<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. 333-______________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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MUSICLAND STORES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1623376
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10400 Yellow Circle Drive, Minnetonka, Minnesota 55343
(Address, including zip code, of Registrant's Principal Executive Offices)
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Heidi M. Hoard, Vice President, General Counsel and Secretary
Musicland Stores Corporation
10400 Yellow Circle Drive
Minnetonka, Minnesota 55343
(612) 931-8050
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement shall become effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be registered Offering Price Aggregate Offering Registration Fee
registered Per Share (1) Price (1)
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<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 3,813,388 shares $12.3125 $46,952,339.75 $13,850.94
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</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
in accordance with Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
3,813,388 SHARES
MUSICLAND STORES CORPORATION
COMMON STOCK
This Prospectus relates to up to 3,813,388 shares of the Common Stock,
par value $.01 per share (the "Common Stock"), of Musicland Stores
Corporation ("MSC") which may be sold from time to time by some or all of the
shareholders named herein (the "Potential Selling Shareholders"). The Common
Stock is listed on the New York Stock Exchange under the symbol "MLG". On
April 27, 1998 the closing price of the Common Stock as reported on the New
York Stock Exchange Composite Tape was $12.125 per share.
The shares of Common Stock registered hereby (the "Shares") may be sold for
the account of and by the persons named under the caption "Potential Selling
Shareholders." The Shares comprise (i) shares of Common Stock that may be
acquired by certain Potential Selling Shareholders pursuant to their exercise of
warrants (the "Warrants") issued to certain lenders of The Musicland Group, Inc.
("MGI" and together with MSC, the "Company") in June 1997 and (ii) certain
currently outstanding shares of Common Stock that were acquired as restricted
shares (the "Restricted Shares") by certain Potential Selling Shareholders who
were members of management (the "Management Investors") at the time of the
acquisition of MGI by MSC in August 1988. See "Potential Selling Shareholders."
The Shares may be sold from time to time in transactions on the open market or
in negotiated transactions, in each case at prices satisfactory to the Potential
Selling Shareholders. (See "Plan of Distribution.") The Company will not receive
any proceeds from any sales of the Shares. The Company will receive the amounts
payable in connection with the exercise of the Warrants and the transferability
payments related to the Restricted Shares. See "Use of Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make on
behalf of the Company or the Potential Selling Shareholders any
representations, other than those contained in this Prospectus, in connection
with the offer made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the
Company or the Potential Selling Shareholders. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
security other than the securities offered hereby, or an offer to sell or
solicitation of an offer to buy such securities in any jurisdiction in which
such offer or solicitation is not qualified or to any person to whom such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained or incorporated by
reference herein is correct as of any date subsequent to the date hereof.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1998
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information........................................... 1
Incorporation of Certain Documents by
Reference....................................................... 2
The Company..................................................... 3
Risk Factors.................................................... 4
Use of
Proceeds........................................................ 10
Potential Selling
Shareholders..................................................... 11
Plan of
Distribution..................................................... 13
Legal Matters.................................................... 13
Experts.......................................................... 13
</TABLE>
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission a Registration Statement under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Shares offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto, or amendments thereto, to which
reference is hereby made. Such reports, proxy and information statements,
Registration Statement and exhibits and other information filed by the Company
may be inspected and, upon payment of the Commission's customary charges, copied
at the public reference facilities of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at Suite 1300, 7 World Trade Center, New York, New
York 10048, and at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
companies, including the Company, that file electronically with the Commission
at http://www.sec.gov.
The Company's Common Stock is listed on the New York Stock Exchange.
Reports, proxy and information statements and other information concerning the
Company may be inspected and copied at the Library of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(Commission file number 1-11014) are incorporated herein by reference and made a
part hereof:
1. The Annual Report on Form 10-K for the year ended December 31, 1997
(which incorporates by reference certain information contained in the
Company's 1997 Proxy Statement) (the "1997 10-K");
2. The Current Reports on Form 8-K dated March 18, 1998 and April 2, 1998
(the "1998 8-K-s"); and
3. The description of Common Stock of MSC contained in the Registration
Statement on Form S-1 covering Common Stock initially filed on July 6,
1990, which was incorporated by reference in the Form 8-A Registration
Statement filed by MSC on January 16, 1992.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereunder shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will furnish, without charge, to any person to whom this
Prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information that has been incorporated by reference in the
Registration Statement of which this Prospectus is a part (not including
exhibits to such information unless such exhibits are specifically incorporated
by reference into such information). Any such request should be directed to the
Vice President and Treasurer or the Assistant Treasurer, at Musicland Stores
Corporation, 10400 Yellow Circle Drive, Minnetonka, Minnesota 55343; telephone:
(612) 931-8439.
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THE COMPANY
The Company is the leading specialty retailer of prerecorded music in the
United States and is one of the largest national full-media retailers of music,
video sell-through, books, computer software and related products. The Company's
stores operate under two principal strategies: (i) mall based music and video
sell-through stores (the "Mall Stores"), operating under the principal trade
names Sam Goody and Suncoast Motion Picture Company ("Suncoast"), and (ii)
non-mall based full-media superstores (the "Superstores") operating under the
trade names Media Play and On Cue. At December 31, 1997, the Company operated
1,363 stores in 49 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands and the United Kingdom. For the year ended December 31,
1997, the Company had consolidated revenues of $1.8 billion, including $1.2
billion from the Mall Stores and $0.6 billion from the Superstores, and EBITDA
(earnings before interest, income taxes, depreciation and amortization) of $85.4
million.
Beginning in 1995, the Company's financial results began to deteriorate as
a result of: (i) aggressive expansion of product offerings and new store
openings by most of the Company's non-mall competitors; (ii) severe price
discounting of music products by certain non-mall competitors; (iii) a lack of
strong selling hits in the music industry, which depressed sales throughout the
industry; and (iv) the Company's own rapid expansion of Media Play stores in
response to encouraging initial results. During 1997 the Company completed
restructuring programs that had been initiated by management in 1996 to improve
the Company's cash flow and profitability. The major components of the
restructuring programs included: (i) closing 114 underperforming stores, which
in the last full year of their operations lost an aggregate of approximately
$17.7 million on an operating contribution basis; (ii) closing one of the
Company's two distribution centers, which reduced the Company's working capital
investment by approximately $20 million and contributed to a $6.9 million
reduction in distribution costs in 1997; and (iii) improving inventory
management techniques, which increased the Company's inventory turnover from 1.8
times during 1996 to 2.1 times during 1997. Inventory levels at year-end 1997
were $55.8 million below those of the prior year with approximately $30 million
of the reduction due to store closings and the remainder attributable to
distribution efficiencies and improved inventory management. The Company reduced
Media Play advertising expense by $7.9 million in 1997 from the prior year as a
result of closing stores in entire markets and the introduction of a less
costly, but more targeted, program of newspaper advertising inserts. In
addition, in 1997 the Company began to benefit from positive trends in the music
retailing industry, including a retreat from severe price discounting and an
increase in unit sales. As a result, the Company's EBITDA increased from $35.1
million in 1996 to $85.4 million in 1997, and comparable store sales improved
from a decrease of 0.6% in 1996 to an increase of 4.5% in 1997.
The Company closed 106 stores in 1997 and has closed a total of 236
underperforming stores over the last three years, including 114 stores closed in
1997 and 1996 under the restructuring programs. The majority of the closed
stores were near the end of their lease terms. The consolidation of distribution
facilities into a single facility in Franklin, Indiana was completed in January
1997 with the closing of the distribution center in Minneapolis, Minnesota. The
Company opened three new stores during 1997. The Company intends to limit store
growth in 1998 and will focus on making improvements to existing stores.
MSC is a Delaware corporation. The address of its principal executive
offices is 10400 Yellow Circle Drive, Minnetonka, Minnesota 55343 and its
telephone number is (612) 931-8000. The principal asset of Musicland Stores
Corporation is 100% of the outstanding common stock of The Musicland Group, Inc.
("MGI"), and, since its formation, MSC has engaged in no independent business
operations. MSC and MGI, together with MGI's subsidiaries, are collectively
referred to herein as the "Company," unless the context indicates otherwise.
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RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following in the context of
the more complete disclosure in the Company's 1997 10-K before making an
investment in the Shares.
RISK ASSOCIATED WITH SUBSTANTIAL INDEBTEDNESS AND LIQUIDITY
The Company is highly leveraged. On a pro forma basis, after giving effect to
the issuance (in April 1998) of $150.0 million principal amount of 9 7/8% Senior
Subordinated Notes due 2008 (the "2008 Notes"), and use of proceeds therefrom,
the Company's long-term debt (including current maturities) at December 31, 1997
was $308.8 million. In addition, on a pro forma basis, after giving effect to
the issuance of the 2008 Notes, and use of proceeds therefrom, the Company's
consolidated ratio of long-term debt (including current maturities) to
stockholders' equity would have been 16.5:1 at December 31, 1997. The highest
balance outstanding under the Company's revolving credit agreement (the
"Revolver Agreement") during the year ended December 31, 1997 was $273.0
million, the average daily balance was $238.5 million and the weighted average
interest rate, based on such average daily balance, was 8.0%. In 1997 the
Company maintained an average month-end cash balance of $45.8 million and
borrowed $50 million under a term loan agreement (the "Term Loan Agreement") in
September 1997.
The Company used the net proceeds from the sale of the 2008 Notes to pay
amounts outstanding under the Revolver Agreement and other senior debt. The
coupon rate on the 2008 Notes is higher than the blended interest rate on the
senior debt which was repaid. The combined aggregate commitments under the
Revolver Agreement and the Term Loan Agreement is currently $182.0 million. The
indebtedness under these agreements bears interest at floating rates, causing
the Company to be sensitive to changes in prevailing interest rates. The
Revolver Agreement will expire, and all amounts must be repaid thereunder, on
October 7, 1999. The Term Loan Agreement must be repaid in installments of $25.0
million on each of December 14, 1998 and February 15, 1999. There is no
assurance that the Company will be able to enter into new credit arrangements
or, if able to do so, that such arrangements will be on favorable terms.
The Company's indebtedness and related financial covenants could
significantly limit its ability to withstand competitive pressures or adverse
economic conditions, make acquisitions, obtain future financing, or take
advantage of business opportunities that may arise.
Beginning in 1995, the Company's financial results began to deteriorate as a
result of: (i) aggressive expansion of product offerings and new store openings
by most of the Company's non-mall competitors; (ii) severe price discounting;
(iii) a lack of strong selling hits in the music industry, which depressed sales
throughout the industry, and (iv) the Company's own rapid expansion of Media
Play stores in response to encouraging initial results. In 1996 the Company
initiated restructuring programs designed to improve the Company's cash flow and
profitability. The major components of the restructuring programs included: (i)
closing 114 underperforming stores; (ii) closing one of the Company's two
distribution centers; and (iii) improving inventory management techniques, which
increased the Company's inventory turnover. Because of the deterioration of the
Company's financial results and the incurrence of restructuring charges, the
Company would not have been in compliance with the financial covenants in the
Revolver Agreement without certain amendments and waivers to the Revolver
Agreement that were received throughout 1996 and in the first quarter of 1997.
In June 1997, the Company completed agreements with its lenders to amend the
Revolver Agreement and to provide additional financing
4
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under the Term Loan Agreement. Also during the first quarter of 1997, the
Company's largest vendors and a substantial majority of its remaining vendors
agreed to temporarily defer existing trade payables and provide continued
product supply, subject to payment terms reduced to ten days or less on new
purchases. During the third quarter of 1997, the Company completed individual
agreements or understandings with most of these vendors, including the ten
largest, for the repayment of the deferred trade payables balances and to return
to normal credit terms. The Company completed repayment of deferred trade
payables during the fourth quarter of 1997.
The Company is obligated to make substantial principal and interest payments
on indebtedness under the Revolver Agreement, the Term Loan Agreement, the 2008
Notes and the $110 million 9% Senior Subordinated Notes due 2003 (the "2003
Notes"). The ability of the Company to make payments of principal and interest
on its indebtedness will be largely dependent upon its future performance, which
will be subject to factors affecting its business and operations, many of which
are beyond its control. There can be no assurance that the Company will be able
to generate sufficient cash flow, or that future borrowings will be available in
an amount sufficient, to cover all required interest and principal payments.
RECENT NET LOSSES
During the years ended December 31, 1995 and 1996, the Company incurred net
losses of $135.8 million and $193.7 million, respectively. These losses were the
result of many factors, primarily the write-down of goodwill and also including
restructuring charges, changes in the competitive environment, lack of hit music
product and the Company's rapid expansion of its Media Play concept. As a result
of these losses and the Company's liquidity problems, the Company's independent
auditors included a going concern qualification in their report for fiscal 1996.
During the years ended December 31, 1996 and December 31, 1997, the Company
implemented the restructuring programs described above under "-Risk Associated
with Substantial Indebtedness and Liquidity." In fiscal 1997, the Company had
net earnings of $14.0 million. This improvement was aided by the recent positive
trends in the music retailing industry, including a retreat from severe price
discounting and an increase in unit sales. There can be no assurance that the
restructuring programs will continue to result in positive financial results,
that the positive trends in the music industry will continue, that the negative
trend in the video industry will not worsen, or that the current competitive
environment will be sustained.
RISK OF COMPETITION
The Company operates in highly competitive markets which are generally local
or individual in nature. The Company competes, on the basis of service,
selection and price, with a broad range of specialty, discount and other
retailers, and certain national chains, some of whom have greater financial and
marketing resources than the Company. The number of stores and types of
competitors have increased significantly over recent years, including non-mall
discount stores, consumer electronic superstores, and mall based music, video
and book specialty retailers expanding into non-mall multimedia stores. The low
prices offered by these non-mall stores have created intense price competition
and adversely impacted the performance of both the Company's Superstores and
Mall Stores. Although deep discount pricing by many retailers of entertainment
products abated somewhat in 1997, there can be no assurance that if such
practice returns the Company will continue to achieve satisfactory gross margins
while remaining competitive.
In addition, the Company competes for consumer time and spending with all
leisure time activities, such as movie theaters, television, home computing and
internet use, live theater, sporting facilities and spectator events, travel,
amusement parks, and other family entertainment
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centers. The Company's ability to compete successfully depends on its ability to
secure and maintain attractive and convenient locations, market and manage
merchandise attractively and efficiently, offer an extensive product selection
and knowledgeable customer service and provide effective management.
RISK OF RESTRICTIONS IMPOSED BY LENDERS
The Company's Revolver Agreement and, to a lesser extent, the Term Loan
Agreement and indentures covering the 2003 Notes and 2008 Notes contain certain
financial covenants which, among other things, limit the ability of the Company
to incur indebtedness, make investments, create or permit liens, make capital
expenditures, make guarantees and pay dividends. Additionally, the Company is
required to meet certain financial covenants under the Revolver Agreement and
Term Loan Agreement. Because of the highly competitive environment and the
decline in the Company's financial results, the Company experienced difficulty
meeting the financial covenants under the Revolver Agreement throughout 1996. As
a result, the Company obtained a series of amendments and waivers beginning in
April 1996 and ending with the amendment completed in June 1997. There can be no
assurance that, despite its recent improved results, the Company may not
experience such difficulty in the future and/or may require additional
financing. If the Company were unable to comply with the covenants under the
Revolver Agreement, such indebtedness could be declared immediately due and
payable.
RISK OF AVAILABILITY OF HIT PRODUCTS
Entertainment product sales are dependent to some extent upon the
availability of hit products, which can create cyclical trends that do not
necessarily follow trends in the general economy. It is not possible to
determine the timing of these cycles or the future availability of hit products.
The availability of hit product is important for generating customer traffic in
the Company's stores. During recent years, industry growth and sales of music
and video products slowed due to the lack of strong new releases. Although the
situation in the music industry improved in fiscal 1997, the Company has no
control over the availability and strength of hit products and is dependent upon
the major music and movie producers continuing to produce a minimal number of
current hits. To the extent that current hits are not available, or not
available at prices attractive to consumers, the Company's business may be
adversely affected.
RISK FROM NEW TECHNOLOGIES
The Company believes that the introduction of new home entertainment
products, such as DVD, can help increase sales. This benefit, however, is
dependent upon acceptance by consumers of the new technology and availability
of product for consumer purchase. The switch of consumers from one format to
another, such as the shift from records to audio cassettes and the later shift
from cassettes to compact discs, may also reduce sales of the existing format.
The Company intends to monitor carefully such technology shifts and to adjust as
necessary to respond to customer demand. Sales may be adversely affected and
product returns may be increased if the Company does not carry the right balance
of old and new formats. There can be no assurance that the Company will be
successful in interpreting the desires of consumers or predicting which of any
new technologies or formats will be accepted by consumers. Although the Company
believes DVD products may contribute to sales growth, there can be no assurance
that DVD will gain significant consumer acceptance generally or among the
Company's customers. Even if DVD is successful, any significant impact on sales
may not be seen for several years.
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In addition to the emergence of new technologies affecting product offerings,
emerging technologies are facilitating the offering by the internet, cable
companies, direct broadcast satellite companies, telephone companies and other
telecommunications companies of a wide selection of music and video services to
consumers. The Company expects this trend to continue. There is no assurance
that these new technologies will not have an adverse impact on sales.
UNCERTAINTY OF LEASE RENEWALS
All but three of the Company's stores are under operating leases with terms
ranging from 3 to 25 years. A total of 168 leases without renewal options will
expire in fiscal 1998 and 1999. Although the Company has historically been
successful in renewing most of its store leases when they have expired, there
can be no assurance that the Company will continue to be able to do so on
favorable terms or at all, particularly in light of the recent restructuring
programs. If the Company is unable to renew leases for its stores as they
expire, or find acceptable locations on favorable terms, there can be no
assurance that such failures will not have a material adverse effect on the
Company's financial condition or results of operations.
RELATIONSHIPS WITH VENDORS
The Company obtains approximately 68% of its product from the ten largest
vendors. Continued delivery of product to the Company by its vendors is critical
to the Company's operating results. During 1996, the Company experienced some
problems with delivery of product by vendors who were concerned about the
Company's financial viability. During the first quarter of 1997, the Company's
largest vendors and a substantial majority of the remaining vendors agreed to
temporarily defer existing trade payables and provide continued product supply,
subject to payment terms reduced to ten days or less on new purchases. During
the third quarter of 1997, the Company completed individual agreements or
understandings with most of its vendors, including the ten largest, for the
repayment of trade payables balances and the return to normal credit terms. The
Company completed repayment of the deferred trade payables during the fourth
quarter of 1997. There can be no assurance that the Company may not experience
similar financial difficulties in the future or that the vendors would in such
case provide the Company with deferred or other favorable payment terms to allow
the Company to receive product.
SEASONALITY RISK
The Company's business is highly seasonal. During the years ended December
31, 1997 and 1996, nearly 40% of the Company's annual revenues and all of its
net income, if any, were generated during the fourth quarter. Quarterly results
are affected by the timing and strength of new releases, the timing of holidays,
new store openings and sales performance of existing stores. There can be no
assurance that economic conditions will not adversely affect the Company's sales
and earnings, particularly during the fourth quarter of the year.
RISKS ASSOCIATED WITH FUTURE GROWTH
SALES AND EARNINGS GROWTH
The Company's sales and earnings growth are primarily dependent upon
increasing revenues in existing stores, which will be affected by various
industry and competitive factors discussed herein and in the Company's filings
with the Commission. In addition, the Company's profitability is dependent on
the economic environment in general and the level of consumer spending. Many
mall based specialty retailers have experienced weak comparable store sales in
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recent periods. The Company experienced negative comparable store sales in
fiscal 1996. Comparable store sales of music product were slightly up in fiscal
1996 and strongly up in fiscal 1997. However, comparable store sales of video
product were slightly negative in fiscal 1996 and increased only negligibly in
fiscal 1997. There can be no assurance that comparable sales of video product
will improve or that they will not deteriorate further. During fiscal 1995 and
1996, the Company's operating results were affected by the high fixed cost of
poorly performing stores, both mall stores and non-mall stores. These results
have been attributed in part to the growth of non-mall superstores and power
shopping centers that have attracted the mall customer base. In an effort to
improve results, the Company closed 114 stores, including 30 Media Play stores,
and, in fiscal 1996, reported restructuring charges totaling $75 million to
reflect the cost of these closings and other steps taken. During 1997, the
Company initiated certain changes in the size, design, and merchandise offerings
of Media Play in an attempt to improve the operating results of this concept. In
1997, after implementing the restructuring programs, the Media Play concept
became profitable, on an operating contribution basis, for the first time. The
improvement efforts are continuing during 1998. There can be no assurance that
these efforts will be successful. Although the Company's operating results
improved in fiscal 1997, there can be no assurance that such results will
continue. There can also be no assurance that a deterioration in general
economic, industry or other conditions would not adversely affect the Company's
business.
GROWTH THROUGH NEW STORE OPENINGS; AVAILABILITY OF CAPITAL FOR STORE
EXPANSION
The Company may also increase revenues by opening or acquiring additional
stores. The opening of new stores is contingent upon the availability of
desirable locations and the negotiation of suitable lease terms, and the
acquisition of stores is dependent upon the availability of desirable stores at
acceptable prices. Any expansion will depend on business conditions, the
availability of desirable sites obtainable on an acceptable economic basis, the
ability to attract and retain qualified managers and sales associates and the
availability of sufficient capital. There can be no assurance that the Company
will be able to open any new stores, or open them on a timely basis, or that
they can be operated profitably. To the extent the Company's rate of expansion
is slower than historical levels, the Company's sales growth may be adversely
affected. In addition, the success of new stores is dependent upon acceptance by
customers. During 1997, the Company initiated certain changes in the size,
design, and merchandise offerings of Media Play in an attempt to improve
operating results. These efforts are continuing during 1998. There can be no
assurance that these efforts will be successful.
In 1998, the Company anticipates spending approximately $20 million to
remodel and expand existing stores. The Company expects that substantially all
future capital expenditures will be funded by net cash provided by operating
activities. The amount of any additional capital needed will depend upon the
profitability of the Company's existing stores. There can be no assurance that
any needed capital will be available on terms acceptable to the Company.
CERTAIN ANTITAKEOVER PROVISIONS CONSIDERATIONS
The Company's Restated Certificate of Incorporation and Bylaws include a
number of provisions that could have the effect of making more difficult or
discouraging a proxy contest, a merger involving the Company, a tender offer, an
open-market purchase program or other purchases of Common Stock that could give
shareholders the opportunity to realize a premium over the then-prevailing
market price for their shares of Common Stock. Those provisions include: (i) a
requirement that a vote of the holders of at least 80% of the outstanding Common
Stock is required to effect a merger or consolidation with any person or entity
owning 5% or more of the Common Stock of the Company (an "Interested Person"), a
sale of all or substantially all of the
8
<PAGE>
assets of the Company to an Interested Person and certain other control
transactions; (ii) a requirement that all shareholder actions must be taken at a
meeting; (iii) a classified Board of Directors, and (iv) a requirement that a
vote of the holders of at least 80% of the outstanding Common Stock is required
to amend most provisions of the Certificate of Incorporation. In addition, the
Company is subject to the provisions of Section 203 of the Delaware Law
requiring either approval by the Board of Directors prior to any business
combination with an interested stockholder (as defined in Section 203) or, on or
after the date of any such business combination, the approval of two-thirds of
the outstanding voting stock not including the voting stock held by the
interested stockholder.
NO DIVIDENDS
The Company has not paid any dividends with respect to its Common Stock and
has no intention to pay dividends in the foreseeable future. The Company's
current financing agreements limit the extent to which the Company can pay
dividends.
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of such shares for future sales,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. At March 13, 1998, there were outstanding 34,487,940 shares of Common
Stock.
RISK OF DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the active participation of certain key
personnel, the loss of whom could have a material adverse effect on the Company.
The Company has taken certain steps to minimize these risks by executing
employment agreements with Messrs. Eugster, Benson, Wachsman and Ross.
RISK OF FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE
The Company has assessed its systems and equipment with respect to Year 2000
compliance and has developed a project plan. Many of the Year 2000 issues,
including the processing of credit card transactions, have been addressed. The
remaining Year 2000 issues will either be addressed with scheduled system
upgrades or through the Company's internal systems development staff. The
incremental costs will be charged to expense as incurred and are not expected to
have a material impact on the financial position or results of operations of the
Company. However, the Company could be adversely impacted if Year 2000
modifications are not properly completed by either the Company or its vendors,
banks or any other entity with whom the Company conducts business.
9
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company's filings with the Commission contain forward-looking statements
that involve a number of risks and uncertainties. A number of factors could
cause actual results, performance, achievements of the Company, or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to, the competitive environment in the
entertainment industry, especially for music and video product, inflation,
changes in costs of goods and services, economic conditions in general and in
the Company's business, demographic changes, changes in prevailing interest
rates and the availability of and terms of financing to fund the anticipated
growth of the Company's business, the ability to attract and retain qualified
personnel, the significant indebtedness of the Company, changes in the Company's
acquisition and capital expenditure plans, and other factors referenced herein
and in the Company's filings with the Commission. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and dates that may be incorrect or imprecise and involve known and unknown
risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates," "intends" or the negative of any thereof, or other variations
thereon or comparable terminology, or by discussions of strategy or intentions.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to announce publicly the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
USE OF PROCEEDS
The Company will not receive any proceeds from any sales of the Shares by the
Potential Selling Shareholders. However, upon the exercise of the Warrants from
time to time by certain of the Potential Selling Shareholders, the Company will
receive $1.5625 per share, for a total of approximately $2.8 million. In
addition, the Management Investors must pay the Company a transferability
payment (either $2.4975 or $4.4975 per share as applicable, for a total of
approximately $5.0 million) prior to selling any of the Restricted Shares. The
Company will use all such proceeds for working capital and other general
corporate purposes. See "Potential Selling Shareholders."
10
<PAGE>
POTENTIAL SELLING SHAREHOLDERS
In connection with MGI's Term Loan Agreement completed in June 1997, the
Company issued Warrants for the purchase of an aggregate of 1,822,087.16 shares
of Common Stock to the lenders party to the Term Loan Agreement (along with
their assigns, the "Warrant Holders") in such amounts proportionate to each
lender's commitment. The Warrants can be traded and entitle the Warrant Holders
to purchase shares of Common Stock at an exercise price of $1.5625 per share.
The Warrants cover an aggregate of 1,822,080 whole shares of Common Stock and
the remainder are for fractional shares which will be paid in cash upon
exercise. The Warrants are currently exerciseable and will remain exercisable
until June 16, 2002. The exercise price of the Warrants and the number of shares
covered thereby adjust proportionately in the event that the number of
outstanding shares of the Company's Common Stock is changed as a consequence of
any stock dividend, stock split, combination of shares and certain other events.
The following table sets forth the names of the Warrant Holders, the number
of shares of Common Stock beneficially owned by each as of the date of this
Prospectus, including the shares purchasable upon exercise of the Warrants, the
number of Shares registered hereby and the number of shares of Common Stock
which will be owned if all such Shares are sold:
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
POTENTIAL SELLING SHAREHOLDER OWNED UPON INCLUDED IN THIS OWNED IF ALL
EXERCISE OF ALL REGISTRATION INCLUDED SHARES
WARRANTS ARE SOLD
<S> <C> <C> <C>
Morgan Guaranty Trust Company of NY 273,313 273,313 0
JMG Convertible Investments LP 259,837 259,837 0
Triton Capital Investments, Ltd. 259,242 259,242 0
PNC Bank, N.A. 163,987 163,987 0
The Long Term Credit Bank of Japan, Ltd 154,877 154,877 0
Societe Generale 154,877 154,877 0
Hour, L.L.C. 148,313 148,313 0
Donaldson, Lufkin, Jenrette Securities Corp. 120,220 120,220 0
NationsBank, N.A. 109,325 109,325 0
First Trust Corporation TTEEFBO Lawrence 100,000 100,000 0
J. Rawson IRA ,SSN ###-##-####
Credit Lyonnais, New York Branch 78,089 78,089 0
</TABLE>
MSC acquired MGI in a leveraged buyout on August 25, 1988. As part of the
acquisition, the officers of MGI at the time, the Management Investors, entered
into a subscription agreement with the Company pursuant to which they purchased
approximately 21% of MSC's then outstanding shares of Common Stock, including
2,200,000 non-restricted shares at a purchase price of $2.50 per share and
2,000,000 Restricted Shares for a partial payment of $.0025 per share. The
Restricted Shares were originally subject to a four-year vesting schedule, which
was completed. On June 25, 1990, when one of the original Management Investors
left the Company, 45,000 shares held by the departing officer were redistributed
to the remaining Management Investors, as follows: 23,260 non-restricted shares
and 8,692 vested Restricted Shares were purchased as non-restricted shares for a
purchase price of $4.50 per share, and 13,048 shares remained as Restricted
Shares and were purchased for a partial payment of $.0025 per share. Currently,
1,991,308 Restricted Shares are outstanding and have been counted as outstanding
shares of the Company at all times and for all purposes since August 1988.
Although holders of Restricted
11
<PAGE>
Shares have voting and dividend rights, no Restricted Shares are transferable by
the holder thereof until such holder has paid the Company an additional $2.4975
or $4.4975 per share, as applicable. The Management Investors are not obligated
to make such additional payment. However, after August 25, 2003, the Company may
buy back the Restricted Shares for $.0025 per share. Upon making any
transferability payment, a Management Investor will incur taxable income if the
fair market value of the Common Stock at that time is greater than $2.50 or
$4.50, as applicable.
The following table sets forth the names of the Management Investors, the
number of shares of Common Stock beneficially owned by each of them (including
shares which currently may be acquired upon the exercise of stock options) as of
the date of this Prospectus, the number of Shares registered hereby and the
number of shares of Common Stock which will be owned if all such Shares are
sold:
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
POTENTIAL SELLING SHAREHOLDER(1) BENEFICIALLY OWNED INCLUDED IN THIS OWNED IF ALL
REGISTRATION INCLUDED SHARES
ARE SOLD
<S> <C> <C> <C>
Jack W. Eugster, Chairman and CEO 1,668,034 632,068 1,035,966(2)
Gary A. Ross, Pres. Superstores Div. 611,278 243,104 368,174(3)
Keith A. Benson, Vice Chairman and CFO 553,203 243,104 310,099
James D. Nermyr, V.P. and Treasurer 169,638 48,636 121,002
Paula M. Connerney, Div. Sr. V.P. Str. Ops. 116,707 48,636 68,071
Douglas M. Tracey, Sr. V.P. Distribution 106,728 48,640 58,088
Robert A. Faulkner, V.P. and Controller 84,362 48,640 35,722
Richard C. Casari, V.P. Corp. RIM 87,711 48,640 39,071
Richard J. Odette, Sr. V.P. Prerec. Audio 73,217 22,068 51,149
Arnold A. Bernstein 243,104 243,104 0
Robert A. Henderson 175,767 72,916 102,851
Larry C. Gaines 169,583 72,916 96,667
Bruce B. Bausman 136,239 72,916 63,323
Harvey Thomas McLain 102,128 48,640 53,488
Charles E. Baker 48,640 48,640 0
Christine M. Hoover 29,773 24,320 5,453
Teresa M. Orsello 29,774 24,320 5,454
</TABLE>
_______________
(1) Names listed without titles are not officers or employees of the Company;
they are former officers or beneficiaries of a former officer. Mr.
Henderson was the Company's Senior Vice President and General Merchandise
Manager until March 12, 1997; Mr. Gaines was the Company's President of the
Media Play Division until November 16, 1996; and Mr. Bausman was the
Company's Senior Vice President of Real Estate until February 20, 1997.
(2) 3.0% of the total outstanding shares of Common Stock
(3) 1.1% of the total outstanding shares of Common Stock
12
<PAGE>
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by or for the account of some or
all of the Potential Selling Shareholders directly to purchasers, to or through
broker-dealers or through a combination of these methods. Sales by means of this
Prospectus may be made privately at prices to be individually negotiated with
the purchasers or publicly through transactions on the New York Stock Exchange,
other exchanges or in the over-the-counter market, including block trades, at
prices reasonably related to market prices at the time of sale or at negotiated
prices. Broker-dealers participating in such transactions may act as agent or as
principal and may receive commissions from the purchasers as well as from the
Potential Selling Shareholders. No Potential Selling Shareholder has advised the
Company of an intent to engage an underwriter with respect to the sale of any
Shares.
The Company will pay all expenses incident to this Registration Statement
and sale of any Shares to the public other than commissions and discounts of
underwriters, dealers or agents and certain fees and expenses of counsel,
accountants or other consultants to the Potential Selling Shareholders.
The Company has agreed with the Potential Selling Shareholders, subject to
certain exceptions, to keep the Registration Statement covering the Shares
effective until the date on which all Shares have been sold by the Potential
Selling Shareholders pursuant to the Registration Statement.
In addition, the Company and the Potential Selling Shareholders will
indemnify each other for certain liabilities, including civil liabilities under
the Securities Act.
LEGAL MATTERS
Linda Alsid Ruehle, Esq. has rendered an opinion to the Company that the
Common Stock registered hereby will be duly and validly issued, fully paid for
and nonassessable. Ms. Ruehle is employed by the Company as Assistant General
Counsel and Assistant Secretary and presently holds shares of Common Stock in
the Company's KSOP Plan as well as employee stock options to purchase additional
shares of Common Stock, all of which aggregate well below one percent of the
total outstanding shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1997 and for each of the three years ended December 31, 1997, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are incorporated by reference in this
Prospectus by reference to the Company's 1997 10-K in reliance upon the
authority of said firm as experts in giving said report.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the distribution of the securities being registered
hereby:
<TABLE>
<S> <C>
SEC registration fee $13,851
Accounting fees and expenses 3,000
Legal fees and expenses 3,000
Printing 5,000
Miscellaneous 3,149
Total $28,000
</TABLE>
All of the above expenses other than the SEC registration fee are
estimates. None of the expenses listed will be paid by the Selling Shareholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation provides that the Company
shall indemnify to the fullest extent permitted by the Delaware General
Corporation Law (the "DGCL") any director or officer who is or was a party to
any civil, criminal, administrative or investigative suit or proceeding by
reason of the fact that he or she is or was a director or officer of the Company
or is or was serving another corporation, partnership, joint venture, trust or
other enterprise at the request of the Company including service with respect to
employee benefit plans; provided that the Company shall indemnify any person
seeking indemnity in connection with an action (or part thereof) initiated by
such person only if the action (or part thereof) was authorized by the Board of
Directors. In addition, the Company may, by action by the Board of Directors,
provide indemnification to employees and agents with the same scope and effect
as the foregoing indemnification of directors and officers.
Under Section 145 of the DGCL, a corporation may indemnify a director,
officer, employee or agent of the corporation (or other entity if such person is
serving in such capacity at the corporation's request) against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
brought by or in the right of a corporation, the corporation may indemnify a
director, officer, employee or agent of the corporation (or other entity if such
person is serving in such capacity at the corporation's request) against
expenses (including attorneys' fees) actually and reasonably incurred by him if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless a court determines that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses as the court shall deem proper.
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an
II-1
<PAGE>
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation.
Policies of insurance are maintained by the Company under which directors and
officers of the Company are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities which might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been a director or officer.
The Company's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by the DGCL, no director shall be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction
from which the director derived any improper personal benefit.
ITEM 16. EXHIBITS.
The following Exhibits are a part of this Registration Statement.
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
4.1 Restated Certificate of Incorporation of MSC, as amended
(incorporated by reference to MSC's Form S-1 Registration
Statement covering Common Stock initially filed with the
Commission on July 6, 1990 (Commission File No. 33-35774)
4.2 By-laws of MSC, as amended (incorporated by reference to MSC's
Annual Report on Form 10-K for the year ended December 31, 1992
filed with the Commission on March 2, 1993 (Commission File No.
1-11014)
5 Opinion of Counsel
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
23.2 Consent of Counsel (included in Exhibit 5)
24 Powers of Attorney (included on Signature Pages)
</TABLE>
ITEM 17. UNDERTAKINGS.
*(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
II-2
<PAGE>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
*(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
*(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
- ------------------------------------
* Paragraph references correspond to those of Item 512 of Regulation S-K
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Minnetonka, Minnesota, as of the 29th day of April, 1998.
MUSICLAND STORES CORPORATION
BY: /s/ Jack W. Eugster
---------------------
Jack W. Eugster
Chairman, President and C.E.O.
II-3
<PAGE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints Keith A. Benson, Heidi M. Hoard and Linda Alsid Ruehle, or any of them,
as his/her true and lawful attorney(s)-in-fact with full power of substitution
to execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file, any and all amendments to the Registration
Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Jack W. Eugster Date: April 29, 1998
--------------------
Jack W. Eugster
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
/s/ Keith A. Benson Date: April 29, 1998
--------------------
Keith A. Benson
Director, Vice Chairman and CFO
(Principal Financial and Accounting Officer)
/s/ Gilbert L. Wachsman Date: April 21, 1998
------------------------
Gilbert L. Wachsman
Vice Chairman and Director
/s/ Kenneth F. Gorman Date: April 23, 1998
----------------------
Kenneth F. Gorman
Director
/s/ William A. Hodder Date: April 29, 1998
----------------------
William A. Hodder
Director
/s/ Josiah O. Low III Date: April 21, 1998
----------------------
Josiah O. Low III
Director
/s/ Terry T. Saario Date: April 22, 1998
--------------------
Terry T. Saario
Director
/s/ Tom F. Weyl Date: April 22, 1998
----------------
Tom F. Weyl
Director
/s/ Michael W. Wright Date: April 21, 1998
---------------------
Michael W. Wright
Director
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
4.1 Restated Certificate of Incorporation of MSC, as amended
(incorporated by reference to MSC's Form S-1
Registration Statement covering Common Stock initially
filed with the Commission on July 6, 1990 (Commission
File No. 33-35774)
4.2 By-laws of MSC, as amended (incorporated by reference to
MSC's Annual Report on Form 10-K for the year ended
December 31, 1992 filed with the Commission on March 2,
1993 (Commission File No. 1-11014)
5 Opinion of Counsel
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2 Consent of Counsel (included in Exhibit 5)
24 Powers of Attorney (included on signature page)
</TABLE>
II-5
<PAGE>
EXHIBIT 5
[LETTERHEAD]
LINDA ALSID RUEHLE
ASSISTANT GENERAL COUNSEL
April 30, 1998
Musicland Stores Corporation
10400 Yellow Circle Drive
Minnetonka, Minnesota 55343
Ladies and Gentlemen:
I have acted as counsel for Musicland Stores Corporation ("Musicland") in
connection with the registration of 3,813,388 shares of its Common Stock, par
value $.01 per share, pursuant to Musicland's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 30, 1998 (the
"Registration Statement").
In connection with the opinion set forth below, I have examined such records
and documents and have made such investigations of law and fact as I have deemed
necessary.
Based upon the foregoing, it is my opinion that the shares of Musicland
Common Stock to be sold pursuant to the Registration Statement have been duly
and validly authorized for issuance and, when issued, will be fully paid and
nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Linda Alsid Ruehle
` Linda Alsid Ruehle
Assistant General Counsel and
Assistant Secretary
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3 of our report dated January
21, 1998, included in Musicland Stores Corporation and Subsidiaries Form 10-K
for the year ended December 31, 1997, and to all references to our firm included
in this Registration Statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 30, 1998
