<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 0-27852
PLATINUM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3802328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Butterfield Road
Downers Grove, Illinois 60515
(Address of principal executive offices, including zip code)
(630) 769-0033
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
5,275,040 Shares of Common Stock, par value $.001 per share, at May 18, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 15 $ 11
Accounts receivable, less allowances of
$3,352 and $3,912, respectively 13,855 15,147
Artist advances 2,844 2,510
Inventories, less allowances of $559
and $590, respectively 5,160 4,997
Other 860 948
-----------------------------
Total current assets 22,734 23,613
Artist advances, net of current amounts, less
allowances of $13,409 and $12,936, respectively 476 -
Equipment and leasehold improvements, net 1,213 1,079
Music catalog, less accumulated amortization of
$980 and $784, respectively 18,624 18,820
Music publishing rights, less accumulated amortization
of $354 and $308, respectively 3,623 3,519
Goodwill, less accumulated amortization of $346
and $244, respectively 5,758 5,854
Equity investment in joint venture 2,638 2,468
Deferred financing fees, net 568 631
Other 1,154 1,473
-----------------------------
Total assets $ 56,788 $ 57,457
-----------------------------
-----------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 2,200 $ 800
Current portion of bank debt 4,000 3,000
Accounts payable 4,267 4,256
Accrued liabilities and other 2,461 3,423
Reserve for future returns 4,564 6,301
Royalties payable 6,187 5,302
-----------------------------
Total current liabilities 23,679 23,082
Bank debt, less current portion 16,000 17,000
Convertible subordinated debentures 5,000 5,000
-----------------------------
Total liabilities 44,679 45,082
Stockholders' equity:
Preferred Stock:
Preferred Stock ($.001 par value); 10,000,000 shares
authorized, no shares issued and outstanding - -
Series B Convertible Preferred Stock ($.001 par value);
20,000 shares authorized, issued and outstanding - -
Series C Convertible Preferred Stock ($.001 par value);
2,500 shares authorized, issued and outstanding - -
Common Stock:
Common Stock ($.001 par value); 40,000,000 shares authorized,
5,275,040 shares issued and outstanding 5 5
Additional paid-in capital 58,808 58,216
Accumulated deficit (46,704) (45,846)
-----------------------------
Stockholders' equity 12,109 12,375
-----------------------------
Total liabilities and stockholders' equity $ 56,788 $ 57,457
-----------------------------
-----------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
--------------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
Gross product sales $ 13,665 $ 13,027
Less: Returns and allowances (3,500) (4,304)
Less: Discounts (605) (448)
--------------------------------
Net product sales 9,560 8,275
Licensing, publishing and other revenues 350 336
--------------------------------
Net sales 9,910 8,611
Cost of sales and services 5,527 3,927
--------------------------------
Gross profit 4,383 4,684
Other operating expenses:
Selling, general and administrative 3,620 4,287
Merger, restructuring and one-time costs - 923
Depreciation and amortization 495 440
--------------------------------
4,115 5,650
--------------------------------
Operating income 268 (966)
Interest income 19 3
Interest expense (568) (599)
Other financing costs (71) (1,730)
Equity gain (loss) 170 (1)
--------------------------------
Net loss (182) (3,293)
Less: Preferred dividend requirement (675) -
--------------------------------
Loss applicable to common shares $ (857) $ (3,293)
--------------------------------
--------------------------------
Basic and diluted loss per common share $ (0.16) $ (0.64)
Weighted average number of common shares outstanding 5,275,040 5,171,439
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
-----------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (858) $ (3,293)
Adjustments to reconcile net loss to net cash used in
operating activities:
Charge to provision for future returns 1,586 -
Charge to provision for doubtful accounts - 250
Charge to provision for unrecoupable artist balances 473 457
Depreciation and amortization 495 440
Deferred financing cost amortization 70 827
Equity (gain) loss from joint venture (170) -
Changes in operating assets and liabilities:
Accounts receivable 1,292 (373)
Inventories (163) (692)
Artist advances (1,283) (651)
Accounts payable 11 (1,266)
Accrued liabilities and other (962) 82
Reserve for future returns (3,323) (891)
Royalties payable 885 455
Other 338 710
-----------------------------
Net cash used in operating activities (1,609) (3,945)
INVESTING ACTIVITIES
Cash in escrow - (1,750)
Cash paid for acquisition (150) (26,583)
Purchases of equipment and leasehold improvements (229) (78)
-----------------------------
Net cash used in investing activities (379) (28,411)
FINANCING ACTIVITIES
Net proceeds from revolving line of credit 1,400 7,806
Proceeds from bank debt - 25,000
Preferred dividend requirement 675 -
Deferred financing costs, net - (459)
Other (83) -
-----------------------------
Net cash provided by financing activities 1,992 32,347
-----------------------------
Net increase (decrease) in cash 4 (9)
Cash, beginning of quarter 11 18
-----------------------------
Cash, end of quarter $ 15 $ 9
-----------------------------
-----------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PLATINUM ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The financial statements included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission ("Commission")
regulations. In the opinion of management, the financial statements reflect
all adjustments (of a normal and recurring nature) which are necessary to
present fairly the financial position, results of operations and cash flows
for the interim periods presented. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the seven months ended December 31, 1997 of Platinum
Entertainment, Inc. ("Company") included in the Transition Report on Form
10-K filed with the Commission on May 20, 1998. The interim results presented
are not necessarily indicative of the results that may be expected for any
future quarter or for the year ending December 31, 1998.
2. BASIC AND DILUTED LOSS PER COMMON SHARE
Basic loss per common share is based upon the net loss applicable to common
shares after preferred dividend requirements and upon the weighted average of
common shares outstanding during the period. Diluted loss per common share
adjusts for the effect of convertible securities, stock options and warrants
only in the periods presented in which such effect would have been dilutive.
Such effect was not dilutive in any of the periods presented herein.
3. DEBT
On December 12, 1997, the Company entered a Credit Agreement with Bank of
Montreal. Under the terms of the Credit Agreement, the Company has
$20,000 in bank debt with a three year term, due in quarterly installments
beginning June 1, 1998, bearing interest at the bank's base rate plus 1.0% per
annum, and a $10,000 available revolving line of credit, due in three years and
bearing interest at the bank's base rate plus 1/2 of 1.0% per annum. The
Company had drawn $2,200 against the available line of credit as of March 31,
1998. Borrowings under the revolving line of credit are limited to the
Borrowing Base, as defined, which is based upon eligible accounts receivable and
inventory. The Credit Agreement contains certain financial covenants and is
secured by substantially all of the Company's assets. Effective March 31, 1998,
the Credit Agreement was amended to appoint Harris Trust and Savings Bank as the
lender. All other terms remained substantially unchanged.
4. PREFERRED STOCK
On February 28, 1998, the Series B Convertible Preferred Stock accrued a
dividend of $600 and the Series C Convertible Preferred Stock accrued a
dividend of $75, which is equal to 12% of the initial cost of the Stocks.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in this filing.
OVERVIEW
The Company is a full-service music company that produces, licenses,
acquires, markets and distributes high quality recorded music for a variety of
musical formats. The Company produces recorded music products in the Adult
Contemporary, Gospel, Country, Urban/Dance, Classical/Themed Productions and
Blues music formats, primarily under its River North Records, CGI Records,
Intersound and House of Blues Music Co. labels.
The Company records revenues for music products when such products are
shipped to retailers. In accordance with industry practice, the Company's music
products are sold on a returnable basis. The Company's allowance for future
returns is based upon its historical returns, SOUNDSCAN data and the return rate
of the Company's third-party distributor, PolyGram Group Distribution, Inc.
It is the Company's policy to inventory all returned product and
resell such product at market value.
A significant recurring funding requirement of the Company is for artist
and repertoire ("A&R") expenses, which include recording costs and advances to
artists. The Company makes substantial payments each period for recording costs
and advances in order to maintain and enhance its artist roster. These costs
are recouped from the artists' royalties, to the extent possible, from future
album sales. Artist advances are capitalized as an asset when the current
popularity and past performance of the artist provides a sound basis for
estimating the probable future recoupment of such advances from earnings
otherwise payable to the artist.
The Company primarily distributes internationally by means of licensing
arrangements. The Company's international licensing arrangements are on a
country-by-country basis. Revenues derived from the licensing of recorded
masters are calculated as a percentage of retail sales by the licensee net of
returns and are recognized by the Company upon notification of retail sales net
of returns by the licensee.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of gross revenues, certain
items that are included in the Company's statements of operations for the
periods reflected below. Operating results for any period are not necessarily
indicative of results for any future periods.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
----------------------------------------------------
1998 1997
(IN THOUSANDS, EXCEPT PERCENTAGE AMOUNTS)
<S> <C> <C> <C> <C>
Total gross revenues . . . . . . $14,015 100.0% $13,363 100.0%
Less: Returns and allowances . . (3,500) -25.0% (4,304) -32.2%
Less: Discounts. . . . . . . . . (605) -4.3% (448) -3.4%
-------- --------
Total net revenues . . . . . . . 9,910 70.7% 8,611 64.4%
Cost of sales and services . . . 5,527 39.4% 3,927 29.4%
-------- --------
Gross profit . . . . . . . . . . 4,383 31.3% 4,684 35.0%
Other operating expenses:
Selling, general and
administrative expenses. . . . 3,620 25.8% 4,287 32.1%
Merger, restructuring and
one-time costs . . . . . . . . - - 923 6.9%
Depreciation and amortization. . 495 3.5% 440 3.3%
-------- --------
4,115 29.3% 5,650 42.3%
-------- --------
Operating income . . . . . . . . 268 2.0% (966) -7.3%
Interest income. . . . . . . . . 19 0.1% 3 -
Interest expense . . . . . . . . (568) -4.1% (599) -4.5%
Other financing costs. . . . . . (71) -0.5% (1,730) -12.9%
Equity gain (loss) . . . . . . . 170 1.2% (1) -
-------- --------
Net loss . . . . . . . . . . . (182) -1.3% (3,293) -24.7%
Less: Preferred dividends. . . . (675) -4.8% - -
-------- --------
Loss applicable to common shares. . ($857) -6.1% ($3,293) -24.7%
-------- --------
-------- --------
</TABLE>
GROSS REVENUES
Gross revenues increased $652,000 or 4.9% for the quarter ended March 31,
1998 compared to the comparable period of the prior year. The Company increased
its revenues in all genres, with the exception of Gospel, for which the prior
year's first quarter experienced a significant one-time sale of National
Baptist's LET'S GO TO CHURCH direct to its member churches. Gospel revenues for
the current quarter were flat over the prior year's first quarter exclusive of
this one-time sale. Current quarter releases include the Urban compilation
BOOTY MIX 3. Current releases also include nine releases on the House of Blues
label, including JGB's (formerly the Jerry Garcia Band) WELCOME TO OUR WORLD and
Phoebe Snow's I CAN'T COMPLAIN, and numerous Gospel releases, including GMWA's
LIVE IN '97 and L.A. Mass Choir's BACK TO THE DRAWING BOARD.
8
<PAGE>
RETURNS AND ALLOWANCES
Returns and allowances decreased $804,000 or 18.7% for the quarter ended
March 31, 1998 compared to the comparable period of the prior year. Returns
and allowances for the current quarter as a percentage of gross product
sales, less discounts, decreased to 26.8% compared to 34.2% for the first
quarter of last year. During the first quarter of the prior year, the Company
ceased relations with certain customers who consistently failed to pay on a
timely basis, prompting an unusually high returns experience from these
customers. Excluding the effect of these customers, the returns and
allowances for the prior year's quarter as a percentage of gross product
sales, less discounts, was 21.5% compared to 26.8% for the current quarter.
The increase in returns and allowances for the current period is due to the
recent softness in the music retail market. The Company is working
internally as well as with certain of its customers to reduce high volumes of
returns in the future.
DISCOUNTS
Discounts increased $157,000 or 35.0% for the quarter ended March 31, 1998
compared to the comparable period of the prior year. Discounts for the current
quarter as a percentage of gross product sales increased slightly to 4.4%
compared to 3.4% for the first quarter of last year. This is due to a higher
number of new releases in the current period. New releases through normal
retail channels typically incur a higher discount than both catalog sales and
sales through non-routine retail channels.
COST OF SALES AND SERVICES
Cost of sales and services increased $1,600,000 or 40.7% for the quarter
ended March 31, 1998 compared to the comparable period of the prior year. Cost
of sales and services for the current quarter increased to 55.8% of net
revenues, compared to 45.6% for the first quarter of last year. This increase
is primarily due to significant production costs incurred for future releases,
by such artists as Taylor Dayne, The Band and Kansas, for which it is the
Company's policy to expense a portion of these costs as incurred. See
"Overview." This increase is also due to higher distribution and royalty costs
associated with selling the House of Blues product, for which there were nine
current quarter releases compared to two for the first quarter of last year.
GROSS PROFIT
Gross profit decreased $301,000 or 6.4% for the quarter ended March 31,
1998 compared to the comparable period of the prior year. Gross profit
decreased to 31.3% of gross revenues for the current quarter compared to 35.0%
for the first quarter of last year. This decrease is primarily due to an
increase in the Company's historical returns experience during the current
quarter and significant production costs incurred on future releases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $667,000 or 15.6%
for the quarter ended March 31, 1998 compared to the comparable period of the
prior year. Selling, general and administrative expenses decreased to 25.8%
of gross revenues for the current quarter compared to 32.1% for the first
quarter of last year. Cost savings can be attributed to management's
continued focus on reducing costs throughout the Company's operations,
especially in the areas of marketing and promotion.
OPERATING INCOME(LOSS)
As a result of the factors described above, operating income was $268,000
for the current quarter compared to an operating loss of $966,000 in the first
quarter of last year.
9
<PAGE>
INCOME TAXES
No tax expense or benefit has been recorded through March 31, 1998 due
to the Company's net operating loss carryforward and related valuation
allowance, as required under generally accepted accounting principles.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the
Company's net operating loss carryforward of approximately $33,158,000 at
December 31, 1997, expiring in years 2007 through 2012, is subject to annual
limitations due to a change in ownership as a result of the initial public
offering of the Company's Common Stock in March 1996. Accordingly,
approximately $12,349,000 of the net operating loss carryforward is subject
to an annual limitation of approximately $2,200,000.
OTHER FINANCING COSTS AND PREFERRED DIVIDENDS
See "Capital Resources."
LOSS APPLICABLE TO COMMON SHARES
The loss applicable to common shares for the current quarter totaled
$857,000 compared to a loss applicable to common shares of $3,293,000 for the
first quarter of last year. The decrease in gross profit and the addition of
preferred dividends in the current quarter partially offsets the lack of
merger, restructuring and one-time charges experienced by the Company during
the first quarter of last year relating to the acquisition of Intersound.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, establishes standards for reporting and display of
comprehensive income (i.e., foreign currency translation gains/losses and
unrealized gains/losses on securities) and its components in a full set of
general-purpose financial statements. This Statement requires that an
enterprise (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
Statement is effective for the Company's fiscal year ending December 31,
1998. The impact of SFAS 130 will not be material to the Company's financial
disclosures.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This Statement is effective for the Company's fiscal year ending
December 31, 1998. The impact of SFAS 131 is not expected to be material to the
Company's financial disclosures.
SEASONALITY
The Company's results of operations are subject to seasonal variations.
In accordance with industry practice, the Company records revenues for music
product when such products are shipped to retailers. The Company has
historically experienced a decline in revenues and operating income during
December, January and February due to the fact that retailers purchase
products from the Company prior to December 1 in anticipation of holiday
sales. As a result, sales are traditionally lower during December and the
post holiday period. The acquisition of Intersound to some extent mitigates
the seasonality of this period due to its history of new releases during
January and February.
10
<PAGE>
LIQUIDITY
The Company's cash balances were $15,000 and $11,000 at March 31, 1998 and
December 31, 1997, respectively. Net cash used in operating activities was
$1,609,000 for the three months ended March 31, 1998. The uses reflect net cash
used to fund artist advances, attributable to releases by such artists as Taylor
Dayne, The Band and Kansas, and the impact of product returns as discussed
above. The net cash provided by royalties payable arose primarily from the
current period sales of albums. Royalties are not paid to the artist until all
advances made to the artist have been recouped by the Company. Also, the
Company establishes and maintains reserves relative to royalty payments for a
period of approximately 18 to 24 months to allow for product returns activity as
royalties are not owed on returned product.
Net cash used in investing activities for the three months ended March 31,
1998 included $229,000 for office equipment and computers and $150,000 for the
purchase of a classical music catalog from Fanfare Records.
Net cash provided by financing activities for the three months ended
March 31, 1998 was primarily monies drawn on the Company's line of credit
with Harris Trust and Savings Bank. In addition, the first dividends owed the
preferred stockholders were accrued during the current quarter. See "Capital
Resources."
A significant recurring funding requirement of the Company is for A&R
expenses, which include recording costs and advances to artists. The Company
makes substantial payments each period for recording costs and advances in order
to maintain and enhance its artist roster. These costs are recouped from the
artists' royalties, to the extent possible, from future album sales. Artist
advances are capitalized when the current popularity and past performance of the
artist provides a sound basis for estimating the probable future recoupment of
such advances from earnings otherwise payable to the artist.
As a result of the seasonal nature of the business, an advance made in
connection with the recently announced distribution agreement with Ichiban
Records, scheduled term payment on the Company's bank debt, the funding of
future releases and the acquisition of additional catalogs, the Company
expects to fully utilize its available line of credit by the end of the
second quarter of 1988. While management believes that available cash will be
sufficient to meet the Company's capital requirements, there can be no
assurrances. Historically, the Company has funded its operations and other
activities from a variety of capital sources. Failure to obtain capital on
terms favorable to the Company, or at all, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Capital Resources."
CAPITAL RESOURCES
Pursuant to an Investment Agreement dated October 12, 1997, as amended,
on December 12, 1997 the Company issued and sold to certain parties (the
"Purchasers"), for aggregate gross consideration of $20,000,000, 20,000
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock")
and warrants to purchase 3,600,000 shares of Common Stock ("Purchaser
Warrants"). The Company also issued and sold to a certain affiliate of the
Company, for aggregate gross consideration of $2,500,000, 2,500 shares of
Series C Convertible Preferred Stock ("Series C Preferred Stock") and
warrants to purchase 450,000 shares of Common Stock (the "Affiliate
Warrants"). The Series B Preferred Stock and the Series C Preferred Stock
are collectively referred to as the "Preferred Stock." The values of the
Series B and Series C Preferred Stocks are approximately $17,938,000 and
$2,242,000, respectively. The values of the Purchaser and Affiliate Warrants
are $2,062,000 and $258,000, respectively. These amounts, net of associated
costs of approximately $2,128,000, are reflected in additional paid-in
capital on the balance sheet.
The Preferred Stock accrues dividends compounded at an annual rate of 12.0%
for the first year, 14.0% for the second year, 16.0% for the third year, 18.0%
for the fourth and fifth years and 20% at all times thereafter, of the purchase
price of the Preferred Stock, in preference to any dividends on any other class
of capital stock. The Preferred Stock will be redeemable by the Company at any
time at a price equal to the purchase price paid by the Purchasers thereof plus
accrued and unpaid dividends. The Preferred Stock will be convertible,
commencing two years from the date of issue, into shares of Common Stock at the
lesser of $5.9375 or the average of the daily closing price per share of Common
Stock for 30 consecutive trading days following the public release by the
Company of its consolidated earnings statement for the 1998 fiscal year;
provided that if shares of Common Stock are not then traded on any national
securities exchange or quoted on the Nasdaq Stock Market or a similar service,
the closing price for the foregoing purpose shall be deemed to be the fair value
of a share of Common Stock as determined in good faith by the Board of
Directors. If the Board of Directors is unable to determine fair market value
11
<PAGE>
or if the holders of a majority of the outstanding shares of the Preferred Stock
disagree with the Board's determination, then fair market value will be
determined by an independent financial expert.
The number of shares of Common Stock which may be received upon exercise of
the Purchaser Warrants will be increased by an amount equal to 12.0% of the
shares initially underlying the Purchaser Warrants on each anniversary of the
original date of issuance of the Series B Preferred Stock, so long as any Series
B Preferred Stock remains outstanding. The Common Stock underlying the
Purchaser and Affiliate Warrants may be purchased at an exercise price per share
of the lesser of $6.25 and 82.5% of the average of the daily closing price per
share of Common Stock for the 30 consecutive trading days following the public
release by the Company of its consolidated earnings statement for the 1998
fiscal year; provided that if shares of Common Stock are not then traded on any
national securities exchange or quoted on the Nasdaq Stock Market or a similar
service, the closing price for the foregoing purpose shall be deemed to be the
fair value of a share of Common Stock as determined in good faith by the Board
of Directors. If the Board of Directors is unable to determine fair market
value or if the holders of a majority of the outstanding shares of the Preferred
Stock disagree with the Board's determination, then fair market value will be
determined by an independent financial expert.
Convertible debentures in the aggregate principal amount of $5,000,000 that
were issued to Intersound in connection with the Intersound Acquisition on
January 31, 1997, mature on January 31, 2004 and bear interest at the seven-year
Treasury rate plus one percent per annum (6.7% at March 31, 1998) and are
convertible, in whole or in part, at any time prior to maturity into the
Company's Common Stock at a conversion price of $9.80 per share, subject to
adjustment as provided in the debentures.
On January 31, 1997, the Company entered a Credit Agreement with Bank of
Montreal ("BMO"), individually and as agent, to provide a 90-day term loan in
the amount of $25,000,000 and a 90-day revolving credit facility in the
amount of $10,000,000 (the "Original Credit Facility"). The Original Credit
Facility was extended through December 31, 1997 and was refinanced on
December 12, 1997 as discussed below. Financing costs associated with the
Original Credit Facility from January 31, 1997 through December 31, 1997
approximated 9% of the total facility. The interest incurred on the Original
Credit Facility was initially LIBOR plus 6% and was increased to LIBOR plus
9% effective August 1, 1997.
On December 12, 1997, the Company refinanced the Original Credit
Facility with the net proceeds from the issuance of the Preferred Stock and
Warrants and an amended credit agreement with BMO (the "Amended Credit
Facility"). Under the terms of the Amended Credit Facility, the Company has
$20,000,000 in bank debt with a three year term, due in quarterly
installments beginning June 1, 1998, bearing interest at the bank's base rate
plus 1.0% per annum, and a $10,000,000 available revolving line of credit,
due in three years and bearing interest at the bank's base rate plus 1/2 of
1.0% per annum. The Company had drawn $2,200,000 against the available line
of credit as of March 31, 1998. Borrowings under the revolving line of credit
are limited to the Borrowing Base, as defined, which is based upon eligible
accounts receivable and inventory. The Amended Credit Facility contains
certain financial covenants and is secured by substantially all of the
Company's assets. Effective March 31, 1998, the Amended Credit Facility was
amended to appoint Harris Trust and Savings Bank as the lender. All other
terms remained substantially unchanged.
The Company issued to BMO a warrant to purchase approximately 259,000
shares of Common Stock at an exercise price of $.01 per share in connection
with the Original Credit Facility. The value of the warrants amounted to
$1,240,000, which is included in additional paid-in capital. The warrants
expire on January 31, 2002.
The Company's near and long-term capital requirements depend on numerous
factors, including the rate at which the Company grows and acquires new artists
and products. The Company has various on-going needs for capital, including
working capital for operations, artist advances and project development costs
and capital expenditures to maintain and expand its operations. In addition, as
part of its strategy, the Company evaluates potential acquisitions of music
catalogs, publishing rights and labels. The Company may in the future
consummate acquisitions which may require the Company to make additional capital
expenditures, and such expenditures may be significant. Future acquisitions, as
well as other on-going
12
<PAGE>
capital needs, may be funded with institutional financing, seller financing
and/or additional equity or debt offerings. The Company currently does not have
any material commitments for capital expenditures for the next twelve months.
However, the Company is currently engaged in a review of accounting and
operating software packages to achieve further economies of scale. The
selection, acquisition and implementation of this software, along with the
related consulting services, is expected to cost between $600,000 and $800,000.
On December 12, 1998 the Company issued a Warrant to Purchase 50,000
shares of Common Stock in connection with the consummation of Preferred Stock
with Warrants Issuance (the "Harnick Warrants"). The exercise price of the
Harnick Warrants is $6.25. The Harnick Warrant expires on December 12, 2007.
On February 25, 1998, the Company issued Warrants to purchase 50,000
shares of Common Stock to GHW & Associates, LLC, (the "GHW Warrant") at an
exercise price of $6.25. The Company also issued a Warrant to Purchase 50,000
shares of Common Stock to Andrew B. Lipsher (the "Lipsher Warrant") at an
exercise price of $6.25. Both the GHW Warrant and the Lipsher Warrant
represent payments for services provided to the Company relative to investor
relations and strategic planning. The GHW Warrants and the Lipsher Warrants
expire on February 25, 2008.
Stockholders' equity at March 31, 1998 totaled $12,109,000 compared to
$12,375,000 at December 31, 1997. This decrease of $266,000 or 2.2% is due to
net losses experienced by the Company during the three months ended March 31,
1998 and additional costs related to the preferred stock with warrants issuance.
INFLATION
The impact of inflation on the Company's operating results has been
moderate in recent periods, reflecting generally lower rates of inflation in the
economy. While inflation has not had a material impact on operating results,
there is no assurance that the Company's business will not be affected by
inflation in the future.
SAFE HARBOR PROVISION
This filing contains certain forward-looking statements (within the
meaning of the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties. When used in this filing, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. A number of important factors could cause the
Company's actual results, performance or achievements for fiscal 1998 and
beyond to differ materially from those expressed in such forward-looking
statements. Reference is made to the Company's prior filings with the
Securities and Exchange Commission, in particular the "Risk Factors" section
of the Company's Prospectus dated March 12, 1996, for a discussion of certain
of such factors. These factors include, without limitation, commercial
success of the Company's repertoire, charges and costs related to
acquisitions, relationships with artists and producers, attraction and
retention of key personnel, general economic and business conditions and
enhanced competition and new competitors in the recorded music industry.
YEAR 2000 TECHNOLOGY PREPAREDNESS
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of time-sensitive information by its computerized
information systems. Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the applicable year. In
such cases, programs that have time-sensitive logic may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Management is in the process of completing
a review of significant software and equipment used in the Company's operations
and, to the extent practicable, in the operations of its key business partners,
in order to determine if any year 2000 risks exist that may be material to the
Company as a whole. This process includes an assessment of year 2000 risks and
the identification of practical remediation measures that could be taken on a
timely basis to alter, validate or replace time-sensitive software and
equipment. Management has already begun implementing certain of these measures
and intends to complete its remediation efforts prior to any anticipated
material impact on its computerized information systems. Costs of addressing
potential problems have not been material to date and, based on preliminary
information, are not currently expected to have a material adverse impact of the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company or its significant customers or vendors are
unable to resolve such processing issues in a timely manner, it could result in
a material adverse effect. Accordingly, management plans to devote the
resources it concludes are appropriate to resolve all significant year 2000
issues in a timely manner.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During March 1997, the Company and K-tel International, Inc. ("K-tel")
signed a purchase and sale agreement (the "K-tel Agreement") pursuant to
which the Company agreed to acquire K-tel's worldwide music business assets,
except for K-tel's European and former Soviet Union music business, through
the purchase of the stock of K-tel International (USA), Inc. and Dominion
Music, Inc., both wholly-owned subsidiaries of K-tel (the "K-tel
Acquisition"). The Company deposited $1,750,000 in escrow in accordance with
the K-tel Agreement. During September 1997, the Company terminated the K-tel
Agreement alleging that K-tel materially breached the K-tel Agreement. On
September 12, 1997, K-tel filed a Complaint against the Company for
declaratory judgment in the District Court of Hennepin County, Fourth
Judicial District, State of Minnesota, seeking the escrowed funds. K-tel
subsequently filed an Amended Complaint on October 2, 1997, seeking the
escrowed funds as well as unspecified damages for the Company's alleged
breach of the K-tel Agreement, breach of a related confidentiality agreement,
fraud, defamation and promissory estoppel. On October 6, 1997, the Company
removed K-tel's state court action to the United States District Court for
the District of Minnesota, Fourth Division and counterclaimed for declaratory
and other relief on December 10, 1997. The Company is seeking $1,750,000 in
escrowed funds and another $1,750,000 in contractually agreed "reimbursement"
because K-tel has materially breached the K-tel Agreement. In the
alternative, Platinum is seeking rescission of the Purchase Agreement and
return of the escrowed funds because K-tel fraudulently induced it to enter
into the Purchase Agreement. Platinum has moved to dismiss K-tel's fraud,
defamation and promissory estoppel claims. A hearing on this motion occurred
on May 19, 1998, and no decision has been rendered. The parties have
exchanged documents, responded to interrogatories and have begun to take
depositions. Platinum intends to vigorously defend the lawsuit and prosecute
its counterclaims against K-tel. The Company reserved the full escrowed
amount during the seven months ended December 31, 1997.
During November 1997, JCSHO, Inc., a Minnesota corporation, formerly known
as Intersound, Inc. ("JCSHO"), filed a complaint against the Company in the
District Court of Minnesota, Fourth Division. JCSHO alleges breach of contract
by the Company with regard to the convertible subordinated debentures in the
aggregate principal amount of $5,000,000 (the "Convertible Subordinated
Debentures") issued by the Company to JCSHO in connection with the Intersound
Acquisition. JCSHO alleges that the Company is in default on its obligations
under the Convertible Subordinated Debentures due to failure to make certain
payments under the Convertible Subordinated Debentures at a defined default
interest rate. JCSHO is seeking damages in the amount of $5,000,000 and costs,
disbursements and attorney's fees. The Company believes that JCSHO's
allegations are without merit and intends to vigorously defend this litigation.
The Company is not a party to any other material litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
4.1 Warrant to Purchase 50,000 shares of Common Stock of the Registrant
issued to GWH & Associates, LLC, dated February 25, 1998.
4.2 Warrant to Purchase 50,000 shares of Common Stock of the Registrant
issued to Andrew Lipsher, dated February 25, 1998.
10.1 First Amendment to Credit Agreement dated as of December 12, 1997,
among the Registrant, Harris Trust and Savings Bank, as Administrative
Agent and the Lenders party thereto, dated March 31, 1998.
10.2 Revolving Credit Note issued by the Registrant in the principal amount
of $10,000,000, dated March 31, 1998.
10.3 Term Credit Note issued by the Registrant in the principal amount of
$20,000,000, dated March 31, 1998.
10.4 First Amendment to Pledge Agreement dated as of December 12, 1997,
among the Registrant, its subsidiaries and Bank of Montreal, dated as
of March 31, 1998.
10.5 First Amendment to Security Agreement and First Amendment to Security
Agreement Re: Intellectual Property, each dated as of December 12,
1997, among the Registrant, its subsidiaries and Bank of Montreal,
dated March 31, 1998.
10.6 Second Amendment to Credit Agreement dated as of December 12, 1997,
among the Registrant, Harris Trust and Savings Bank, as
Administrative Agent and the Lenders party thereto, dated May 20,
1998.
27. Financial Data Schedule.
B. Form 8-K.
On February 26, 1998, a Form 8-K was filed by the Registrant
announcing the change in fiscal year of the Registrant from May 31 to a
calendar year.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Platinum Entertainment, Inc. has duly caused this filing to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 20th day of May,
1998.
PLATINUM ENTERTAINMENT, INC.
By: /s/ STEVEN DEVICK
---------------------------------------------
Steven Devick
Chairman of the Board, President and Chief
Executive Officer
By: /s/ DOUGLAS C. LAUX
---------------------------------------------
Douglas C. Laux
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
Exhibit 4.1
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS AS
EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND REASONABLY ACCEPTABLE TO THE
COMPANY.
----------------------------------------------
PLATINUM ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
----------------------------------------------
This certifies that, for good and valuable consideration, Platinum
Entertainment, Inc., a Delaware corporation (the "Company"), grants to GWH &
Associates, LLC, its successors and permitted assigns (the "Warrantholder"),
the right to subscribe for and purchase from the Company fifty thousand
(50,000) validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), at the purchase price per share equal to the Exercise Price,
as defined herein, at any time prior to 5:00 p.m., New York City time, on
February 25, 2008 (the "Expiration Date"), subject to the terms, conditions
and adjustments herein set forth.
The "Exercise Price" shall mean $6.25 per share of Common Stock.
The Exercise Price as determined in accordance with the foregoing shall be
adjusted from time to time in accordance with the provisions of Section 6.
<PAGE>
2
1. EXERCISE OF WARRANTS.
1.1 EXERCISE OF WARRANT. This Warrant may be exercised, in
whole or in part, at any time or from time to time prior to the Expiration Date,
by surrendering to the Company at its principal office this Warrant, with an
Exercise Form (as defined herein) duly executed by the Warrantholder and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such Exercise Form.
1.2 CASHLESS EXERCISE. In lieu of the payment of the
Exercise Price, the Warrantholder shall have the right (but not the
obligation) to require the Company to convert this Warrant, in whole or in
part, into shares of Common Stock (the "Conversion Right") as provided for in
this Section 1.2. Upon exercise of the Conversion Right, the Company shall
deliver to the Warrantholder (without payment by the Warrantholder of any of
the Exercise Price) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the value of the Warrant or portion thereof
being exercised at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to the
exercise of the Conversion Right for the number of shares for which the
Warrant is being exercised from the aggregate Current Market Price (as
defined herein) of the shares of Common Stock issuable upon exercise of the
Warrant for the number of shares for which the Warrant is being exercised
immediately prior to the exercise of the Conversion Right) by (y) the Current
Market Price of one share of Common Stock immediately prior to the exercise
of the Conversion Right. The Conversion Right may be exercised at any time
or from time to time prior to the Expiration Date by surrendering to the
Company at its principal office this Warrant, with an Exercise Form duly
executed by the Warrantholder and indicating that the Warrantholder wishes to
exercise the Conversion Right and specifying the total number of shares of
Common Stock for which the Warrant is being exercised.
1.3 DELIVERY OF WARRANT SHARES; EFFECTIVENESS OF EXERCISE.
(a) DELIVERY OF WARRANT SHARES. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form along with
a check for the amount of cash to be paid in lieu of fractional shares, if
any, shall be delivered to the Warrantholder within 10 Business Days after
the Exercise Date (as defined herein). If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the
stock certificate or certificates and cash in lieu of fractional shares, if
any, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant.
(b) EFFECTIVENESS OF EXERCISE. The exercise of this
Warrant shall be deemed to have been effective immediately prior to the close of
business on the Business Day on which this Warrant is exercised in accordance
with Section 1.1 or 1.2 (the "Exercise Date"). The Person in whose name any
certificate for shares of Common Stock shall be issuable upon such exercise
shall be deemed to be the record holder of such shares of Common Stock for all
purposes on the Exercise Date.
1.4 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereof; provided, however, that the
Warrantholder shall be required to pay any and all taxes that may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Warrantholder as reflected upon the books
of the Company.
<PAGE>
3
2. RESTRICTIVE LEGENDS.
2.1 WARRANTS. Except as otherwise permitted by this Section 2,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND
REASONABLY ACCEPTABLE TO THE COMPANY.
2.2 WARRANT SHARES. Except as otherwise permitted by this
Section 2, each stock certificate for Warrant Shares issued upon the exercise of
any Warrant and each stock certificate issued upon the direct or indirect
transfer of any such Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF COUNSEL
DELIVERED AND REASONABLY ACCEPTABLE TO THE COMPANY.
2.3 REMOVAL OF LEGENDS. Notwithstanding the foregoing, the
Warrantholder may require the Company to issue a Warrant or a stock certificate
for Warrant Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for resale under
the Securities Act and sold pursuant to such registration or (ii) if reasonably
requested by the Company, the Warrantholder has delivered to the Company an
opinion of legal counsel (from a firm reasonably satisfactory to the Company)
which opinion shall be
<PAGE>
4
addressed to the Company and be reasonably satisfactory in form and substance to
the Company's counsel, to the effect that such registration is not required with
respect to such Warrant or such Warrant Shares, as the case may be.
3. RESERVATION AND REGISTRATION OF SHARES, ETC.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of
this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue.
(b) During the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved, and keep
available free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. LOSS OR DESTRUCTION OF WARRANT.
Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the Person in whose name this Warrant
is registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
<PAGE>
5
(a) STOCK DIVIDENDS, SUBDIVISION, COMBINATION OR
RECLASSIFICATION OF COMMON STOCK. If at any time after the date of the issuance
of this Warrant the Company shall (i) declare a stock dividend on the Common
Stock payable in shares of its capital stock (including Common Stock),
(ii) increase the number of shares of Common Stock outstanding by a subdivision
or split-up of shares of Common Stock, (iii) decrease the number of shares of
Common Stock outstanding by a combination of shares of Common Stock or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock, then, on the record date for such dividend or the effective date of such
subdivision or split-up, combination or reclassification, as the case may be,
the number and kind of shares to be delivered upon exercise of this Warrant will
be adjusted so that the Warrantholder will be entitled to receive the number and
kind of shares of capital stock that such Warrantholder would have owned or been
entitled to receive upon or by reason of such event had this Warrant been
exercised immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (f).
(b) REORGANIZATION, ETC. If at any time after the date of
issuance of this Warrant any consolidation of the Company with or merger of the
Company with or into any other Person (other than a merger or consolidation in
which the Company is the surviving or continuing corporation and which does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock)
or any sale, lease or other transfer of all or substantially all of the assets
of the Company to any other person (each, a "Reorganization Event"), shall be
effected in such a way that the holders of Common Stock shall be entitled to
receive cash, stock, other securities or assets (whether such cash, stock, other
securities or assets are issued or distributed by the Company or another Person)
with respect to or in exchange for Common Stock, then, upon exercise of this
Warrant the Warrantholder shall have the right to receive the kind and amount of
cash, stock, other securities or assets receivable upon such Reorganization
Event by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such Reorganization Event,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.1.
(c) OTHER DILUTIVE EVENTS. In case any event shall occur
having an effect similar to the events described in Sections 6.1(a) and
6.1(b), then, in each such case, the Exercise Price and/or the amount of any
Common Stock, cash, securities or other assets to be delivered upon exercise
of the Warrants shall be adjusted on a basis consistent with reflecting
equitably the effects of such changes to the Warrantholders. In the event of
such an occurrence, upon receipt of a request for an adjustment from a
majority of the Warrantholders, the Company and such Warrantholders shall
negotiate in good faith to agree upon an appropriate adjustment within thirty
(30) days of such notice, and if the Company fails to agree within such
30-day period, the Company shall appoint a firm of independent certified
accountants of recognized national standing (who can be the regular auditors
of the Company), which shall render an opinion upon the adjustments, if any,
necessary to reflect equitably the effects of such changes to the
Warrantholders. Upon receipt of such opinion, or final agreement with such
Warrantholders, the Company shall make the adjustment described therein. The
cost and expenses of such accountants shall be borne by the Company.
<PAGE>
6
(d) FRACTIONAL SHARES. No fractional shares of Common
Stock or scrip shall be issued to any Warrantholder in connection with the
exercise of this Warrant. Instead of any fractional shares of Common Stock that
would otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the then Current Market Price per
share of Common Stock.
(e) CARRYOVER. Notwithstanding any other provision of this
Section 6.1, no adjustment shall be made to the number of shares of Common Stock
to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(f) EXERCISE PRICE ADJUSTMENT. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 6.1, the Exercise Price per share payable upon
the exercise of this Warrant shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately thereafter.
<PAGE>
7
6.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or the Exercise Price of such Warrant Shares is adjusted, as herein provided,
the Company shall promptly mail by first class mail, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of a
firm of independent public accountants of recognized national standing selected
by the Board of Directors of the Company (who shall be appointed at the
Company's expense and who may be the independent public accountants regularly
employed by the Company) setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. AMENDMENTS. Any provision of this Warrant may be amended and the
observance thereof waived only with the written consent of the Company and the
Warrantholder.
8. NOTICES OF CORPORATE ACTION. So long as this Warrant has not
been exercised in full, in the event of:
(a) any consolidation or merger involving the Company and
any other party or any transfer of all or substantially all the assets of the
Company to any other party;
(b) any offering to all the holders of its Common Stock of
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
the Company will mail, by first class mail, postage prepaid, to the
Warrantholder a notice specifying (i) the date or expected date on which any
such record is to be taken for the purpose of a dividend, distribution or right
and the amount and character of any such dividend, distribution or right and
(ii) the date or expected date on which a reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or other securities) shall be
<PAGE>
8
entitled to exchange their shares of Common Stock (or other securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be delivered as soon
as practicable and if possible at least 20 days prior to the date therein
specified in the case of any date referred to in the foregoing subdivisions (i)
and (ii). Failure to give the notice specified hereunder shall have no effect
on the status or effectiveness of the action to which the required notice
relates.
9. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following meanings:
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law or executive order to close in the
State of New York.
"COMMON STOCK" has the meaning specified on the cover of this Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CURRENT MARKET PRICE" means, with respect to each share of Common
Stock as of any date, the average of the daily Closing Prices per share of
Common Stock for the 10 consecutive trading days commencing 15 trading days
prior to such date.
<PAGE>
9
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXPIRATION DATE" has the meaning specified on the cover of this
Warrant.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant.
"WARRANTHOLDER" has the meaning specified on the cover of this
Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant; provided, however, that Warrant Shares shall not include shares sold to
the public pursuant to Rule 144 under the Securities Act of 1933, as amended, or
pursuant to an effective registration statement under the Securities Act.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement between the Company and the Warrantholder with respect to this
Warrant.
11.2 BINDING EFFECT; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
11.4 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally, telecopied
or sent by certified, registered or express mail, as follows:
(a) if to the Company, addressed to:
Platinum Entertainment, Inc.
2001 Butterfield Road
Downers Grove, Illinois 60515
Telecopy: (630) 769-0049
Attention: Chief Executive Officer
with a copy to:
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Telecopy: (312) 902-1061
Attention: Matthew S. Brown, Esq.
<PAGE>
10
(b) if to the Warrantholder, addressed to:
--------------------------------------
--------------------------------------
--------------------------------------
Telecopy:
-----------------------------
Any party may by notice given in accordance with this Section 11.4 designate
another address or person for receipt of notices hereunder.
11.5 SEVERABILITY. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to such agreements made and to be performed entirely within such
State.
11.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
contained in this Warrant shall be deemed to confer upon the Warrantholder
any rights as a stockholder of the Company or as imposing any liabilities on
the Warrantholder to purchase any securities whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
PLATINUM ENTERTAINMENT, INC.
By: /s/ Steven Devick
-----------------------------------------
Name: Steven Devick
Title: Chief Executive Officer
Dated: February 25, 1998
<PAGE>
11
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ of the Warrant Shares and
[herewith tenders payment for such Warrant Shares to the order of Platinum
Entertainment, Inc. in the amount of $__________] [hereby exercises its
Conversion Right] in accordance with the terms of this Warrant. The undersigned
requests that a certificate for [such Warrant Shares] [that number of Warrant
Shares to which the undersigned is entitled as calculated pursuant to
Section 1.2] be registered in the name of the undersigned and that such
certificates be delivered to the undersigned's address below.
Dated:
----------------------------
Signature
-------------------------------
-------------------------------
(Print Name)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
<PAGE>
Exhibit 4.2
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS AS
EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND REASONABLY ACCEPTABLE TO THE
COMPANY.
----------------------------------------------
PLATINUM ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
----------------------------------------------
This certifies that, for good and valuable consideration, Platinum
Entertainment, Inc., a Delaware corporation (the "Company"), grants to
Andrew B. Lipsher, its successors and permitted assigns (the "Warrantholder"),
the right to subscribe for and purchase from the Company fifty thousand (50,000)
validly issued, fully paid and nonassessable shares (the "Warrant Shares") of
the Company's Common Stock, par value $.001 per share (the "Common Stock"),
at the purchase price per share equal to the Exercise Price, as defined
herein, at any time prior to 5:00 p.m., New York City time, on February 25,
2008 (the "Expiration Date"), subject to the terms, conditions and
adjustments herein set forth.
The "Exercise Price" shall mean $6.25 per share of Common Stock.
The Exercise Price as determined in accordance with the foregoing shall be
adjusted from time to time in accordance with the provisions of Section 6.
<PAGE>
2
1. EXERCISE OF WARRANTS.
1.1 EXERCISE OF WARRANT. This Warrant may be exercised, in
whole or in part, at any time or from time to time prior to the Expiration Date,
by surrendering to the Company at its principal office this Warrant, with an
Exercise Form (as defined herein) duly executed by the Warrantholder and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such Exercise Form.
1.2 CASHLESS EXERCISE. In lieu of the payment of the
Exercise Price, the Warrantholder shall have the right (but not the
obligation) to require the Company to convert this Warrant, in whole or in
part, into shares of Common Stock (the "Conversion Right") as provided for in
this Section 1.2. Upon exercise of the Conversion Right, the Company shall
deliver to the Warrantholder (without payment by the Warrantholder of any of
the Exercise Price) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the value of the Warrant or portion thereof
being exercised at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to the
exercise of the Conversion Right for the number of shares for which the
Warrant is being exercised from the aggregate Current Market Price (as
defined herein) of the shares of Common Stock issuable upon exercise of the
Warrant for the number of shares for which the Warrant is being exercised
immediately prior to the exercise of the Conversion Right) by (y) the Current
Market Price of one share of Common Stock immediately prior to the exercise
of the Conversion Right. The Conversion Right may be exercised at any time
or from time to time prior to the Expiration Date by surrendering to the
Company at its principal office this Warrant, with an Exercise Form duly
executed by the Warrantholder and indicating that the Warrantholder wishes to
exercise the Conversion Right and specifying the total number of shares of
Common Stock for which the Warrant is being exercised.
1.3 DELIVERY OF WARRANT SHARES; EFFECTIVENESS OF EXERCISE.
(a) DELIVERY OF WARRANT SHARES. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form along with
a check for the amount of cash to be paid in lieu of fractional shares, if
any, shall be delivered to the Warrantholder within 10 Business Days after
the Exercise Date (as defined herein). If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the
stock certificate or certificates and cash in lieu of fractional shares, if
any, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant.
(b) EFFECTIVENESS OF EXERCISE. The exercise of this
Warrant shall be deemed to have been effective immediately prior to the close of
business on the Business Day on which this Warrant is exercised in accordance
with Section 1.1 or 1.2 (the "Exercise Date"). The Person in whose name any
certificate for shares of Common Stock shall be issuable upon such exercise
shall be deemed to be the record holder of such shares of Common Stock for all
purposes on the Exercise Date.
1.4 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereof; provided, however, that the
Warrantholder shall be required to pay any and all taxes that may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Warrantholder as reflected upon the books
of the Company.
<PAGE>
3
2. RESTRICTIVE LEGENDS.
2.1 WARRANTS. Except as otherwise permitted by this Section 2,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND
REASONABLY ACCEPTABLE TO THE COMPANY.
2.2 WARRANT SHARES. Except as otherwise permitted by this
Section 2, each stock certificate for Warrant Shares issued upon the exercise of
any Warrant and each stock certificate issued upon the direct or indirect
transfer of any such Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF COUNSEL
DELIVERED AND REASONABLY ACCEPTABLE TO THE COMPANY.
2.3 REMOVAL OF LEGENDS. Notwithstanding the foregoing, the
Warrantholder may require the Company to issue a Warrant or a stock certificate
for Warrant Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for resale under
the Securities Act and sold pursuant to such registration or (ii) if reasonably
requested by the Company, the Warrantholder has delivered to the Company an
opinion of legal counsel (from a firm reasonably satisfactory to the Company)
which opinion shall be
<PAGE>
4
addressed to the Company and be reasonably satisfactory in form and substance to
the Company's counsel, to the effect that such registration is not required with
respect to such Warrant or such Warrant Shares, as the case may be.
3. RESERVATION AND REGISTRATION OF SHARES, ETC.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of
this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue.
(b) During the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved, and keep
available free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. LOSS OR DESTRUCTION OF WARRANT.
Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the Person in whose name this Warrant
is registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
<PAGE>
5
(a) STOCK DIVIDENDS, SUBDIVISION, COMBINATION OR
RECLASSIFICATION OF COMMON STOCK. If at any time after the date of the issuance
of this Warrant the Company shall (i) declare a stock dividend on the Common
Stock payable in shares of its capital stock (including Common Stock),
(ii) increase the number of shares of Common Stock outstanding by a subdivision
or split-up of shares of Common Stock, (iii) decrease the number of shares of
Common Stock outstanding by a combination of shares of Common Stock or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock, then, on the record date for such dividend or the effective date of such
subdivision or split-up, combination or reclassification, as the case may be,
the number and kind of shares to be delivered upon exercise of this Warrant will
be adjusted so that the Warrantholder will be entitled to receive the number and
kind of shares of capital stock that such Warrantholder would have owned or been
entitled to receive upon or by reason of such event had this Warrant been
exercised immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (f).
(b) REORGANIZATION, ETC. If at any time after the date of
issuance of this Warrant any consolidation of the Company with or merger of the
Company with or into any other Person (other than a merger or consolidation in
which the Company is the surviving or continuing corporation and which does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock)
or any sale, lease or other transfer of all or substantially all of the assets
of the Company to any other person (each, a "Reorganization Event"), shall be
effected in such a way that the holders of Common Stock shall be entitled to
receive cash, stock, other securities or assets (whether such cash, stock, other
securities or assets are issued or distributed by the Company or another Person)
with respect to or in exchange for Common Stock, then, upon exercise of this
Warrant the Warrantholder shall have the right to receive the kind and amount of
cash, stock, other securities or assets receivable upon such Reorganization
Event by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such Reorganization Event,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.1.
(c) OTHER DILUTIVE EVENTS. In case any event shall occur
having an effect similar to the events described in Sections 6.1(a) and
6.1(b), then, in each such case, the Exercise Price and/or the amount of any
Common Stock, cash, securities or other assets to be delivered upon exercise
of the Warrants shall be adjusted on a basis consistent with reflecting
equitably the effects of such changes to the Warrantholders. In the event of
such an occurrence, upon receipt of a request for an adjustment from a
majority of the Warrantholders, the Company and such Warrantholders shall
negotiate in good faith to agree upon an appropriate adjustment within thirty
(30) days of such notice, and if the Company fails to agree within such
30-day period, the Company shall appoint a firm of independent certified
accountants of recognized national standing (who can be the regular auditors
of the Company), which shall render an opinion upon the adjustments, if any,
necessary to reflect equitably the effects of such changes to the
Warrantholders. Upon receipt of such opinion, or final agreement with such
Warrantholders, the Company shall make the adjustment described therein. The
cost and expenses of such accountants shall be borne by the Company.
<PAGE>
6
(d) FRACTIONAL SHARES. No fractional shares of Common
Stock or scrip shall be issued to any Warrantholder in connection with the
exercise of this Warrant. Instead of any fractional shares of Common Stock that
would otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the then Current Market Price per
share of Common Stock.
(e) CARRYOVER. Notwithstanding any other provision of this
Section 6.1, no adjustment shall be made to the number of shares of Common Stock
to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(f) EXERCISE PRICE ADJUSTMENT. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 6.1, the Exercise Price per share payable upon
the exercise of this Warrant shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately thereafter.
<PAGE>
7
6.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or the Exercise Price of such Warrant Shares is adjusted, as herein provided,
the Company shall promptly mail by first class mail, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of a
firm of independent public accountants of recognized national standing selected
by the Board of Directors of the Company (who shall be appointed at the
Company's expense and who may be the independent public accountants regularly
employed by the Company) setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. AMENDMENTS. Any provision of this Warrant may be amended and the
observance thereof waived only with the written consent of the Company and the
Warrantholder.
8. NOTICES OF CORPORATE ACTION. So long as this Warrant has not
been exercised in full, in the event of:
(a) any consolidation or merger involving the Company and
any other party or any transfer of all or substantially all the assets of the
Company to any other party;
(b) any offering to all the holders of its Common Stock of
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
the Company will mail, by first class mail, postage prepaid, to the
Warrantholder a notice specifying (i) the date or expected date on which any
such record is to be taken for the purpose of a dividend, distribution or right
and the amount and character of any such dividend, distribution or right and
(ii) the date or expected date on which a reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or other securities) shall be
<PAGE>
8
entitled to exchange their shares of Common Stock (or other securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be delivered as soon
as practicable and if possible at least 20 days prior to the date therein
specified in the case of any date referred to in the foregoing subdivisions (i)
and (ii). Failure to give the notice specified hereunder shall have no effect
on the status or effectiveness of the action to which the required notice
relates.
9. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following meanings:
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law or executive order to close in the
State of New York.
"COMMON STOCK" has the meaning specified on the cover of this Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CURRENT MARKET PRICE" means, with respect to each share of Common
Stock as of any date, the average of the daily Closing Prices per share of
Common Stock for the 10 consecutive trading days commencing 15 trading days
prior to such date.
<PAGE>
9
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXPIRATION DATE" has the meaning specified on the cover of this
Warrant.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant.
"WARRANTHOLDER" has the meaning specified on the cover of this
Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant; provided, however, that Warrant Shares shall not include shares sold to
the public pursuant to Rule 144 under the Securities Act of 1933, as amended, or
pursuant to an effective registration statement under the Securities Act.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement between the Company and the Warrantholder with respect to this
Warrant.
11.2 BINDING EFFECT; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
11.4 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally, telecopied
or sent by certified, registered or express mail, as follows:
(a) if to the Company, addressed to:
Platinum Entertainment, Inc.
2001 Butterfield Road
Downers Grove, Illinois 60515
Telecopy: (630) 769-0049
Attention: Chief Executive Officer
with a copy to:
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Telecopy: (312) 902-1061
Attention: Matthew S. Brown, Esq.
<PAGE>
10
(b) if to the Warrantholder, addressed to:
--------------------------------------
--------------------------------------
--------------------------------------
Telecopy:
-----------------------------
Any party may by notice given in accordance with this Section 11.4 designate
another address or person for receipt of notices hereunder.
11.5 SEVERABILITY. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to such agreements made and to be performed entirely within such
State.
11.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
contained in this Warrant shall be deemed to confer upon the Warrantholder
any rights as a stockholder of the Company or as imposing any liabilities on
the Warrantholder to purchase any securities whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
PLATINUM ENTERTAINMENT, INC.
By: /s/ Steven Devick
-----------------------------------------
Name: Steven Devick
Title: Chief Executive Officer
Dated: February 25, 1998
<PAGE>
11
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ of the Warrant Shares and
[herewith tenders payment for such Warrant Shares to the order of Platinum
Entertainment, Inc. in the amount of $__________] [hereby exercises its
Conversion Right] in accordance with the terms of this Warrant. The undersigned
requests that a certificate for [such Warrant Shares] [that number of Warrant
Shares to which the undersigned is entitled as calculated pursuant to
Section 1.2] be registered in the name of the undersigned and that such
certificates be delivered to the undersigned's address below.
Dated:
----------------------------
Signature
-------------------------------
-------------------------------
(Print Name)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
<PAGE>
PLATINUM ENTERTAINMENT, INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Bank of Montreal
Ladies and Gentlemen:
The undersigned, Platinum Entertainment, Inc., a Delaware corporation
(the "COMPANY") refers to the Credit Agreement dated as of December 12, 1997,
currently in effect between the Company and the Lenders party thereto (the
"CREDIT AGREEMENT"). All capitalized terms used herein without definition
shall have the same meanings herein as such terms have in the Credit
Agreement.
The Company and the Lenders wish to amend the Credit Agreement to (i)
remove Intersound as a Borrower, (ii) replace Bank of Montreal as a Lender
with Harris Trust and Savings Bank as a Lender, (iii) substitute Harris Trust
and Savings Bank as Administrative Agent and as Syndication Agent in place of
Bank of Montreal, and (iv) make certain other amendments to the Credit
Agreement, all on the terms and conditions set forth in this agreement
(herein, the "AMENDMENT").
1. MERGER OF INTERSOUND AND CHANGE IN FISCAL YEAR
(a) The Company hereof represents to the Administrative Agent and the
Lenders that in accordance with Section 8.17(b) of the Credit Agreement,
Intersound has merged with and into the Company, with the Company being the
corporation surviving such merger. As a result of such merger, (i) the
Company is the only Borrower, (ii) the Company has assumed and is now
directly liable on, among other things, those Obligations for which
Intersound was liable immediately prior to the merger, to the same extent and
with the same force and effect, as if the Company had originally been liable
for such Obligations and (iii) the Company has succeeded to all the Property
of Intersound, including without limitation the Collateral. The Company
hereby repeats and reaffirms its promise to pay the Obligations (including
those assumed by it as a result of the merger) in accordance with the terms
of the Loan Documents. The Company acknowledges and agrees that the
Collateral acquired by it from Intersound as a result of the merger was so
acquired subject to the Liens created and provided for by the Collateral
Documents. All references to Intersound as a Borrower in the Credit
Agreement shall now be deemed references instead to the Company.
(b) The Company has informed the Administrative Agent and the Lenders
that on February 26, 1998 the Company and its Subsidiaries changed each of
their respective fiscal years from a year ended May 31 to a year ended
December 31 (the "YEAR CHANGE"). By virtue of the Year Change, the Company
was not in compliance with Section 8.22 of the Credit Agreement. The
Administrative Agent and the Lenders hereby waive compliance
-1-
<PAGE>
with Section 8.22 of the Credit Agreement to the extent, and only to the
extent, such Section would otherwise disallow the Year Change, PROVIDED THAT
this waiver shall not become effective unless and until the conditions
precedent set forth in Section 4 hereof have been satisfied. Furthermore,
the parties hereto agree that any references appearing in the Credit
Agreement (including, without limitation, Sections 5, 8.10, 8.12, 8.13 and
8.14) to any fiscal period of the Loan Parties shall be deemed to refer to
the actual calendar date or calendar period, as the case may be,
corresponding to such fiscal period based on the Company's fiscal year prior
to the Year Change (that is, a fiscal year ended December 31).
2. REMOVAL OF BANK OF MONTREAL AND REPLACEMENT BY HARRIS TRUST AND SAVINGS
BANK
(a) Upon satisfaction of the conditions precedent set forth in Section 4
hereof, Bank of Montreal (hereinafter referred to as the "DEPARTING LENDER")
shall cease to be a Lender under the Credit Agreement and shall have no rights
or obligations (including its Commitments) thereunder. In replacement of the
Departing Lender, Harris Trust and Savings Bank (the "NEW LENDER") shall assume
the role of a Lender and shall have all the rights and, from and after the date
this Amendment becomes effective, obligations previously held by the Departing
Lender (including its Commitments) under the Credit Agreement, PROVIDED that it
is expressly acknowledged and agreed that the New Lender shall not be liable for
any acts or omissions of the Departing Lender. The parties hereto (i) consent
to such termination of the Departing Lender's Commitments, (ii) consent to such
replacement by the New Lender and the New Lender's Commitments and (iii) agree
that all references in the Loan Documents, and any other instrument or document
related or supplementary thereto to the Lenders or any Lender shall replace the
Departing Lender with the New Lender.
(b) Upon satisfaction of the conditions precedent set forth in Section 4
hereof, Bank of Montreal (hereinafter referred to as the "DEPARTING AGENT")
shall cease to be Administrative Agent and Syndication Agent under the Credit
Agreement and, except as set forth below, (i) the Departing Agent shall have no
further obligations thereunder and (ii) the Company shall have no further
obligations to the Departing Agent (except the obligations that by their terms
specifically survive the departure of a Lender or an Agent from the Credit
Agreement). In replacement of the Departing Agent, Harris Trust and Savings
Bank (the "NEW AGENT") shall assume the role of Administrative Agent and
Syndication Agent under the Credit Agreement and shall have all the rights and,
from and after the date this Amendment becomes effective, obligations previously
held by the Departing Agent thereunder, PROVIDED that it is expressly
acknowledged and agreed that the New Agent shall not be liable for any acts or
omissions of the Departing Agent. The parties hereto (i) consent to the
resignation of the Departing Agent as Administrative Agent and Syndication Agent
under the Credit Agreement, (ii) consent to the New Agent as the successor
Administrative Agent and Syndication Agent under the Credit Agreement and
(iii) agree that all references in the Credit Agreement and any other Loan
Document to the Administrative Agent and Syndication Agent shall replace the
Departing Agent with the New Agent.
-2-
<PAGE>
3. AMENDMENTS.
Upon satisfaction of the conditions precedent set forth in Section 4
hereof, the Credit Agreement shall be and hereby is amended as follows:
(a) All references in the Credit Agreement (including the signature page
and all Exhibits thereto) to the Departing Lender shall be stricken and replaced
with corresponding references to the New Lender.
(b) The definition of "ADMINISTRATIVE AGENT" appearing in the introductory
paragraph and Section 5 of the Credit Agreement shall be amended by deleting
reference to "Bank of Montreal" and inserting "Harris Trust and Savings Bank" in
lieu thereof, so that from and after the effective date of this Amendment Harris
Trust and Savings Bank shall act as Administrative Agent for the Lenders.
(c) The definition of "SYNDICATION AGENT" appearing in the introductory
paragraph and Section 5 of the Credit Agreement shall be amended by deleting
reference to "Bank of Montreal" and inserting "Harris Trust and Savings Bank" in
lieu thereof, so that from and after the effective date of this Amendment Harris
Trust and Savings Bank shall act as Syndication Agent for the Lenders.
(d) The first sentence of Section 2.7(b) shall be amended and as so
amended shall be amended and restated in its entirely to read as follows:
Within forty-five (45) days after March 31 and September 30 of each year
(commencing with September 30, 1998), the Borrowers shall pay over to the
Administrative Agent for the account of the Lenders as and for a mandatory
prepayment on the Term Loan an amount equal to 66-2/3% of Consolidated Excess
Cash Flow for the six months ended such March 31 or September 30 date, as the
case may be; PROVIDED, HOWEVER, that no such prepayment is required if the
Consolidated Excess Cash Flow for such six-month period is less than or equal to
$150,000.
(e) The definition of "LEVERAGE RATIO" appearing in Section 5 of the
Credit Agreement shall be amended and restated in its entirety to read as
follows:
""LEVERAGE RATIO" means, as of any time the same is to be determined,
the ratio of Consolidated Funded Debt at such time to Consolidated
EBITDA for the then four most recently completed calendar quarters;
PROVIDED, HOWEVER, that:
(a) the Leverage Ratio as of June 30, 1998 shall mean the ratio
of (x) Consolidated Funded Debt at such time to (y) the quotient which
results by dividing (i) Consolidated EBITDA for the two calendar
quarters then ended by (ii) 0.50;
(b) the Leverage Ratio as of September 30, 1998 shall mean the
ratio of (x) Consolidated Funded Debt at such time to (y)
-3-
<PAGE>
the quotient which results by dividing (i) Consolidated EBITDA for the
three calendar quarters then ended by (ii) 0.75."
(f) The definition of "LIBOR CONDITION" appearing in Section 5 of the
Credit Agreement shall be amended and restated in its entirety to read as
follows:
""LIBOR CONDITION" shall mean the satisfaction on or at any time after
September 30, 1998 of all of the following conditions:
(a) the Leverage Ratio for the then two most recently completed
consecutive calendar quarters shall be less than 3.00 to 1;
(b) the Interest Coverage Ratio shall have been at least 3.00 to
1 as of the close of the same two calendar quarters;
(c) no Default or Event of Default shall exist as of the date on
which the other conditions have been satisfied; and
(d) the Administrative Agent and the Lenders shall have received
such assurances as they may reasonably require to confirm the
satisfaction of the above conditions (it being understood and agreed
that a certificate of the chief financial officer of the Company to
the effect that the foregoing conditions have been satisfied, together
with the computations confirming such satisfaction, shall be
sufficient for the foregoing purposes).
The LIBOR Condition shall be deemed satisfied permanently once the
above conditions have been met."
(g) The definition of "REVOLVING CREDIT TERMINATION DATE" appearing in
Section 5 of the Credit Agreement shall be amended by deleting the reference to
"2.9" appearing therein and inserting "2.8" in lieu thereof.
(h) Section 1.5(a) of the Credit Agreement shall be amended by (i) adding
"(i) VOLUNTARY." between "(a)" and "The" appearing at the beginning of such
Section and (ii) adding the following as a new Section 1.4(a)(ii):
"(ii) AUTOMATIC. The Borrower hereby irrevocably authorizes
the Administrative Agent alone (in accordance with Section 3.6(e)
hereof), or, alternatively, each Lender to make its pro rata share of,
a Revolving Loan constituting part of the Domestic Rate Portion on
each Business Day in an amount equal to the lesser of (i) the amount
of credit available that Business Day to the Borrower in compliance
with the Borrowing Base requirements of this Agreement and (ii) the
aggregate face amount of checks drawn against the Borrower's general
operating account with the
-4-
<PAGE>
Bank clearing such account for payment on that Business Day (the
"BORROWER'S DAILY CASH REQUIREMENT"). The Borrower shall be deemed to
have irrevocably requested such a Revolving Loan in such amount, and the
Administrative Agent or the Lenders (as the case may be) agree to make
such Revolving Loan, if and so long as the provisions of Section 7
hereof have been satisfied and (in the case of such a Revolving Loan to
be made by the Lenders) the Administrative Agent shall have notified the
Lenders of the amount of such Revolving Loan no later than 11:30 a.m.
(Chicago time) on the date such Revolving Loan is to be made. The
parties hereto agree that the foregoing authorization shall be deemed to
be a continuing request by the Borrower for the advance of Revolving
Loans that is repeated on each Business Day on which the amount of the
Borrower's Daily Cash Requirement is greater than zero. Accordingly,
each advance by Administrative Agent or the Lender under this Section
1.5(a)(ii) shall be deemed to have been made in response to a request
therefor by the Borrower. No telephonic or written confirmation of such
a deemed request for a Revolving Loan need be made unless and to the
extent that the Administrative Agent or any Lender shall so require."
(i) Sections 8.9, 8.10, 8.11, 8.12, 8.13 and 8.14 shall be amended and
restated in their entirety to read as follows:
"SECTION 8.9. CONSOLIDATED NET WORTH. The Company will, as of
the close of each calendar quarter, maintain Consolidated Net Worth of
not less than the Minimum Required Amount. For purposes thereof, the
term "MINIMUM REQUIRED AMOUNT" shall mean (a) $17,000,000 through
March 31, 1998, and (b) shall increase (but never decrease) as of each
monthly accounting period of the Company ending on or about April 30,
1998 and as of the last day of each month occurring thereafter, in
each case by an amount equal to 50% of Net Income (if positive) for
the month then ended.
SECTION 8.10. LEVERAGE RATIO. The Company shall, as of the last
day of each calendar quarter occurring during a period specified
below, maintain the Leverage Ratio so as not to be more than the
amount set forth below:
-5-
<PAGE>
<TABLE>
<CAPTION>
LEVERAGE
RATIO SHALL NOT BE
FROM AND INCLUDING: TO AND INCLUDING: MORE THAN:
<S> <C> <C>
June 30, 1998 September 29,1998 5.00 to 1
September 30, 1998 December 30, 1998 4.00 to 1
December 31, 1998 March 30, 1999 3.50 to 1
March 31, 1999 June 29, 1999 3.00 to 1
June 30, 1999 At all times thereafter 2.50 to 1
</TABLE>
SECTION 8.11. CONSOLIDATED WORKING CAPITAL. The Company shall
not at any time permit Consolidated Working Capital to be less than
$1,000,000.
SECTION 8.12. INTEREST COVERAGE RATIO. The Company shall, as of
the close of each fiscal quarter of the Company specified below,
maintain the ratio of Consolidated EBITDA for the fiscal quarter of
the Company then ended to Cash Interest Expense for the same fiscal
quarter then ended (the "INTEREST COVERAGE RATIO") so as not to be
less than the amount set forth below:
<TABLE>
<CAPTION>
INTEREST COVERAGE
FROM AND TO AND RATIO SHALL NOT BE
INCLUDING INCLUDING LESS THAN:
<S> <C> <C>
March 31, 1998 June 29, 1998 1.20 to 1
June 30, 1998
September 29,1998 3.00 to 1
September 30, 1998 December 30, 1998 3.50 to 1
December 31, 1998 At all times thereafter 4.00 to 1
</TABLE>
SECTION 8.13. FIXED CHARGE COVERAGE RATIO. The Company shall,
as of the close of each calendar quarter occurring during a period
specified below, maintain the ratio (the "FIXED CHARGE COVERAGE
RATIO") of (x) Consolidated EBITDA for the calendar quarter ended such
date to (y) the sum of (i) Cash Interest Expense for such calendar
quarter, (ii) Current Maturities as of the close of such calendar
quarter but excluding, however, to the extent otherwise included, the
final installment on the Term Notes, (iii) Capital Expenditures during
the same such calendar quarter and (iv) taxes on or measured by income
or excess profits payable in cash during the same calendar quarter by
the Company and its Subsidiaries so as not to be less than the amount
set forth below:
-6-
<PAGE>
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE
FROM AND TO AND RATIO SHALL NOT BE
INCLUDING INCLUDING LESS THAN:
<S> <C> <C>
March 31, 1998 June 29, 1998 1.00 to 1
June 30, 1998 September 29, 1998 1.05 to 1
September 30,1998 March 30, 1999 1.50 to 1
March 31, 1999 June 29,1999 1.25 to 1
June 30, 1999 December 30, 1999 1.50 to 1
December 31, 1999 At all times thereafter 2.00 to 1
</TABLE>
SECTION 8.14. CAPITAL EXPENDITURES. The Company shall not and
shall not permit its Subsidiaries to expend or become obligated for
Capital Expenditures during any calendar year for the Company and its
Subsidiaries taken together in excess of the amount set forth for such
calendar year below:
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES SHALL NOT
DURING FISCAL YEAR EXCEED:
<S> <C>
Ending on or about December 31, 1998 $1,250,000
Each calendar year thereafter Maximum Permitted Amount
</TABLE>
For purposes thereof, the term "MAXIMUM PERMITTED AMOUNT" shall mean
(i) for the calendar year ending on December 31, 1999, the sum of (x)
$500,000 plus (y) the amount (if any) by which the actual Capital
Expenditures for the immediately preceding calendar year were less
than $1,250,000; (ii) for the calendar year ending on December 31,
2000, the sum of (x) $500,000 plus (y) the amount (if any) by which
the actual Capital Expenditures for the immediately preceding two
calendar year, taken together, were less than $1,750,000; (iii) for
the calendar year ending on December 31, 2001, the sum of (x) $500,000
plus (y) the lesser of $500,000 or the amount (if any) by which the
actual Capital Expenditures for the calendar year ending on
December 31, 2000 were less than the Maximum Permitted Amount for the
calendar year ending December 31, 2000; and (iv) for each calendar
year thereafter, the sum of (x) $500,000 plus (y) the amount (if any)
by which the actual Capital Expenditures for the immediately preceding
calendar year were less than $500,000."
(i) Section 8.22 of the Credit Agreement shall be amended by deleting the
reference to "May 31" appearing therein and inserting "December 31" in lieu
thereof.
-7-
<PAGE>
(j) Exhibit A, Exhibit B, Exhibit C and Schedule 6.3 to the Credit
Agreement shall be amended and restated in their entirety and as so amended
shall be restated to read as set forth on Exhibit A, Exhibit B, Exhibit C and
Schedule 6.3 respectively hereto.
4. CONDITIONS PRECEDENT.
The effectiveness of this Amendment shall be subject to satisfaction of all
of the following conditions precedent:
(a) The New Agent shall have received counterparts hereof signed by the
Company, the Departing Agent and the Departing Lender.
(b) The New Agent shall have received (i) an Assignment and Acceptance
agreement dated as of even date herewith, executed by the Company, the New
Lender, the New Agent and the Departing Lender and (ii) new Notes in the forms
of Exhibits A and B to this Amendment payable to the order of the New Lender
and, in the case of the Revolving Credit Note evidencing Revolving Loans, in the
face principal amount of its Revolving Credit Commitment after giving effect to
this Amendment, such new Revolving Credit Note to constitute "REVOLVING CREDIT
NOTES" for all purposes of the Credit Agreement upon the New Agent's receipt of
the same.
(c) The New Agent shall have received, for return to the Company, the
existing Notes heretofore issued to the Departing Lender.
(d) The Company shall have paid to the Departing Agent and to the
Departing Lender all accrued and unpaid interest and fees through but not
including March 31, 1998.
(e) The New Agent shall have received such (i) UCC financing statements
and (ii) amendments to the Collateral Documents and UCC financing statements as
it requests reflecting the changes contemplated hereby, each to be satisfactory
to the New Agent as to form and substance.
(f) The Company shall have delivered to the New Agent (i) a certificate of
good standing for the Company from the state of its incorporation dated no
earlier than March 31, 1998 within seven day of the date hereof, and (ii) such
evidence as the New Agent requests of (x) Intersound's merger into the Company
and (y) the dissolution of the following Subsidiaries of the Company: River
North Records, Inc., CGI Records, Inc., Light Records, Inc. and The Recording
Experience, Inc.
(g) All legal matters incident to the execution and delivery of this
Amendment and the instruments and documents contemplated hereby shall be
satisfactory to the Lenders and their counsel; and the New Agent shall have
received the signed Certificate of the Secretary or an Assistant Secretary of
the Company, dated the date hereof, certifying (i) a true and correct copy of
resolutions adopted by the Board of Directors of the Company authorizing or
ratifying the execution, delivery and performance of this Amendment and the
other instruments and documents called for above, authorizing the issuance by
the Company of the new Notes and (ii) the incumbency and specimen signatures of
officers of the Company
-8-
<PAGE>
executing the documents referred to in clause (i) above and any other
documents delivered to the New Agent in connection with this Amendment.
(h) Each Subsidiary shall have executed and delivered to the New Agent its
consent to this Amendment in the form set forth below.
5. REPRESENTATIONS.
The Company hereby represents and warrants to the New Agent and the Lenders
(including the New Lender) that as of the date hereof:
(a) no Event of Default shall have occurred or be continuing on such
date or would result from the effectiveness of this Amendment;
(b) all representations and warranties on the part of the Company
contained in the Credit Agreement, the other Loan Documents, and in each
certificate, letter or other writing or instrument furnished or delivered
to any Lender, the Administrative Agent, or the Syndication Agent pursuant
thereto or in connection therewith are true and correct in all material
respects at and as of such date as though made on and as of such date
(except to the extent that such representations and warranties relate
solely to an earlier date or as to matters previously disclosed to the
Lenders); and
(c) all conditions to making a Loan listed in Section 7 of the Credit
Agreement are and shall remain satisfied as of such date, whether or not
any Loan is then requested or made.
6. MISCELLANEOUS.
(a) Upon satisfaction of all of the conditions precedent set forth in
Section 4 hereof, the New Agent shall return to the Company the Notes received
by the New Agent pursuant to Section 4(c) hereof (after the New Agent shall have
marked the same as "Replaced" or "Canceled" or marked with words of similar
import).
(b) Except as specifically amended hereby, all of the terms, conditions
and provisions of the Credit Agreement shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any
instrument or document at any time referring to the Credit Agreement, a
reference to the Credit Agreement in any of such items to be deemed to be a
reference to the Credit Agreement as amended hereby.
(c) The Company agrees to pay on demand all reasonable out-of-pocket costs
and expenses of the New Agent (including the fees and expenses of counsel for
the New Agent) incurred in connection with the negotiation, preparation,
execution and/or delivery of this Amendment and the other instruments or
documents contemplated hereby or to be delivered hereunder. This Amendment may
be executed in counterparts and by separate parties hereto on separate
counterparts, each to constitute an original but all to constitute but one and
the same instrument. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of Illinois.
-9-
<PAGE>
[SIGNATURE PAGES TO FOLLOW]
-10-
<PAGE>
Dated this 31st day of March, 1998.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steve Devick
---------------------------------
Its CEO
---------------------------------
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK,
individually and as Administrative Agent
and as Syndication Agent
By /s/ William J. Kane
---------------------------------
Its Vice President
---------------------------------
Mailing Address:
111 West Monroe Street
Chicago, Illinois 60603
Attention: Asset Based Lending Group
Telephone: (312) 461-7534
Telecopy: (312) 765-1641
-11-
<PAGE>
Acknowledged and agreed to as of the date last above written. Upon the
execution and delivery of this Amendment by each of the parties hereto and
satisfaction of the conditions set forth in Section 3 above, the Departing
Agent further agrees to: (i) deliver to the New Agent the loan and security
documentation in the Departing Agent's possession, including an executed
original counterpart of each of the Loan Documents, and all amendments,
modifications and waivers entered into or otherwise delivered in connection
therewith, together with copies of all resolutions, good standing
certificates, organizational documents, regulatory approvals and opinion
letters delivered in connection therewith, (ii) deliver to the New Agent
original file stamped copies of all UCC financing statements in the Departing
Agent's possession, together with all amendments, assignments and
continuations thereof, (iii) execute and deliver to the New Agent UCC-3
assignment filings assigning all rights, title and interest in each financing
statement running in favor of the Departing Agent to the New Agent, (iv)
deliver to the New Agent for cancellation its Notes, (v) deliver to the New
Agent intellectual property assignment filings assigning all rights, title
and interest in each patent and trademark assignment filing running in favor
of the Departing Agent to the New Agent, and (vi) execute and deliver such
other instruments and documents, including additional instruments of
assignment and/or transfer, as the Borrowers or the New Agent may reasonably
request pursuant to the Credit Agreement and/or the other Loan Documents to
more fully vest in the New Agent the rights of the Departing Agent.
BANK OF MONTREAL, individually as a
Departing Lender and as Departing Agent
By /s/ Rose Mueller
---------------------------------
Its Director
---------------------------------
-12-
<PAGE>
EXHIBIT A
PLATINUM ENTERTAINMENT, INC.
REVOLVING CREDIT NOTE
$______________ March ___, 1998
For value received on the Revolving Credit Termination Date, the
undersigned, Platinum Entertainment, Inc., a Delaware corporation (the
"BORROWER") hereby promises to pay to the order of
_______________________________ (the "LENDER"), at the principal office of
Harris Trust and Savings Bank in Chicago, Illinois (i) the principal sum of
____________________________ Dollars ($_________), or (ii) such lesser amount
as may at the time of the maturity hereof, whether by acceleration or
otherwise, be the aggregate unpaid principal amount of all Revolving Loans
owing from the Borrower to the Lender under the Revolving Credit provided for
in the Credit Agreement hereinafter mentioned.
This Note evidences indebtedness constituting the "DOMESTIC RATE PORTION"
and "LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of December 12, 1997, currently by and among the Borrower, certain
Subsidiaries of the Borrower, Harris Trust and Savings Bank individually and as
Administrative Agent and certain lenders which are or may from time to time
become parties thereto (as amended, the "CREDIT AGREEMENT") made and to be made
to the Borrower by the Lender under the Revolving Credit provided for under the
Credit Agreement and the Borrower hereby promises to pay interest at the office
specified above on each loan evidenced hereby at the rates and times specified
therefor in the Credit Agreement. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement, and
this Note is subject to the terms of the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Borrower against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of the
Domestic Rate Portion or a LIBOR Portion and the interest rates and interest
periods applicable thereto shall be endorsed by the holder hereof on the reverse
side of this Note or recorded on the books and records of the holder hereof
(provided that such entries shall be endorsed on the reverse side hereof prior
to any negotiation hereof) and the Borrower agrees that in any action or
proceeding instituted to collect or enforce collection of this Note, the entries
so endorsed on the reverse side hereof or recorded on the books and records of
the Lender shall be PRIMA FACIE evidence of the unpaid balance of this Note and
the status of each such loan from time to time as part of the Domestic Rate
Portion or a LIBOR Portion and the interest rates and interest periods
applicable thereto.
This Note is issued by the Borrower under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain security agreements and
other instruments and documents from the Borrower and certain of its
Subsidiaries, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred
<PAGE>
to therein, equally and ratably with all other indebtedness thereby secured,
to which reference is hereby made for a statement thereof. This Note may be
declared to be, or be and become, due prior to its expressed maturity upon
the occurrence of an Event of Default specified in the Credit Agreement,
voluntary prepayments may be made hereon, and certain prepayments are
required to be made hereon, all in the events, on the terms and with the
effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
The Borrower hereby waives presentment for payment.
PLATINUM ENTERTAINMENT, INC.
By
-----------------------------
Name: Steven Devick
Title: President
-2-
<PAGE>
EXHIBIT B
PLATINUM ENTERTAINMENT, INC.
TERM CREDIT NOTE
$______________ March __, 1998
For value received, the undersigned, Platinum Entertainment, Inc., a
Delaware corporation (the "BORROWER") hereby promises to pay to the order of
__________________________ (the "LENDER"), at the principal office of Harris
Trust and Savings Bank in Chicago, Illinois the principal sum of
_______________________________ Dollars ($_________), in installments as
follows: eleven (11) consecutive quarterly installments (commencing on June
1, 1998 and continuing on the first day of each September, December, March
and June occurring thereafter to and including December 1, 2000) with all
such installments (except the last such installment) to be in an amount equal
to $_____________ per installment and the last such installment to be in an
amount equal to $______________ which shall be the full amount of the then
unpaid principal balance of this Note.
This Note evidences indebtedness constituting the "DOMESTIC RATE PORTION"
and "LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of December 12, 1997, currently by and among the Borrower, certain
Subsidiaries of the Borrower, Harris Trust and Savings Bank individually and as
Administrative Agent and certain lenders which are or may from time to time
become parties thereto (as amended, the "CREDIT AGREEMENT") made or to be made
to the Borrower by the Lender under the Term Credit provided for under the
Credit Agreement and the Borrower hereby promises to pay interest at the office
specified above on the loan evidenced hereby at the rates and times specified
therefor in the Credit Agreement. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement, and
this Note is subject to the terms of the Credit Agreement.
Any repayment of principal hereon, the status of indebtedness evidenced
hereby from time to time as part of the Domestic Rate Portion or a LIBOR Portion
and the interest rates and interest periods applicable thereto shall be endorsed
by the holder hereof on the reverse side of this Note or recorded on the books
and records of the holder hereof (provided that such entries shall be endorsed
on the reverse side hereof prior to any negotiation hereof) and the Borrower
agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries so endorsed on the reverse side hereof or
recorded on the books and records of the Lender shall be PRIMA FACIE evidence of
the unpaid balance of this Note and the status of indebtedness evidenced hereby
from time to time as part of the Domestic Rate Portion or a LIBOR Portion and
the interest rates and interest periods applicable thereto.
This Note is issued by the Borrower under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain security agreements and
other instruments and documents from the Borrower and certain of its
Subsidiaries, and this Note and the
<PAGE>
holder hereof are entitled to all of the benefits and security provided for
thereby or referred to therein, equally and ratably with all other
indebtedness thereby secured, to which reference is hereby made for a
statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity upon the occurrence of an Event of Default
specified in the Credit Agreement, voluntary prepayments may be made hereon,
and certain prepayments are required to be made hereon, all in the events, on
the terms and with the effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
The Borrowers hereby waive presentment for payment.
PLATINUM ENTERTAINMENT, INC.
By
--------------------------
Name: Steven Devick
Title: President
-2-
<PAGE>
SCHEDULE 6.3
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF INCORPORATION PERCENTAGE
NAME OR ORGANIZATION OWNERSHIP
<S> <C> <C>
Lexicon Music, Inc. Delaware 100%
JustMike Music, Inc. Delaware 100%
Peg Publishing, Inc. Delaware 100%
Royce Publishing, Inc. Delaware 100%
</TABLE>
<PAGE>
GUARANTORS' CONSENT
Each of the undersigned has heretofore guaranteed payment of the Notes,
the other Obligations and any Hedging Liability by executing the Credit
Agreement. Each of the undersigned hereby consents to the Amendment to the
Credit Agreement as set forth above and confirms that all of each of the
undersigned's obligations thereunder remain in full force and effect. Each
of the undersigned further agrees that its consent to any further amendments
to the Credit Agreement shall not be required as a result of this consent
having been obtained, except to the extent, if any, required by the Credit
Agreement.
LEXICON MUSIC, INC.
By
------------------------------
Its: President
PEG PUBLISHING, INC.
By
------------------------------
Its: President
JUSTMIKE MUSIC, INC.
By
------------------------------
Its: President
ROYCE PUBLISHING, INC.
By
------------------------------
Its: President
<PAGE>
EXHIBIT 10.2
PLATINUM ENTERTAINMENT, INC.
REVOLVING CREDIT NOTE
$10,000,000 March 31, 1998
For value received on the Revolving Credit Termination Date, the
undersigned, Platinum Entertainment, Inc., a Delaware corporation (the
"BORROWER") hereby promises to pay to the order of Harris Trust and Savings
Bank (the "LENDER"), at the principal office of Harris Trust and Savings Bank
in Chicago, Illinois (i) the principal sum of Ten Million Dollars
($10,000,000), or (ii) such lesser amount as may at the time of the maturity
hereof, whether by acceleration or otherwise, be the aggregate unpaid
principal amount of all Revolving Loans owing from the Borrower to the Lender
under the Revolving Credit provided for in the Credit Agreement hereinafter
mentioned.
This Note evidences indebtedness constituting the "DOMESTIC RATE
PORTION" and "LIBOR PORTIONS" as such terms are defined in that certain
Credit Agreement dated as of December 12, 1997, currently by and among the
Borrower, certain Subsidiaries of the Borrower, Harris Trust and Savings Bank
individually and as Administrative Agent and certain lenders which are or may
from time to time become parties thereto (as amended, the "CREDIT AGREEMENT")
made and to be made to the Borrower by the Lender under the Revolving Credit
provided for under the Credit Agreement and the Borrower hereby promises to
pay interest at the office specified above on each loan evidenced hereby at
the rates and times specified therefor in the Credit Agreement. Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Credit Agreement, and this Note is subject to the terms of the Credit
Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Borrower against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of
the Domestic Rate Portion or a LIBOR Portion and the interest rates and
interest periods applicable thereto shall be endorsed by the holder hereof on
the reverse side of this Note or recorded on the books and records of the
holder hereof (provided that such entries shall be endorsed on the reverse
side hereof prior to any negotiation hereof) and the Borrower agrees that in
any action or proceeding instituted to collect or enforce collection of this
Note, the entries so endorsed on the reverse side hereof or recorded on the
books and records of the Lender shall be PRIMA FACIE evidence of the unpaid
balance of this Note and the status of each such loan from time to time as
part of the Domestic Rate Portion or a LIBOR Portion and the interest rates
and interest periods applicable thereto.
This Note is issued by the Borrower under the terms and provisions of
the Credit Agreement and is secured, inter alia, by certain security
agreements and other instruments and documents from the Borrower and certain
of its Subsidiaries, and this Note and the holder hereof are entitled to all
of the benefits and security provided for thereby or referred to therein,
equally and ratably with all other indebtedness thereby secured, to which
<PAGE>
reference is hereby made for a statement thereof. This Note may be declared
to be, or be and become, due prior to its expressed maturity upon the
occurrence of an Event of Default specified in the Credit Agreement,
voluntary prepayments may be made hereon, and certain prepayments are
required to be made hereon, all in the events, on the terms and with the
effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
The Borrower hereby waives presentment for payment.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
----------------------------------
Name: Steven Devick
Title: President
-2-
<PAGE>
EXHIBIT 10.3
PLATINUM ENTERTAINMENT, INC.
TERM CREDIT NOTE
$20,000,000 March 31, 1998
For value received, the undersigned, Platinum Entertainment, Inc., a
Delaware corporation (the "BORROWER") hereby promises to pay to the order of
Harris Trust and Savings Bank (the "LENDER"), at the principal office of Harris
Trust and Savings Bank in Chicago, Illinois the principal sum of Twenty Million
Dollars ($20,000,000), in installments as follows: eleven (11) consecutive
quarterly installments (commencing on June 1, 1998 and continuing on the first
day of each September, December, March and June occurring thereafter to and
including December 1, 2000) with all such installments (except the last such
installment) to be in an amount equal to $1,818,181.82 per installment and the
last such installment to be in an amount equal to $1,818,181.80 which shall be
the full amount of the then unpaid principal balance of this Note.
This Note evidences indebtedness constituting the "DOMESTIC RATE PORTION"
and "LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of December 12, 1997, currently by and among the Borrower, certain
Subsidiaries of the Borrower, Harris Trust and Savings Bank individually and as
Administrative Agent and certain lenders which are or may from time to time
become parties thereto (as amended, the "CREDIT AGREEMENT") made or to be made
to the Borrower by the Lender under the Term Credit provided for under the
Credit Agreement and the Borrower hereby promises to pay interest at the office
specified above on the loan evidenced hereby at the rates and times specified
therefor in the Credit Agreement. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement, and
this Note is subject to the terms of the Credit Agreement.
Any repayment of principal hereon, the status of indebtedness evidenced
hereby from time to time as part of the Domestic Rate Portion or a LIBOR Portion
and the interest rates and interest periods applicable thereto shall be endorsed
by the holder hereof on the reverse side of this Note or recorded on the books
and records of the holder hereof (provided that such entries shall be endorsed
on the reverse side hereof prior to any negotiation hereof) and the Borrower
agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries so endorsed on the reverse side hereof or
recorded on the books and records of the Lender shall be PRIMA FACIE evidence of
the unpaid balance of this Note and the status of indebtedness evidenced hereby
from time to time as part of the Domestic Rate Portion or a LIBOR Portion and
the interest rates and interest periods applicable thereto.
This Note is issued by the Borrower under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain security agreements and
other instruments and documents from the Borrower and certain of its
Subsidiaries, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, equally and
ratably with all other indebtedness thereby secured, to which
<PAGE>
reference is hereby made for a statement thereof. This Note may be declared
to be, or be and become, due prior to its expressed maturity upon the
occurrence of an Event of Default specified in the Credit Agreement,
voluntary prepayments may be made hereon, and certain prepayments are
required to be made hereon, all in the events, on the terms and with the
effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
The Borrowers hereby waive presentment for payment.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
---------------------------------
Name: Steven Devick
Title: President
-2-
<PAGE>
EXHIBIT 10.4
PLATINUM ENTERTAINMENT, INC.
FIRST AMENDMENT TO PLEDGE AGREEMENT
Harris Trust and Savings Bank
Bank of Montreal
Ladies and Gentlemen:
The undersigned parties executing this Amendment under the heading
"Pledgors" (such parties being herein referred to collectively as the
"PLEDGORS" and individually as a "PLEDGOR") refer to the Pledge Agreement
dated as of December 12, 1997, currently in effect between the Pledgors and
Bank of Montreal, a Canadian chartered bank ("BOM"), as Agent (the "PLEDGE
AGREEMENT"). All capitalized terms used herein without definition shall have
the same meanings herein as such terms have in the Pledge Agreement.
The Pledgors and the Agent wish to amend the Pledge Agreement to
(i) substitute Harris Trust and Savings Bank, an Illinois banking corporation
("HARRIS") as Agent in lieu of BOM (ii) remove certain Guarantors and (iii) make
certain other amendments to the Pledge Agreement, all on the terms and
conditions set forth in this agreement (herein, the "AMENDMENT").
1. AMENDMENTS.
Upon satisfaction of the conditions precedent set forth in Section 2
hereof, the Pledge Agreement shall be and hereby are amended as follows:
(a) The definition of "Agent" appearing in the introductory paragraph of
the Pledge Agreement shall be amended by deleting the phrase "BANK OF MONTREAL,
a Canadian chartered bank acting through its Chicago branch ("BOM") with its
mailing address at 115 South LaSalle Street" and inserting the phrase "HARRIS
TRUST AND SAVINGS BANK, an Illinois banking corporation (hereinafter called
"HARRIS"), with its mailing address at 111 West Monroe Street" in lieu thereof,
and from and after the date of this Amendment all references in the Pledge
Agreement to BOM shall instead be deemed to refer to Harris, who shall
thereafter act as Agent thereunder.
(b) The definition of "Lender" appearing in the first preliminary
statement of the Pledge Agreement shall be amended by deleting the reference to
BOM and inserting "Harris" in lieu thereof, so that from and after the date of
this Amendment all references in the Pledge Agreement to BOM in its capacity as
Lender shall instead be deemed to refer to Harris.
<PAGE>
(c) The references to Intersound, CGI, North Records, Light and Experience
(hereinafter collectively referred to as the "CLOSED SUBSIDIARIES") appearing in
(i) the first preliminary statement and (ii) Schedule A of the Pledge Agreement
shall be deleted in their entirety, so that from and after the date of this
Amendment, the Closed Subsidiaries shall no longer be deemed Guarantors and the
shares of capital stock of the Closed Subsidiaries shall no longer be deemed
part of either the Pledged Securities or the Stock Collateral.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to satisfaction of all of
the following conditions precedent:
(a) Each Pledgor and the Agent shall have executed this Amendment, and BOM
shall have acknowledged and agreed to the same.
(b) The First Amendment to the Credit Agreement shall have become
effective in accordance with its terms.
3. REPRESENTATIONS.
Each Pledgor hereby represents and warrants to that as of the date hereof
no Event of Default has occurred or is continuing under the Pledge Agreement on
such date or will result from the effectiveness of this Amendment.
4. MISCELLANEOUS.
(a) Except as specifically amended hereby, all of the terms, conditions
and provisions of the Pledge Agreement shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any
instrument or document at any time referring to the Pledge Agreement, a
reference to the Pledge Agreement in any of such items to be deemed to be a
reference to the Pledge Agreement as amended hereby.
(b) This Amendment may be executed in counterparts and by separate parties
hereto on separate counterparts, each to constitute an original but all to
constitute but one and the same instrument. This Amendment shall be governed
by, and construed in accordance with, the internal laws of the State of
Illinois.
(c) By signing below, Harris hereby accepts its appointment as Agent,
subject to, and in reliance upon, the provisions of the Pledge Agreement, it
being expressly acknowledged and agreed that Harris shall not be liable for any
acts or omissions of BOM.
[SIGNATURE PAGES TO FOLLOW]
-2-
<PAGE>
Dated as of this 31st day of March, 1998.
PLEDGORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Steve Devick
-----------------------------
Its: President
LEXICON MUSIC, INC.
By /s/ Steve Devick
-----------------------------
Its: President
PEG PUBLISHING, INC.
By /s/ Steve Devick
-----------------------------
Its: President
JUSTMIKE MUSIC, INC.
By /s/ Steve Devick
-----------------------------
Its: President
ROYCE PUBLISHING, INC.
By /s/ Steve Devick
-----------------------------
Its: President
-3-
<PAGE>
Consented and agreed to as of the date first above written:
HARRIS TRUST AND SAVINGS BANK, as Agent
By /s/ William J. Kane
-----------------------------
Its: Vice President
BANK OF MONTREAL, as former Agent
By /s/ Rose Mueller
-----------------------------
Its: Director
-4-
<PAGE>
EXHIBIT 10.5
PLATINUM ENTERTAINMENT, INC.
FIRST AMENDMENT TO SECURITY AGREEMENT
FIRST AMENDMENT TO SECURITY AGREEMENT RE: INTELLECTUAL PROPERTY
Harris Trust and Savings Bank
Bank of Montreal
Ladies and Gentlemen:
The undersigned parties executing this Amendment under the heading
"Debtors" (such parties being herein referred to collectively as the
"DEBTORS" and individually as a "DEBTOR") refer to (i) the Security Agreement
(the "GENERAL SECURITY AGREEMENT") and (ii) the Security Agreement Re:
Intellectual Property (the "IP SECURITY AGREEMENT"), each dated as of
December 12, 1997, currently in effect between the Debtors and Bank of
Montreal, a Canadian chartered bank ("BOM"), as Agent (such General Security
Agreement and IP Security Agreement being hereinafter referred to
individually as a "SECURITY DOCUMENT" and collectively as the "SECURITY
DOCUMENTS"). All capitalized terms used herein without definition shall have
the same meanings herein as such terms have in each of the Security Documents.
The Debtors and the Agent wish to amend the Security Documents to
(i) substitute Harris Trust and Savings Bank, an Illinois banking corporation
("HARRIS") as Agent in lieu of BOM, (ii) remove certain Debtors and Guarantors
and (iii) make certain other amendments to the Security Documents, all on the
terms and conditions set forth in this agreement (herein, the "AMENDMENT").
1. AMENDMENTS.
Upon satisfaction of the conditions precedent set forth in Section 3
hereof, the Security Documents shall be and hereby are amended as follows:
(a) The definition of "Agent" appearing in the introductory paragraph of
the General Security Agreement shall be amended by deleting the phrase "BANK OF
MONTREAL (hereinafter called "BOM"), with its mailing address at 115 South
LaSalle Street" and inserting the phrase "HARRIS TRUST AND SAVINGS BANK, an
Illinois banking corporation (hereinafter called "HARRIS"), with its mailing
address at 111 West Monroe Street" in lieu thereof, and from and after the date
of this Amendment all references in the General Security Agreement to BOM shall
instead be deemed to refer to Harris, who shall thereafter act as Agent
thereunder.
(b) The definition of "Agent" appearing in the introductory paragraph of
the IP Security Agreement shall be amended by deleting the phrase "BANK OF
MONTREAL, a
<PAGE>
Canadian chartered bank acting through its Chicago branch (hereinafter called
"BOM") with its mailing address at 115 South LaSalle Street" and inserting
the phrase "HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation
(hereinafter called "HARRIS"), with its mailing address at 111 West Monroe
Street" in lieu thereof, and from and after the date of this Amendment all
references in the IP Security Agreement to BOM shall instead be deemed to
refer to Harris, who shall thereafter act as Agent thereunder.
(c) The definition of "Lender" appearing in the first preliminary
statement of each Security Document shall be amended by deleting the reference
to BOM and inserting "Harris" in lieu thereof, so that from and after the date
of this Amendment all references in each Security Document to BOM in its
capacity as Lender shall instead be deemed to refer to Harris.
(d) The references to Intersound, CGI, North Records, Light and Experience
(hereinafter collectively referred to as the "CLOSED SUBSIDIARIES") appearing in
(i) the first preliminary statement, (ii) the signature pages and (iii) the
Schedules of each Security Document shall be deleted in their entirety, so that
from and after the date of this Amendment, the Closed Subsidiaries shall no
longer be deemed Debtors or Guarantors.
2. ASSUMPTION.
Each Debtor hereby represents and warrants to the Agent that all of the
Collateral previously owned by each of the Closed Subsidiaries has been assigned
or otherwise transferred to the Company prior to the date hereof subject to the
security interests and liens created and provided for by under the Security
Documents. The Company hereby repeats and reaffirms, for the benefit and
security of the Obligations, all grants (including grants of liens and security
interests), covenants, agreements, representations and warranties contained in
the Security Documents as supplemented hereby, each and all of which are and
shall remain applicable to the Company and all the Collateral (including the
Collateral transferred from the Closed Subsidiaries). Without limiting the
generality of the foregoing, in order to secure payment of the Obligations, the
Company does hereby grant unto the Agent for the ratable benefit of the Lenders,
and hereby agrees that the Agent shall continue to have for the ratable benefit
of the Lenders, a continuing security interest in the Collateral transferred to
it by the Closed Subsidiaries. The foregoing grant of security interests is in
addition to and supplemental of and not in substitution for the grant by the
Company under the Security Documents of the security interest in the Collateral,
and nothing contained herein shall impair or otherwise affect the lien or
priority of the Security Documents as to the Collateral which would be
encumbered, or as to the indebtedness which would be secured thereby, in each
case prior to giving effect to this Amendment.
3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to satisfaction
of all of the following conditions precedent:
-2-
<PAGE>
(a) Each Debtor (other than the Closed Subsidiaries) and the Agent shall
have executed this Amendment, and BOM shall have acknowledged and agreed to the
same.
(b) The First Amendment to Credit Agreement shall have become effective in
accordance with its terms.
4. REPRESENTATIONS.
Each Debtor hereby represents and warrants to that as of the date hereof
no Event of Default has occurred or is continuing under each Security
Document on such date or will result from the effectiveness of this Amendment.
5. MISCELLANEOUS.
(a) Except as specifically amended hereby, all of the terms, conditions
and provisions of each Security Document shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any
instrument or document at any time referring to any Security Document, a
reference to any Security Document in any of such items to be deemed to be a
reference to such Security Document as amended hereby.
(b) This Amendment may be executed in counterparts and by separate parties
hereto on separate counterparts, each to constitute an original but all to
constitute but one and the same instrument. This Amendment shall be governed
by, and construed in accordance with, the internal laws of the State of
Illinois.
(c) By signing below, Harris hereby accepts its appointment as Agent,
subject to, and in reliance upon, the provisions of each Security Document, it
being expressly acknowledged and agreed that Harris shall not be liable for any
acts or omissions of BOM as the prior Agent.
(d) By signing below, BOM accepts and agrees that it no longer claims a
security interest in the Collateral provided for in each Security Document.
[SIGNATURE PAGES TO FOLLOW]
-3-
<PAGE>
Dated as of this 31st day of March, 1998.
DEBTORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Steve Devick
-----------------------------
Its: President
LEXICON MUSIC, INC.
By /s/ Steve Devick
-----------------------------
Its: President
PEG PUBLISHING, INC.
By /s/ Steve Devick
-----------------------------
Its: President
JUSTMIKE MUSIC, INC.
By /s/ Steve Devick
-----------------------------
Its: President
ROYCE PUBLISHING, INC.
By /s/ Steve Devick
-----------------------------
Its: President
-4-
<PAGE>
Consented and agreed to as of the date first above written:
HARRIS TRUST AND SAVINGS BANK, as Agent
By /s/ William J. Kane
-----------------------------
Its: Vice President
------------------------
BANK OF MONTREAL, as former Agent
By /s/ Rose Mueller
-----------------------------
Its: Director
-----------------------
-5-
<PAGE>
EXHIBIT 10.6
PLATINUM ENTERTAINMENT, INC.
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Bank of Montreal
Ladies and Gentlemen:
The undersigned, Platinum Entertainment, Inc., a Delaware corporation
(the "COMPANY") refers to the Credit Agreement dated as of December 12, 1997,
currently in effect between the Company and each Lender party thereto as
heretofore amended (as so amended, the "CREDIT AGREEMENT"). All capitalized
terms used herein without definition shall have the same meanings herein as
such terms have in the Credit Agreement.
The Company and the Lenders wish to amend the Credit Agreement, all on
the terms and conditions set forth in this agreement (herein, the
"AMENDMENT").
1. AMENDMENTS.
Effective upon the acceptance hereof by the Agent and each Lender
currently party to the Credit Agreement in the space provided for that
purpose below, the Credit Agreement shall be amended (effective as of March
31, 1998) as set forth below:
1.1 Sectin 8.9 shall be and hereby is amended and restated in its
entirety (effective as of March 31, 1998) to read as follows:
SECTION 8.9 CONSOLIDATED NET WORTH. The Company will,
as of the close of each calendar quarter, maintain Consolidated
Net Worth of not less than the Minimum Required Amount. For
purposes thereof, the term "MINIMUM REQUIRED AMOUNT" shall
mean (a) $12,000,000 through March 31, 1998, and (b) shall
increase (but never decrease) as of each monthly accounting
period of the Company ending on or about April 30, 1998
and as of the last day of each month occurring thereafter,
in each case by an amount equal to 50% of Net Income
(if positive) for the month then ended.
1.2 Section 8.11 shall be and hereby is deleted and the phrase
"[Intentionally omitted]" is substituted therefor.
1.3 Section 8.13 is hereby amended by striking the phrase "CURRENT
MATURITIES AS OF THE CLOSE OF SUCH FISCAL QUARTER BUT EXCLUDING, HOWEVER, TO
THE EXTENT OTHERWISE
<PAGE>
INCLUDED, THE FINAL INSTALLMENT ON THE TERM NOTES" and substituting therefor
the phrase "DEBT SERVICE DURING THE SAME SUCH FISCAL QUARTER."
2. WAIVER.
The May 13, 1998 Compliance Certificate which the Company furnished to
the Agent reflects that the Company was not in compliance with Section 8.9 of
the Credit Agreement as of March 31 of this year. Such Section 8.9 requires,
among other things, that the Company maintain a certain minimum Consolidated
Net Worth. The Company has requested that the Lenders waive the Company's
noncompliance with such Sectiion as of that date.
Accordingly, effective upon the acceptance hereof by the Agent and each
Lender currently party to the Credit Agreement in the space provided for that
purpose below, the Lenders hereby waive the Company's noncompliance with
Section 8.9 of the Credit Agreement as of March 31, 1998 to the extent and
only to the extent that the Company is in compliance with such Section after
giving effect to this Amendment, and hereby agree that such noncompliance
shall not constitute a Default or Event of Default. The Lenders are not with
this Amendment waiving the Company's compliance with such Section as modified
by this Amendment.
3. MISCELLANEOUS.
(a) Except as specifically amended or waived hereby, all of the terms,
conditions and provisions of the Credit Agreement shall stand and remain
unchanged and in full force and effect. No reference to this Amendment need
be made in any instrument or document at any time referring to the Credit
Agreement, a reference to the Credit Agreement in any of such items to be
deemed to be a reference to the Credit Agreement as amended hereby.
(b) The Company agrees to pay on demand all reasonable out-of-pocket
costs and expenses of the Agent (including the fees and expenses of counsel
for the Agent) incurred in connection with the negotiation, preparation,
execution and/or delivery of this Amendment. This Amendment may be executed
in counterparts and by separate parties hereto on separate counterparts, each
to constitute an original but all to constitute but one and the same
instrument. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of Illinois.
[SIGNATURE PAGES TO FOLLOW]
<PAGE>
Dated this 20th day of May, 1998.
PLATINUM ENTERTAINMENT, INC.
By /s/ Douglas C. Laux
---------------------------------------
Its Chief Financial Officer
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK,
individually and as Administrative Agent
and as Syndication Agent
By /s/ William Kane
---------------------------------------
Its Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR PLATINUM
ENTERTAINMENT, INC. AND THE ACCOMPANYING NOTES THERETO FOR THE PERIOD INDICATED
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 17,207
<ALLOWANCES> (3,352)
<INVENTORY> 5,719
<CURRENT-ASSETS> 22,734
<PP&E> 2,115
<DEPRECIATION> (902)
<TOTAL-ASSETS> 56,788
<CURRENT-LIABILITIES> 23,679
<BONDS> 21,000
0
0
<COMMON> 5
<OTHER-SE> 12,109
<TOTAL-LIABILITY-AND-EQUITY> 56,788
<SALES> 13,665
<TOTAL-REVENUES> 14,015
<CGS> 5,446
<TOTAL-COSTS> 5,527
<OTHER-EXPENSES> 4,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (639)
<INCOME-PRETAX> (182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (182)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
