidiaries to (b) Eligible Inventory.
"1996 Restructuring Charge" means liabilities recorded on the books of
MSC in the first quarter of 1996 in connection with facility closings, for
termination of employees and other related costs.
"Net Securities Proceeds" means, relative to the sale by any Person of
any debt or equity securities, all gross cash proceeds received by such
Person from such sale or issuance, net of all reasonable underwriting
commissions,
3
<PAGE>
private placement fees, investment banking and accounting fees and
disbursements actually paid in connection with such sale or issuance.
(c) Deleting the definition of "Cash Flow to Debt Ratio".
1.2 AMENDMENT TO SECTION 2.8. Section 2.8 shall be amended by
(i) replacing the definition of "London Interbank Offered Rate" in
Section 2.8(c) with the following:
The "London Interbank Offered Rate, applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of it)
of the respective rates per annum at which deposits in dollars are offered
to each of the Euro-Dollar Reference Banks (excluding, if there are three
or more rates so quoted, the highest and lowest rates quoted) in the London
interbank market at approximately 1 1:00 A.M. (London time) two Euro-Dollar
Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loan of such
Euro-Dollar Reference Bank to which such Interest Period is to apply and
for a period of time comparable to such Interest Period.
and (ii) replacing the second sentence in Section 2.8(g) with the following:
If any Reference Bank does not furnish a timely quotation, the Agent shall
(subject to the definition of "London Interbank Offered Rate") determine
the relevant interest rate on the basis of the quotation or quotations
furnished by the remaining Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of Section 8.1
shall apply.
1.3 AMENDMENT TO SECTION 5.7. Section 5.7 shall be amended in its entirety
to read as follows:
SECTION 5.7. FIXED CHARGE COVERAGE RATIO. MSC will not permit the Fixed
Charge Coverage Ratio as of the last day of any fiscal quarter ending
during any period set forth below to be less than the ratio set forth for
such period:
(a) 1.1 to 1.0 for the period from January 1, 1996 to March 31, 1996;
(b) 1.05 to 1.0 for the period from April 1, 1996 to June 30, 1996;
(c) 0.95 to 1.0 for the period from July 1, 1996 to September 30, 1996;
(d) 1.15 to 1.0 for the period from October 1, 1996 to December 31,
1996;
(e) 1.15 to 1.0 for the period from January 1, 1997 to September 30,
1997-1
4
<PAGE>
(f) 1.25 to 1.0 for the period from October 1, 1997 to December 31,
1997;
(g) 1.40 to 1.0 for the period from January 1, 1998 to December 31,
1998; and
(h) 1.45 to 1.0 for the period on and after January 1, 1999.
1.4 AMENDMENT TO SECTION 5.8. Section 5.8 shall be amended in its entirety
to read as follows:
SECTION 5.8. CONSOLIDATED TANGIBLE NET WORTH. MSC will not permit
Consolidated Tangible Net Worth at any time to be less than the sum of
(a) with respect to any period or date set forth below, the amount
set forth across from such period or date
<TABLE>
<CAPTION>
PERIOD OR DATE AMOUNT
-------------- ------
<S> <C>
3/31/96 - 12/30/96 $50,000,000
12/31/96 $80,000,000
1/1/97 - 12/30/97 $50,000,000
12/31/97 $80,000,000
1/1/98 - 12/30/98 $65,000,000
12/31/98 and thereafter $80,000,000
</TABLE>
PLUS (b) 50 percent of the Net Securities Proceeds received by MSC on or
after December 31, 1995 from issuance of its Capital Stock or any rights in
respect thereof PLUS (c) 50 percent of the Net Income for each fiscal year
of MSC ending on or after December 31, 1996 (excluding any fiscal year in
which there is a loss) (PROVIDED that this clause (c) shall be deemed to be
zero during the period from January 1 to September 30 of each of 1996, 1997
and 1998) PLUS (d) 50 percent of any excess of (x) the Net Securities
Proceeds received by the Borrower or any Wholly--olly-Owned Subsidiary of
the Borrower from the sale or other disposition of the Capital Stock of any
Subsidiary over (y) the book value of such Capital Stock, without giving
effect to any writeup or writedown of such book value after March 29, 1996.
For purposes of computing changes in MSC's Consolidated Tangible Net
Worth resulting from any consolidated after-tax net income or loss for any
period other than a full fiscal year, MSC's tax liability or tax benefit
for such period shall be computed using an effective combined federal,
state and local income tax rate of 42% on the consolidated net income or
loss of MSC through such date in lieu of the tax liability or tax benefit
prescribed by GAAP.
5
<PAGE>
1.5 AMENDMENT TO SECTION 5.9. Section 5.9 shall be amended in its entirety
to read as follows:
SECTION 5.9. DEBT TO TOTAL CAPITALIZATION RATIO. MSC will not permit
the ratio of (a) the consolidated Debt of MSC and its Consolidated
Subsidiaries to (b) the sum of (i) the consolidated Debt of MSC and its
Consolidated Subsidiaries plus (ii) Consolidated Net Worth as of the last
day of any fiscal quarter ending during any of the periods set forth
below to be greater than the ratio set forth for such period:
(a) .76 to 1.0 for the period from January 1, 1996 to June 30, 1996;
(b) .78 to 1.0 for the period from July 1, 1996 to September 30, 1996;
(c) .48 to 1.0 for the period from October 1, 1996 to December 31,
1996;
(d) .76 to 1.0 for the period from January 1, 1997 to
September 30, 1997;
(e) .48 to 1.0 for the period from October 1, 1997 to December 31,
1997;
(f) .76 to 1.0 for the period from January 1, 1998 to September 30,
1998;
(g) .48 to 1.0 for the period from October 1, 1998 to December 31,
1998;
(h) .76 to 1.0 for the period from January 1, 1999 to September 30,
1999; and
(i) .48 to 1.0 thereafter.
1.6 AMENDMENT TO SECTION 5.1 1. Clause (h) of Section 5.11 shall be
amended in its entirety to read as follows:
(h) other unsecured Debt of the Borrower and its Subsidiaries;
PROVIDED that the aggregate amount of all such Debt plus all Preferred
Stock shall not at any time exceed the sum of $50,000,000; PROVIDED,
further, that the maximum amount of all Debt permitted by this clause (h)
(the "Maximum Permitted Debt") which constitutes Senior Debt will not at
any time exceed (i) if the current Status is Level I Status, 50% of the
Maximum Permitted Debt and (ii) if the current Status is below Level I
Status, the lesser of (x) 50% of the Maximum Permitted Debt and (y) the sum
of 25% of the Maximum Permitted Debt plus the maximum amount of Synthetic
Lease Obligations which the Borrower and its Subsidiaries could then incur
without violating Section 5.12 below (it being understood that all other
Debt permitted by this clause (h) shall be Subordinated Debt).
6
<PAGE>
1.7 AMENDMENT TO SECTION 5.14. Section 5.14 shall be amended by
(i) deleting the words "the sum of $10,000,000 plus 5% of Consolidated Net
Worth" in clause (c) of Section 5.14 and inserting in lieu thereof
"$20,000,000", (ii) deleting the words "the sum of $10,000,000 plus 5% of
Consolidated Net Worth" in clause (g) of Section 5.14 and inserting in lieu
thereof "$15,000,000" and (iii) deleting "$10,000,000" from the last paragraph
of Section 5.14 and inserting in lieu thereof "$2,000,000."
1.8 AMENDMENT TO SECTION 5.16. Section 5.16 shall be amended in its
entirety to read as follows:
SECTION 5.16 CAPITAL EXPENDITURES. MSC will not, and will not permit any
of its Subsidiaries (other than the Borrower and its Subsidiaries) to, make
any Capital Expenditure. The Borrower will not, and will not permit any of
its Subsidiaries to, make any Capital Expenditure in any fiscal year of MSC
in excess, in the aggregate for the Borrower and its Subsidiaries, of the
sum of the Base Amount for such fiscal year plus the Excess Amount, if
any, for such fiscal year plus the Carryover Amount, if any, for such
fiscal year.
"Base Amount" means, for any fiscal year:
(a) Prior to any adjustment pursuant to paragraphs (b) and (c) below,
the amount set forth below for such fiscal year-.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED BASE AMOUNT
----------------- -----------
<S> <C>
12/31/96 $25,000,000
12/31/97 $25,000,000
12/31/98 $30,000,000
12/31/99 $35,000,000.
</TABLE>
(b) To the extent the Borrower or any of its Subsidiaries receives
any cash benefit such as construction allowances, rent abatements,
contributions to capital or similar items for tenant improvement work, the
Base Amount for the fiscal year in which such cash benefits are received
shall be increased by the amount of such cash benefits to the extent such
amount had previously been recorded as Capital Expenditures.
(c) If the Borrower or any of its Subsidiaries disposes of any asset
pursuant to a sale-leaseback transaction which occurs within one year of
the date of the acquisition of such asset and results in the Borrower or
such Subsidiary being the lessee of such asset pursuant to an Operating
Lease, the Base Amount for the fiscal year in which such sale-leaseback
transaction occurs shall be increased by the lesser of (x) the net cash
proceeds received by the Borrower or such Subsidiary pursuant to such sale-
leaseback transaction and (y) the amount of the Capital Expenditure
incurred in connection with the acquisition of such asset.
7
<PAGE>
"Excess Amount" means, for any fiscal year, an amount equal to 75% of
the net proceeds of issuance of Capital Stock of MSC during such fiscal
year (but only to the extent MSC invests such proceeds in the Borrower).
"Carryover Amount" means, for any fiscal year after 1996, 75% of the
amount, if any, by which (a) the maximum amount of Capital Expenditures
which the Borrower and its Subsidiaries could have made in the prior fiscal
year exceeded (b) the actual Capital Expenditures by the Borrower and its
Subsidiaries during such prior fiscal year.
1.9 AMENDMENT TO SECTION 5.17. Clause (g) of Section 5.17 shall be amended
in its entirety to read as follows:
(g) in the case of the Borrower, any Investment not otherwise
permitted by this Section if, immediately before and after such Investment
is made or acquired, (i) no Default has occurred and is continuing and (ii)
the aggregate amount of all Investments (determined without giving effect
to any write-off or write-down of any Investment after the Effective Date)
permitted by this clause (g) does not exceed $50,000,000.
1.10 ADDITION OF NEW SECTIONS 5.23 AND 5.24. The following Sections 5.23
and 5.24 shall be added to the Credit Agreement:
SECTION 5.23. DEBT AND TRADE PAYABLES TO ELIGIBLE INVENTORY RATIO. MSC
will not permit the Debt and Trade Payables to Eligible Inventory Ratio on
each date set forth below to be greater than the ratio set forth below
across from such date:
<TABLE>
<CAPTION>
DATE RATIO
---- ---------
<S> <C>
12/31/96, 1/31/97, 2/28/97, 1.10 to 1
3/31/97 and 1996 Clean-down Date
Last day of each month beginning 1.15 to 1
4/30/97 and ending 11/30/97
12/31/97 and 1997 Clean-down Date 1.00 to 1
3/31/98 1.05 to 1
6/30/98 and 9/30/98 1.10 to 1
12/31/98 and 1998 Clean-down Date .95 to 1
3/31/99 1.00 to 1
6/30/99 and 9/30/99 1.05 to 1
</TABLE>
For purposes of the foregoing, the 1996 Clean-down Date, 1997 Clean-
down Date and 1998 Clean-down Date shall be the date specified by the
Borrower as the date on which the Borrower is in compliance with Section
5.24 for the periods beginning December 15, 1996, December 15, 1997 and
December 15, 1998, respectively.
8
<PAGE>
SECTION 5.24. CLEAN-DOWN OF LOANS. The Borrower agrees to cause the
aggregate outstanding principal amount of the Loans for one Domestic
Business Day, during the period from December 15 in each year set forth
below to January 15 (or, in the case of the period beginning December 15,
1996, February 15) in the immediately succeeding year, to be equal to or
less than the amount set forth opposite such year below:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
1996 $25,000,000
each year thereafter $0.
</TABLE>
1.11 PRICING SCHEDULE. The Pricing Schedule shall be amended in its
entirety to read as set forth on SCHEDULE I hereto.
SECTION 2 REPRESENTATIONS AND WARRANTIES. The Borrower and MSC represent
and warrant to the Agent and the Banks that (a) except to the extent disclosed
in annual and quarterly filings filed by MSC or the Borrower with the
Securities and Exchange Commission since October 7, 1994, each representation
and warranty set forth in Section 4 of the Credit Agreement is true and
correct as of the date of the execution and delivery of this Second Amendment
by the Borrower and MSC (and assuming the effectiveness hereof, with the same
effect as if made on such date; (b) the execution and delivery by the
Borrower and MSC of this Second Amendment and the performance by the Borrower
and MSC of their respective obligations under the Credit Agreement, as amended
hereby (as so amended, the "Amended Credit Agreement"), (i) are within the
corporate powers of the Borrower and MSC, (ii) have been duly authorized by all
necessary corporate action on the part of the Borrower and MSC, (iii) have
received all necessary governmental and regulatory approval and (iv) do not
and will not contravene or conflict with, or result in or require the creation
or imposition of any Lien under, any provision of Applicable Law or of the
respective certificate of incorporation or by-laws of the Borrower or MSC or
of any agreement, instrument, order or decree which is binding upon the
Borrower or MSC; and (c) the Amended Credit Agreement is the legal, valid and
binding obligation of each of the Borrower and MSC, enforceable against the
Borrower and MSC in accordance with its terms.
SECTION 3 EFFECTIVENESS. The amendments set forth in SECTION 1 above shall
become effective on such date (the "Second Amendment Effective Date") when the
Agent shall have received
(i) counterparts of this Second Amendment executed by the Borrower,
MSC and the Required Banks (it being understood that, in the case of any
Bank, the Agent may rely upon facsimile confirmation of the execution of a
counterpart hereof by such Bank for purposes of determining the
effectiveness hereof.
(ii) for the account of each Bank, an amendment fee equal to 0.25%
of such Bank's Commitment (it being understood that the Agent shall
distribute the applicable fee to each Bank promptly upon receipt thereof;
9
<PAGE>
(iii) an opinion of Linda Alsid Ruehle, Assistant General Counsel
of the Borrower, substantially in the form of Exhibit A hereto; and
(iv) all documents the Agent may reasonably request relating to the
existence of the Borrower and the other Loan Parties, the corporate
authority for and the validity of this Agreement and the other Loan
Documents, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent.
SECTION 4 MISCELLANEOUS.
4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Second Amendment Effective Date, all
references in the Credit Agreement and the other Loan Documents to "Credit
Agreement", "Agreement" or similar terms shall refer to the Amended Credit
Agreement.
4.2 COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Second Amendment.
4.3 GOVERNING LAW. This Second Amendment shall be a contract made under
and governed by the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
4.4 SUCCESSORS AND ASSIGNS. This Second Amendment shall be binding upon
the Borrower, MSC, the Banks and the Agent and their respective successors
and assigns, and shall inure to the benefit of the Borrower, MSC, the Banks
and the Agent and the respective successors and assigns of the Banks and
the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
THE MUSICLAND GROUP, INC.
By
Title:
MUSICLAND STORES CORPORATION
By
Title:
10
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By
Title:
FIRST BANK NATIONAL ASSOCIATION
By
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By
Title:
BANK OF TOKYO - MITSUBISHI, LTD.
By
Title:
NATIONAL WESTMINSTER BANK PLC
By
Title:
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By
Title:
NORWEST BANK MINNESOTA, N.A.
By
11
<PAGE>
Title:
THE BANK OF NOVA SCOTIA
By
Title:
COMERICA BANK
By
Title:
CREDIT AGRICOLE
By
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By
Title:
CREDIT LYONNAIS CHICAGO BRANCH
By
Title:
FIRST INTERSTATE BANK OF CALIFORNIA
By
Title:
THE FUJI BANK, LIMITED
12
<PAGE>
By
Title:
THE HOKKAIDO TAKUSHOKU BANK, LTD.,
NEW YORK BRANCH
By
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
CHICAGO BRANCH
By
Title:
NBD BANK, N.A.
By
Title:
PNC BANK, NATIONAL ASSOCIATION
By
Title:
THE SAKURA BANK, LIMITED
By
Title:
SHAWMUT BANK, N.A.
By
Title:
13
<PAGE>
SOCIETE GENERALE
By
Title:
BANK AUSTRIA AKTIENGESELLSCHAFT
By
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEWYORK, as Agent
By
Title:
14
<PAGE>
EXHIBIT 10.2(d)
FIRST AMENDMENT TO
LEASE GUARANTY
THIS FIRST AMENDMENT TO LEASE GUARANTY (as amended, modified, supplemented,
renewed, extended and/or restated from time to time, this "First Amendment to
Lease Guaranty") made and entered into as of this 9th day of April, 1996, by and
between THE MUSICLAND GROUP, INC., a Delaware corporation, together with any
other Person who may hereafter join in this Guaranty as a guarantor
("Guarantor"), and MEDIA PLAY TRUST, a trust existing under the laws of the
State of New York ("Landlord"), acting through Yasuda Bank and Trust Company
(U.S.A.), a New York state trust company, not in its individual capacity but
solely in its capacity as Owner Trustee of Media Play Trust.
WITNESSETH
WHEREAS, the Guarantor and the Landlord have heretofore entered into that
certain Lease Guaranty dated as of May 12, 1995, by and among the Guarantor and
the Lenders (the "Guaranty"); and
WHEREAS, the Guarantor and the Landlord desire to amend the Guaranty as
hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Guarantor and the Landlord hereby agree as follows:
1. Amendment to Section 14. Section 14 of the Guaranty shall be amended
by adding the following subsection 14(a)(xx) thereto to read as follows:
(xx) Any Affiliate of Guarantor into which any assets of Guarantor's
"Suncoast Division" shall have been transferred, or into which such
transfer is reasonably anticipated (including, without limitation, Suncoast
Motion Picture Company, Inc., a Delaware corporation) shall proceed with an
initial public offering of the common stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
2. Reaffirmation of Representations and Warranties. To induce the
Landlord, the Lenders and the Owner Participant to accept this First Amendment
to Lease Guaranty, the Guarantor hereby reaffirms, as of the date hereof, its
representations and warranties in their entirety contained in the Guaranty and
in all other documents executed pursuant thereto (except to the extent such
representations and warranties relate solely to an earlier date) and
additionally represents and warrants as follows:
(a) This First Amendment to Lease Guaranty has been duly authorized,
executed and delivered by Guarantor and is a legal, valid and binding
obligation of Guarantor, enforceable according to its terms (subject as to
enforcement of remedies to any applicable bankruptcy, reorganization,
moratorium, or other Laws or principles of equity affecting the enforcement
of creditors' rights generally).
<PAGE>
(b) The execution, delivery and performance by Guarantor of this
First Amendment to Lease Guaranty will not result in any violation of any
term of the certificate of incorporation or the by-laws of Guarantor, do
not require stockholder approval or the approval or consent of any trustee
or holders of Debt of Guarantor except such as have been obtained prior to
the date hereof, and will not conflict with or result in a breach of any
terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien upon, any property or assets of
Guarantor under, any indenture, mortgage or other agreement or instrument
to which Guarantor is a party or by which it or any of its property is
bound where breach or default, singly or in the aggregate, could materially
adversely affect the financial condition or credit worthiness of Guarantor,
or any existing applicable law, rule, regulation, license, judgment, order
or decree of any Tribunal having jurisdiction over Guarantor or any of its
activities or properties.
(c) Except as disclosed in writing to Landlord by Guarantor
concurrently herewith, there is no action, suit, proceeding or
investigation at law or in equity by or before any Tribunal now pending or,
to the best knowledge of Guarantor after due inquiry, threatened against or
affecting Guarantor or any property or rights of Guarantor as to which
there is a significant possibility of an adverse determination, and which
if adversely determined, may have a Material Adverse Effect on the
financial condition or business of Guarantor or which, if adversely
determined could materially impair the ability of Guarantor to perform its
obligations under the Guaranty, as amended hereby, and there is no action,
suit, proceeding or investigation at law or in equity by or before any
court, governmental body, agency, commission or other Tribunal now pending
or, to the best knowledge of Guarantor after due inquiry, threatened which
questions or would question the validity of the Guaranty, as amended
hereby, with respect to Guarantor.
3. Reaffirmation of Guaranty. The Guaranty, as amended hereby, is hereby
ratified, approved and confirmed in each and every respect. All references to
the Guaranty herein and in any other document, instrument, agreement or writing
shall hereafter be deemed to refer to the Guaranty, as amended hereby.
4. Defined Terms. Except as amended hereby, terms used herein when
defined in the Guaranty shall have the same meanings therein unless the context
otherwise requires.
5. Multiple Counterparts. This First Amendment to Lease Guaranty has
been executed in a number of identical counterparts, each of which constitutes
an original and all of which constitute, collectively, one agreement.
6. Section Captions. Section captions used in this First Amendment to
Lease Guaranty are for convenience of reference only, and shall not affect the
construction of this First Amendment to Lease Guaranty.
<PAGE>
7. Governing Law. THIS FIRST AMENDMENT TO LEASE GUARANTY SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Lease Guaranty to be duly executed as of the day and year first above written.
GUARANTOR:
THE MUSICLAND GROUP, INC.
a Delaware corporation
By: Timothy J. Scully
Assistant Treasurer
LANDLORD:
MEDIA PLAY TRUST
a trust existing under the laws
of the State of New York
By: Yasuda Bank and Trust Company (U.S.A.),
a New York state trust company, not in its
individual capacity but solely in its capacity
as Owner Trustee of the Media Play Trust
By: Anthony Bocchino
Vice President
ACCEPTED THIS 9TH DAY OF APRIL, 1996
AGENT:
NATIONAL WESTMINSTER BANK Plc
Chicago Branch
By: Theresa Murray
Vice President
<PAGE>
NATIONAL WESTMINSTER BANK Plc
Nassau Branch
By: Theresa Murray
Vice President
OTHER LENDERS:
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.
Chicago Branch
By: Armund Schoen, Jr.
Vice President
THE YASUDA TRUST AND BANKING
COMPANY, LTD.
Chicago Branch
By: Douglas B. Warren
Vice President
OWNER PARTICIPANT
NATWEST MARKETS LEASING CORPORATION
By: Theresa Murray
Vice President and Officer
<PAGE>
EXHIBIT 10.2(e)
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THE FIRST AMENDMENT TO PARTICIPATION AGREEMENT is dated as of April 9, 1996
(as amended, modified, supplemented, renewed, extended and/or restated from time
to time, this "First Amendment to Participation Agreement"), and is among
NATWEST MARKETS LEASING CORPORATION, a Delaware corporation ("Owner
Participant"); MEDIA PLAY TRUST, a trust existing under the laws of the State of
New York pursuant to the terms of that certain Trust Agreement of even date
herewith (the "Trust"); Yasuda Bank and Trust Company (U.S.A.), a New York state
trust company ("Owner Trustee"); NATIONAL WESMINSTER BANK Plc, a bank organized
under the laws of England (acting through its Chicago and Nassau Branches), as
Agent and a Lender ('Agent"); the other Lenders parties to the Participation
Agreement (hereinafter defined), and MEDIA PLAY, INC., a Delaware corporation,
as Tenant ("Tenant").
WITNESSETH
WHEREAS, the Owner Participant, Trust, Owner Trustee and Agent have
heretofore entered into that certain Participation Agreement dated as of May 12,
1995, by and among the Owner Participant, Trust, Owner Trustee and Agent (the
"Participation Agreement"); and
WHEREAS, the Tenant and the Lenders desire to reduce the Construction
Advance Limit to $14,680,000; and
WHEREAS, the Tenant and the Lenders now desire to amend in certain respects
the Participation Agreement as hereinafter provided;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Tenant and the Lenders hereby agree as follows:
1. Amendment to Owner Participant Schedule. All references in the
Participation Agreement referring to the Owner Participant Schedule shall be
changed to refer to the Amended and Restated Owner Participant Schedule attached
hereto.
2. Amendments to Article 1. Article I of the Participation Agreement
shall be amended by amending the definition of "Initial Owner Participant
Investment" in its entirety to read as follows:
"Initial Owner Participant Investment" means an amount not in excess of
$440,400.
3. Effectiveness. The effectiveness of this First Amendment to
Participation Agreement is conditioned upon receipt by the Agent of each of the
requirements for the effectiveness of that certain First Amendment to
Construction Loan Agreement among Trust, Agent, and Lenders dated as of even
date herewith (the "First Amendment to Loan Agreement").
<PAGE>
4. Reaffirmation of Representations and Warranties. To induce the
Lenders, the Agent, and the Owner Participant to enter into this First Amendment
to Participation Agreement, the Tenant hereby reaffirms, as of the date hereof,
its representations and warranties in their entirety contained in the
Participation Agreement and in all other documents executed pursuant thereto
(except to the extent such representations and warranties relate solely to an
earlier date) and additionally represents and warrants that the execution and
delivery by the Tenant of this First Amendment to Participation Agreement and
the other Amendment Documents (as defined in the First Amendment to Loan
Agreement) to which it is a party does not, and the performance or observance by
the Tenant of the terms, conditions or provisions hereof will not conflict with,
violate or result in the breach of any agreement or instrument to which the
Tenant is a party or by which the Tenant, or any of its respective properties is
bound, or constitute a default thereunder.
5. Reaffirmation of Participation Agreement. The Participation
Agreement, as amended hereby, is hereby ratified, approved and confirmed in each
and every respect. All references to the Participation Agreement herein and in
any other document, instrument, agreement or writing shall hereafter be deemed
to refer to the Participation Agreement, as amended hereby.
6. Defined Terms. Except as amended hereby, terms used herein when
defined in the Participation Agreement shall have the same meanings therein
unless the context otherwise requires.
7. Counterparts. This First Amendment to Participation Agreement may be
executed in any number of counterparts, each executed counterpart constituting
an original but all together only one document.
8. Headings. The headings of the sections of this First Amendment to
Participation Agreement are inserted for purposes of convenience only and shall
not be construed to affect the meaning or construction of any of the provisions
hereof.
9. Governing Law. THE FIRST AMENDMENT TO PARTICIPATION AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE with THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE
THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER
JURISDICTION.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Participation Agreement to be duly executed as of the day and year first above
written.
NATWEST MARKETS LEASING CORPORATION,
as Owner Participant
By: Theresa Murray
Vice President and Officer
<PAGE>
MEDIA PLAY TRUST
By: Yasuda Bank and Trust Company (U.S.A.),
not in its individual capacity, but solely in its
capacity as Owner Trustee of the Media Play Trust
By: Anthony Bocchino
Vice President
YASUDA BANK AND TRUST COMPANY
(U.S.A.), as Owner Trustee
By: Anthony Bocchino
Vice President
NATIONAL WESTMINSTER BANK Plc,
as Agent and Lender
By: Theresa Murray
Vice President
MEDIA PLAY, INC.,
as Tenant
By: Timothy J. Scully
Assistant Treasurer
OTHER LENDERS
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
Chicago Branch
By: Armund Schoen, Jr.
Vice President
THE YASUDA TRUST & BANKING COMPANY, LTD.
Chicago Branch
By: Douglas B. Warren
Vice President
<PAGE>
AMENDED AND RESTATED
OWNER PARTICIPANT SCHEDULE
Pursuant to the terms of that certain Participation Agreement dated as of May
12, 1995, as amended by that certain First Amendment thereto dated as of April
9, 1996 (as amended, modified, supplemented, renewed, extended and/or restated
from time to time, the "Participation Agreement") by and among NATWEST MARKETS
LEASING CORPORATION (the "Owner Participant"), MEDIA PLAY TRUST, a trust
existing under the laws of the State of New York (the "Trust"), NATIONAL
WESTMINSTER BANK Plc, as Agent and a Lender, such other Lenders parties thereto
(collectively the "Lenders") and MEDIA PLAY, INC. (the "Tenant"), the Tenant and
the Owner Participant agree that: (i) the Equity Facility Fee shall be one
percent (1.0%) per annum of the Owner Participant Amount; (ii) the "Equity
Default Percentage" (herein so called) shall be two percent (2.0%); and (iii)
the following will constitute the "Owner Participant Margin" referred to in the
definition of "Equity Investment Return" in the Participation Agreement and
shall be used for purposes of determining the Equity Return Rate under the
Participation Agreement:
If the Applicable Rate is the LIBO Rate: 3.00%
If the Applicable Rate is the Base Rate: 1.75%.
TRUST:
MEDIA PLAY TRUST
By: Yasuda Bank and Trust Company (U.S.A.),
not in its individual capacity but solely in its
capacity as Owner Trustee of the Media Play Trust
By: Anthony Bocchino
Vice President
OWNER PARTICIPANT:
NATWEST MARKETS LEASING CORPORATION
By: Theresa Murray
Vice President and Officer
TENANT:
MEDIA PLAY, INC.
By: Timothy J. Scully
Assistant Treasurer
<PAGE>
EXHIBIT 15
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
To Musicland Stores Corporation:
We are aware that Musicland Stores Corporation has incorporated by reference in
its Registration Statements Nos. 33-50520, 35-50522, 33-50524, 33-52322, 33-
82130 and 33-99146, its Form 10-Q for the quarter ended March 31, 1996, which
includes our report dated April 29, 1996, covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of those
registration statements prepared or certified by our firm or reports prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
Arthur Andersen LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MUSICLAND STORES CORPORATION AND SUBSIDIARIES AS
OF MARCH 31, 1996, AND THE RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,393
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 567,605
<CURRENT-ASSETS> 628,877
<PP&E> 441,876
<DEPRECIATION> 136,344
<TOTAL-ASSETS> 1,037,938
<CURRENT-LIABILITIES> 712,148
<BONDS> 0
0
0
<COMMON> 343
<OTHER-SE> 154,981
<TOTAL-LIABILITY-AND-EQUITY> 1,037,938
<SALES> 383,570
<TOTAL-REVENUES> 383,570
<CGS> 253,737
<TOTAL-COSTS> 253,737
<OTHER-EXPENSES> 186,048<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,672
<INCOME-PRETAX> (62,887)
<INCOME-TAX> (22,400)
<INCOME-CONTINUING> (40,487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,487)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES RESTRUCTURING CHARGE OF $35,000
</FN>
</TABLE>
