FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _______________
Commission file number 0-26902
NIMBUS CD INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1651183
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
623 Welsh Run Road, Guildford Farm, Ruckersville, Virginia 22968
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 985-1100
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of June 5, 1997, there were 9,476,256 shares of the Registrant's common
stock outstanding and the aggregate market value of such shares (based on the
closing sale price of such shares on the Nasdaq National Market on June 5, 1997)
was approximately $105,470,729. Shares of the Registrant's common stock held by
each executive officer and director and by each entity that owns 5% or more of
the Registrant's common stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's Annual Report to Stockholders for the year
ended March 31, 1997 are incorporated by reference in Parts II and IV of this
Form 10-K to the extent stated herein. In addition, certain sections of the
Registrant's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on August 5, 1997 are incorporated by reference in Part
II of this Form 10-K to the extent stated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
Nimbus CD International, Inc. ("Nimbus" or the "Company") is a leading
independent manufacturer of compact discs ("CD") and Digital Versatile Discs
("DVD") for distribution in North America, the United Kingdom and continental
Europe. Having established one of the first CD manufacturing facilities in the
world in 1982, Nimbus was a pioneer in CD production, and currently serves a
broad base of customers from two manufacturing sites in the United States
(Charlottesville, Virginia and Provo, Utah) and one in the United Kingdom
(Cwmbran, Wales). The Company has grown rapidly since its entry into CD
production, driven initially by demand for CDs providing storage and playback of
pre-recorded music ("CD-Audio"), followed by the rapid emergence of "read only
memory" CDs ("CD-ROM"), which permit the cost efficient storage and retrieval of
any combination of data, text, graphics, audio and video and the recent
introduction of DVD products for video and ROM applications. Nimbus offers more
than 1700 customers an integrated range of services including authoring,
pre-mastering and mastering, disc replication, packaging assembly and order
fulfillment. The Company focuses its marketing efforts primarily on independent
record labels, multimedia and game software developers, personal computer ("PC")
hardware and peripheral manufacturers ("OEMs") and the entertainment industry,
all of which demand a high level of service. The Company meets customer
expectations by providing high quality product at a competitive price within a
short turnaround time.
The Company was organized in October 1992 as a Delaware corporation by DLJ
Merchant Banking Inc. and certain of its affiliates (the "DLJ Investors"), along
with other investors, for the purpose of acquiring the CD manufacturing
operations of Nimbus Records Limited (the "Predecessor"). The Company's
principal executive office is located at 623 Welsh Run Road, Guildford Farm,
Ruckersville, Virginia 22968, and its telephone number at that location is (804)
985-1100. The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "NMBS". Except as otherwise noted herein, all references to
"Nimbus" or the "Company" shall mean Nimbus CD International, Inc. and its
subsidiaries.
Recent Developments
DVD Production
Recognizing that DVD would play an important role in the technological evolution
of the CD, during fiscal 1997, the Company invested $9 million in hardware and
technical expertise to ensure that Nimbus would be a leader in producing high
density discs. In January, 1997, the Company became only the second manufacturer
in the United States to produce commercial DVD product. In early 1997, players
capable of playing DVD Video product were introduced to the market and it is
anticipated that demand for this product will increase as the major movie
studios begin to release titles in a DVD format. DVD Video is capable of storing
4.7 gigabytes of data, which is sufficient to hold a 135 minute movie with up to
three spoken languages, three foreign language subtitles and six channel,
digital surround sound. DVD will ultimately have the capability of storing up to
17 gigabytes, 26 times the storage capacity of a current CD-ROM. DVD-ROM product
is also expected to be produced this year as add-on DVD-ROM drives are marketed
and PCs are fitted with DVD-ROM drives.
Formation of EuroNimbus S.A.
On January 29, 1997, the Company formed EuroNimbus S.A. ("EuroNimbus") and
announced plans to build a new, full service compact disc replication plant in
Foetz, Luxembourg. EuroNimbus will be owned 70% by Nimbus Manufacturing (UK)
Limited and 30% by Saarbrucker Zeitung Verlag und Druckerei, Gmbh, a newspaper
and printing company headquartered in Saarbrucken, Germany. The initial
capitalization of EuroNimbus will be $17 million. The project will be financed
by a combination of government grants and loans, new bank borrowings and capital
contributions. The Company expects to contribute approximately $4 million. The
plant will be a full service facility, providing mastering, replicating,
printing and packaging services. The initial capacity of the plant is expected
to be 20 million discs annually and all of the equipment will be DVD capable.
The Luxembourg location is near the major markets for CD-Audio, CD-ROM and DVD
in Germany, France, Belgium and the Netherlands. The new facility will be
complementary to the Cwmbran plant and will allow Nimbus to better support the
requirements of its multinational customers.
A New Agreement with the Successor to R.R. Donnelley & Sons Company
In April 1994, the Company entered into a strategic alliance (the "Donnelley
CD-ROM Agreement") with R.R.Donnelley & Sons ("Donnelley"), pursuant to which
the Company established a multi-line CD manufacturing facility in Provo, Utah.
In April 1995, as permitted by the Donnelley CD-ROM Agreement, Donnelley
assigned substantially all of its rights in, and obligations under, the
Donnelley CD-ROM Agreement (as assigned, the "Stream CD-ROM Agreement") and
transferred shares of Nimbus Common Stock which Donnelley had purchased under
the Donnelley CD-ROM Agreement to Stream International, Inc. ("Stream"),
Donnelley's majority-owned subsidiary. The Stream CD-ROM Agreement, as amended
and restated on April 1, 1995, required Stream to purchase 23 million discs in
fiscal 1996 and 24 million discs annually thereafter for a fixed price per disc
which was subject to reductions based upon changes in the cost of manufacturing
CD-ROM discs. Effective April 1, 1997, a new agreement was executed which
increased Stream's commitment to purchase discs to 27.5 million during fiscal
1998 and 20.6 million discs for the first nine months of fiscal 1999. The new
agreement will terminate on December 31, 1998.
Closing of the Sunnyvale, CA Facility
On March 25, 1997, the Company announced that it was repositioning operations by
implementing a two-plant strategy to service the U.S. market for CD and DVD
replication. The two-plant strategy involves closing the Company's Sunnyvale,
California plant and concentrating manufacturing activities at the Company's
Charlottesville and Provo facilities. All manufacturing equipment at the
Sunnyvale plant was moved to Provo. The consolidation of facilities is designed
to reduce overhead while providing customers with greater production
flexibility. As a result of this repositioning, the Company incurred a one-time
charge to its fourth quarter financial results of approximately $6.0 million,
$3.7 million after tax, or $0.16 per share. The transition of operations was
completed by June 1.
Industry Overview
Since its introduction in 1982, CD technology has evolved from serving a narrow
set of applications to becoming the preferred medium for the storage of digital
information. On a cost per megabyte basis, CDs continue to compare favorably to
available alternatives for high-capacity applications such as floppy disks,
magnetic tape and hard drives. As a result, CD technology is the dominant format
in the audio market and is a leading technology in the data storage and
retrieval markets. The video market is the next logical extension of CD
technology.
CD-Audio Market. The established market for pre-recorded music represented the
first major application of CD technology. In the seven years ended 1996,
worldwide sales of full length pre-recorded music (CD-Audio, LPs, audio
cassettes) grew from approximately 2.7 billion to 3.6 billion units, a compound
annual growth rate of 5.3%. Over the same period, full length CD-Audio sales
more than doubled from approximately 900 million to 2.2 billion units and
short-play CD singles contributed approximately 364 million additional units in
1996, up from 90 million units seven years earlier.
Consumer acceptance of CD-Audio has been driven by its superiority over other
formats in terms of sound quality, random accessing and indexing of data and by
the market penetration of CD players. CD-Audio has become the standard for home
audio systems and significant market expansion has resulted from increased sales
of in-car and portable players. In the United States and Europe, the major world
markets in which the Company participates, approximately 296 million CD-Audio
players were in use in 1996, representing household penetration (including
multiple ownership by individual households) of approximately 116%. By the year
2000, the Company estimates that 461 million CD-Audio players will be in use,
representing household penetration (including multiple ownership by individual
households) of more than 174%.
CD-Audio manufacturing is dominated by manufacturing organizations affiliated
with the five major international music companies: Sony, PolyGram, Warner, BMG
and EMI. Collectively, the CD manufacturers affiliated with these five
organizations (the "Music Company Manufacturers") produced approximately 63.9%
of the 1996 world output of CD-Audio, primarily to meet the needs of their
affiliated record labels. The independent record labels accounted for
approximately 36.1% of 1996 CD-Audio unit sales. These companies are generally
serviced by "non-affiliated" or independent CD manufacturers, including the
Company, because of their smaller average unit runs and their greater need for a
broad range of services, such as pre-mastering and mastering, disc replication,
packaging and shipping, in addition to short turnaround times. The five largest
independent CD manufacturers, including the Company, produced approximately 11%
of worldwide CD-Audio output in 1996. In 1996, the Company believes it was the
fifth largest independent CD-Audio manufacturer.
CD-ROM Market. CD-ROM is an extension of CD technology which provides storage
and retrieval of any combination of data, text, graphics, audio and video.
CD-ROM is ideally suited to applications involving storage of large amounts of
stable information in a form which can be distributed to a diverse user
population. CD-ROM was introduced in the late 1980s and was initially limited to
business and professional applications such as library references and parts
catalogs. Increasingly, the widespread presence of PCs and CD-ROM drives has
created a consumer marketplace for applications created by software developers,
game developers, database publishers, multimedia publishers and developers of
"edutainment" products.
Worldwide CD-ROM demand was estimated to be 30 million units in 1992 and grew to
783 million units in 1996, a compound annual growth rate of 126.0%, and the
Company expects it to grow to approximately one billion units in 1997. The
market for business-oriented applications is large and growing as a result of
the demand for software and other database products. The consumer market has
continued to exhibit substantial growth. This market has two primary segments:
proprietary CD-ROM game players such as "Sega Saturn," "Sony Playstation" and
"3DO" and home applications for PCs equipped with CD-ROM drives. In the United
States and Europe, the markets served by the Company, the Company expects the
installed base of CD-ROM drives to grow from 29 million in 1995 to 111 million
by 1999.
The Music Company Manufacturers collectively produced 25.0% of the 1996
worldwide output of CD-ROM units. The five largest independent CD manufacturers,
including the Company, collectively produced approximately 29.0% of the 1996
worldwide output of CD-ROM. The remaining 1996 CD-ROM worldwide output was
produced by approximately 216 small to medium size CD manufacturing operations.
Nimbus is the third largest CD-ROM manufacturer in North America and the fifth
largest in Europe.
DVD Market. The Company believes that DVD is the next logical extension of CD
technology. The new DVD format is capable of holding a full length motion
picture (135 minutes) on a standard-sized CD with video and audio quality
superior to current videocassette technology. DVD has far greater information
density as well as a new playback technology. The Company has been capable of
manufacturing the DVD format since November of 1996 and currently has the
capacity to produce 650,000 DVD discs per month. The Company has hired full time
sales and support staff and has produced orders for both DVD Video and DVD-ROM
product.
Initially, the primary application for the DVD format will be traditional motion
pictures. Unlike videocassettes, DVD experiences no image or sound degradation
with normal use, offers greater storage capacity, indexing and random access and
lower manufacturing cost. The storage capacity of the DVD format will also allow
for added features such as multiple foreign languages and subtitles, six channel
surround sound, director's notes, story-based games and other CD-ROM
applications. DVD players are commercially available at retail prices ranging
from $500 to $800 and it is expected that more than 250 motion picture titles
are expected to be available by Christmas, 1997. DVD is expected to compete most
directly with the market for videocassette sales (sell-through) which in 1996
was estimated to total almost 1.1 billion units across the three major world
regions of the U.S., Europe and Japan.
DVD-ROM Market. The Company believes that the expanded information density
afforded by DVD will be employed by CD-ROM content owners who wish to
incorporate a significant video component in their material. DVD-ROM product is
beginning to be offered and at least three personal computer manufacturers will
feature a built-in DVD-ROM drive this fall. The Company expects that OEM
customers will bundle DVD-ROM product with PC hardware and peripherals. Add-on
DVD-ROM drives will also be available to the consumer. The Company believes that
these new DVD-ROM drives will initially retail for less than $300. Game and
multimedia developers are expected to lead the development of DVD-ROM products.
Business Strategy
The Company's objective is to increase sales and profitability and to maximize
return to its stockholders by leveraging its position as a leading independent
manufacturer of CDs. The Company's strategy for achieving these objectives
includes the following:
Capitalizing on the Development of DVD. The Company is well positioned to
participate in the emerging DVD market. The Company has acquired the equipment
necessary to manufacture the bonded two-sided disc format. In addition, Nimbus
representatives have been active participants in industry forums involved in the
review and development of format standards and manufacturing protocols. By
combining a direct sales effort targeting independent motion picture production
companies with its existing CD-ROM sales force, the Company intends to pursue a
strategy in the DVD market similar to the one it has utilized in the CD-ROM
market.
Aggressively Expanding its Position as a Leading Manufacturer of CD-ROM. CD-ROM
is currently the Company's largest market and has been the Company's fastest
growing product. CD-ROM customers are often specialized software developers and
providers of digital information who are unable to manufacture CDs in their own
facilities. In addition, the markets for these applications are highly
competitive and time-sensitive. Consequently, CD-ROM customers typically demand
high quality service with short turnaround times. The Company believes its
ability to meet these needs has resulted in Nimbus becoming the third largest
CD-ROM manufacturer in North America and the fifth largest CD-ROM manufacturer
in Europe. In the United States, the Company has targeted the OEM market and has
hired staff to actively develop relationships with these important companies.
Management believes that the OEM market is equal in size to the demand from the
content owner/developer. Furthermore, Nimbus' agreement with Stream will
continue to enable the Company to have relationships with many of the world's
largest hardware and software companies. In addition, the Company will take
advantage of its technological expertise to produce DVD-ROM product for content
owners and developers.
Targeting Selected Customers in the CD-Audio Market. CD-Audio production
provides the Company with a strong, stable revenue base. The Company's marketing
efforts will remain focused on independent record companies (the fastest growing
segment of the recording industry) that value the Company's high level of
service including rapid turnaround, inventory tracking and control, print
material procurement, specialized packaging and fulfillment.
Maintaining its Position as a Leader in Manufacturing Efficiency and Technical
Expertise. The Company continues to invest in, and maximize the efficiency of,
equipment, systems, processes and personnel to maintain its position as a
low-cost manufacturer of CDs. From fiscal 1991 to fiscal 1997, production yields
have increased from 40% to 92%, while pressing cycle times have fallen from
approximately seven seconds to less than four seconds. Discs produced per
employee have risen from 56,100 discs in fiscal 1990 to 167,000 discs in fiscal
1997.
Marketing Holographic CDs. In its effort to respond to customer piracy concerns,
the Company has joint venture arrangements with Applied Holographics, PLC
("Applied Holographics") in both the U.S. and the United Kingdom to market
patented technology to imprint holograms onto CDs which provide customers with
an effective piracy deterrent without loss of data capacity or playing time. In
addition, the use of the hologram as a marketing mechanism has proved to be very
successful. During fiscal 1997, the hologram technology was used by a division
of BMG Entertainment on the limited edition reissue of the "Star Wars"
soundtracks. This technology is marketed under the name 3-D io d(TM) and allows
for a holographic image to be applied using the Security Band Process or the
Edge-to-Edge Process. The Company believes that the Edge-to-Edge Process cannot
be duplicated without the embossing machinery and the Company has received
patents for certain mechanical aspects of that machinery. The joint ventures are
prepared to license 3-D io d(TM) technology to other CD manufacturers and will
collect a royalty fee for each CD produced by such manufacturers using 3-D io
d(TM) technology with all royalty revenues split equally between the Company and
Applied Holographics.
Customers
The Company maintains a diverse base of over 1700 customers. The Company
believes that its high quality manufacturing capability and effective customer
service have contributed significantly to the loyalty of its customer base. As a
result of the dynamic nature of the CD-ROM market, the number of CD-ROM
customers is growing, the type of CD-ROM customers is changing and the size of
the orders is increasing. In addition, the Company maintains a stable base of
CD-Audio customers. Under the terms of the Stream CD-ROM Agreement, Stream
accounted for 15% of fiscal 1997 net sales. No other customer represented more
than 10% of consolidated sales for fiscal 1997.
Services and Marketing
The Company provides its CD-Audio, CD-ROM and DVD customers with an integrated
range of services including authoring, pre-mastering and mastering, disc
replication, packaging, assembly and order fulfillment. The Company has designed
its operations to efficiently produce a wide range of run sizes. Although the
Company can produce large run sizes efficiently, its ability to provide discs at
competitive prices for smaller order sizes with short turnaround times is
particularly attractive to independent record labels and many of the Company's
CD-ROM customers. The Company is equipped to provide product in a wide variety
of packaging configurations which enables customers to design finished products
for the most effective retail marketing presentation. The Company works closely
with its customers to ensure that label film which is used to produce printed
material on the disc and print material to supplement the packaged product are
ordered and delivered on time. The Company also stores print material for
customers to facilitate timely and cost-effective reordering.
CD-Audio. The Company's marketing strategy has focused primarily on independent
record labels which utilize the Company's ability to offer full CD manufacturing
services. In the United Kingdom, in addition to independent record labels, the
Company has attracted substantial business from United Kingdom-based major
record labels which accounted for approximately 10.7% of the Company's fiscal
1997 unit production in the United Kingdom.
In the United States, the Company maintains CD-Audio sales offices near
Charlottesville, Virginia, in Gardena, California and in Millburn, New Jersey.
The sales representatives are responsible for maintaining relationships with
their existing customers and developing new business relationships. The sales
representatives are supported by a customer service staff that is responsible
for ensuring that each order is processed on a timely basis, that all required
support materials are in place and that quality levels are achieved. Customers
in the United Kingdom and Europe are serviced by sales and customer service
representatives based at the Company's Cwmbran manufacturing facility as well as
a sales representative in London.
CD-ROM/DVD-ROM. In 1986, the Company formed a CD-ROM division to explore new
applications for CD technology and to cater to the special requirements of
"CD-data product" clients. The Company believes it is a leading supplier of
services and discs to CD-ROM and DVD-ROM developers, publishers and resellers.
The Company provides complete CD-ROM and DVD-ROM services to customers from
technical and business consultation on the use of data and applications through
the conversion of raw data to the replication of information on disc. The
Company satisfies customer requirements for regular CD-ROM and DVD-ROM updates,
data conversion and indexing, authoring, pre-mastering and data verification.
Value-added services such as artwork service for printed material and
specialized packaging are also provided.
The CD-ROM and DVD-ROM sales and marketing staff in the United States is
organized geographically with sales offices near Charlottesville, Virginia,
Atlanta, Georgia and Gardena and Sunnyvale, California. The sales
representatives are supported by a customer service staff that is responsible
for ensuring that orders are filled on a timely and accurate basis. In addition,
marketing support personnel assist with new prospects and new product
development.
The CD-ROM sales and marketing organization in the United Kingdom is organized
around market segments. Sales resources are split into three market areas:
hardware/software developers, games and game developers and database publishers.
A sales and marketing executive directs the sales team which is supported by a
marketing assistant. The United Kingdom CD-ROM sales and marketing organization
develops markets within continental Europe and will continue to do so until the
demand for products dictates that a separate sales force is needed.
Holographic CDs. In June 1995, the Company and Applied Holographics entered into
joint venture arrangements in both the U.S. and the United Kingdom to market
patented technology to imprint holograms onto CDs in order to provide customers
with an effective piracy deterrent without loss of data capacity or playing
time. This technology is marketed by a dedicated sales staff under the name 3-D
i-d(TM) and allows for a holographic image to be applied to a CD using either
the Security Band Process or the Edge-to-Edge Process. The Company believes that
the Edge-to-Edge Process cannot be duplicated without the embossing machinery
and the Company has received patents for certain mechanical aspects of that
machinery. The joint ventures are preparing to license 3-D i-d(TM) technology
to other CD manufacturers and will collect a royalty fee for each CD produced by
such manufacturers using 3-D i-d(TM) technology with all royalty revenues split
equally between the Company and Applied Holographics.
Competition
The Company believes that the principal competitive factors in the CD-Audio and
CD-ROM markets are service, price, quality and reliability for timely delivery
of product. The Company believes that it competes favorably with respect to each
of these factors. With increased production capacity in the market, CD prices
have declined and CD pricing has become an increasingly important factor in
obtaining sales. The Company believes that the quality of its products and
services and its ability to accommodate tight delivery schedules offset, to some
extent, the price competition currently existing in the market.
In addition to the Music Company Manufacturers, the Company competes with
independent manufacturing companies or groups of companies in both the CD-Audio
and CD-ROM markets. In the United States CD-Audio market, the Company's
competitors include Disctronics, Inc. ("Disctronics"), Cinram, Ltd. ("Cinram"),
JVC America, Inc. ("JVC") and Denon Electronics Inc. In 1996, the Company
believes it was the fifth largest independent manufacturing company in the
United States CD-Audio market. In the European CD-Audio market, the Company's
competitors include Disctronics, MPO Disque Compact ("MPO"), Europe Optical Disc
and CD Plant Manufacturing A.B. In 1996, the Company believes it was the fifth
largest independent manufacturing company in the European CD-Audio market.
In the United States CD-ROM market, the manufacturers who compete with Nimbus
include Sony, KAO Infosystems Company ("KAO") and Sonopress. In 1996, the
Company believes it was the second largest independent manufacturing company in
the United States CD-ROM market. In the European CD-ROM market, the Company's
competitors include Sony, KAO, MPO and Sonopress. In 1996, the Company believes
it was the third largest independent manufacturing company in the European
CD-ROM market. The Music Company Manufacturers, as well as several of the
independent manufacturers, are larger and have greater financial resources than
the Company.
The Company believes that it is one of a small number of manufacturers capable
of manufacturing DVD product. Other manufacturers presently known to be capable
of supplying product in the U.S. market are Time Warner and Pioneer. The Company
believes that the DVD manufacturing process is unique and more technically
difficult than the manufacture of traditional CDs. The competitive factors in
this market, in the near term, will involve technical competence, capacity and
the quality of service.
Other existing technologies also compete with the Company's products to deliver
digital information. Portable media, such as digital audio tape, digital compact
cassette and the mini-disc have been introduced commercially, but have failed to
achieve widespread consumer acceptance. In addition, one-time recordable CDs
("CD-R") are available and are often used by the Company's customers to submit
material for mastering. CD-R equipment retails at significantly higher prices
and CD-R blank discs are significantly more expensive to manufacture. The
Company does not expect any of these technologies to expand beyond their current
market niches in the near future.
Electronic on-line delivery of digital information through cable and modem,
satellite transmission or through the Internet are potential future competitors
to CD-ROM. The Company believes that current and projected transmission speeds
and infrastructure limitations of on-line delivery systems will prevent them
from replacing CD-ROM in the foreseeable future. For example, a conventional
modem operating at a data transmission speed of 28.8 kilobits per second would
take approximately two days to download an entire CD, which currently has a
capacity of 650 megabytes. In addition, future advances in CD-ROM technology
such as higher speed drives and greater data compression could improve CD-ROM's
advantages over potential competitive technologies.
The CD Manufacturing Process
The CD manufacturing process, used in each of the Company's facilities, consists
of three stages: (i) preproduction, (ii) replication and printing and (iii)
packaging and fulfillment. Except for preproduction, the manufacturing process
is the same for both CD-Audio and CD-ROM.
Preproduction. Preproduction of CDs consists of three distinct processes:
pre-mastering, mastering and electroplating. Through these processes, metal
stampers are created which contain the bytes of data in a digital format. The
metal stampers are then mounted in the plastic injection molding equipment to
create the disc. The preproduction process is critical to establishing the
quality of the final product.
For CD-Audio, the pre-mastering process consists of reviewing the
customer-supplied material to ensure that no discernible defects occurred during
the recording process. Once the material has passed the quality control process,
the editor creates a table of contents to indicate the start and stop times of
each audio track and downloads the data into a digital data format to be used in
the mastering process.
CD-ROM preproduction begins with the customer data supplied in any number of
approved input media. The data is processed through a pre-mastering computer
system where the data is formatted into the desired CD-ROM structure to ensure
that the finished disc will be compatible with the intended operating system.
The CD-ROM pre-master is then downloaded onto a digital data cartridge for
mastering.
The mastering process forms the master image of the CD from which the
polycarbonate replicas are molded. A laser beam recorder transfers the digital
information from the data cartridges onto a photo-sensitive coating applied to a
glass mastering substrate. This process creates the "glass master" with the
characteristic CD pits etched in the photo-sensitive coating. The Security Band
hologram can also be mastered onto the glass substrate at the same time that the
content is mastered. The mastering process is critical to product quality. Any
defect on the master will be replicated on all production discs; therefore, the
mastering process takes place in a class 1000 cleanroom, an environment free of
microscopic contaminants which can obscure large amounts of data. The Company
uses the Nimbus-Halliday laser mastering system, manufactured by Nimbus
Technology & Engineering, Inc., a former affiliate of the Company. This
mastering system is currently able to master DVD formats. Each of the Company's
senior technical managers has more than 10 years of experience with the
equipment, which the Company believes will enable it to achieve maximum
definition and resolution from this system. Using an electroforming process, the
glass master yields nickel stampers in the image of the master. These stampers
are mounted in the injection molding machines to replicate CDs. The Company's
extensive experience with the system has created yields in excess of 90% and a
reputation for producing high quality stampers.
Replicating and Printing. The replication of CDs utilizes a fully integrated
line process which incorporates a plastic injection molding press, metalizing
equipment and lacquering machinery. High quality, CD grade polycarbonate is
injected into the mold cavity where the metal stamper has been mounted. The
Company's state of the art technology allows for press cycle times of less than
four seconds per disc. The clear polycarbonate disc containing all of the
digitized data is then covered with a metallic coating to provide for reflection
of the reading laser beam in the player. Using equipment designed and
manufactured by the Company, a thin layer of lacquer is applied over the metal
to protect it and to serve as a base for printing on the disc. If a customer has
requested an edge-to-edge hologram, it is at this stage in the process that a
holographic shim containing the customer's unique art work will be used to
emboss the hologram onto the disc. The disc is then re-metalized and lacquered
to enhance the holographic image. The Company has organized each of its
replicating facilities to incorporate its uniquely designed in-line
manufacturing cells. This system permits decreased manning levels, higher
operating efficiencies and reduced capital expenditures necessary to fund a line
extension. In addition, it provides automatic in-line inspection for faster
response to quality issues thus improving productivity.
The Company has two DVD replication lines. Each line has two presses which
produce two polycarbonate substrates, each one-half the thickness of a standard
CD. Information is molded onto a layer or multiple layers of a substrate
depending on the data requirements. The two substrates are bonded together to
form a DVD disc. In the case of a 4.7 gigabyte DVD, data will only be molded on
to one layer of the bottom substrate. This manufacturing method is more process
critical and requires new testing equipment to ensure the flatness of the bonded
disc.
Printing, which is the final production process, is performed in batches
off-line in order to take advantage of the high speed nature of the printing
process while avoiding production delays typically required for printer setup.
The Company's printing equipment includes both screen and offset printing
processes, each capable of five color printing. Dual infeed capability
effectively doubles the capacity of several of the printers. As a result, the
Company has been able to reduce labor and required capital while improving
production efficiency. The Company can produce its own screens and can reuse a
screen multiple times. High demand colors are purchased pre-mixed in order to
reduce ink waste. Automated label inspection and print quality assurance are
integrated with the screen printers to ensure high quality and to reduce the
need for manual quality inspection.
Packaging and Fulfillment. The Company maintains equipment to provide for most
customer requested packaging configurations and effectively uses temporary labor
provided by local agencies as well as local packaging contractors to manage
unique, manual pack operations. Currently, the standard packaging configuration
is a jewel box with customer supplied print material on the bottom and top sides
of the box. The jewel box is often shrink wrapped for protection. Product is
generally shipped by common carrier; however, the Company will provide other
methods of transport to ensure that critical delivery dates are met. The Company
also has the capability to offer electronic order intake, either directly from
the customer or via the Internet.
Suppliers
Although the Company's practice is to seek reduced costs and enhanced quality by
purchasing from a limited number of suppliers, all raw materials needed to
manufacture the Company's CDs are readily available from numerous sources of
supply at competitive prices. The principal raw materials used by the Company to
manufacture CDs are CD grade polycarbonate, aluminum, UV curable lacquers and
ink, all of which are available from multiple commercial sources. The Company
maintains multiple sources of jewel boxes and trays for each of its
manufacturing facilities.
Seasonality
The Company's sales are seasonal, with peak sales activity normally occurring in
the third fiscal quarter as retail chains increase inventory before the holiday
season.
Geographic Segments
The summary of the Company's operations by geographic area for fiscal 1997, 1996
and 1995 set forth in Note 16 of Notes to Consolidated Financial Statements of
the Company's 1997 Annual Report to Stockholders is hereby incorporated by
reference.
Employees
As of March 31, 1997, the Company had 893 full-time employees, of which
approximately 693 were hourly employees and 200 were salaried employees. None of
the Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company considers its employee relations to
be good.
Patents and Trademarks
The Company, like most other CD manufacturers, uses patented technology
primarily under nonexclusive licenses from the holders of patents which
generally provide for the payment of royalties based upon the number of CDs
sold.
The Company regards the design of some of its manufacturing equipment as
proprietary and attempts to protect it with a combination of trade secret laws
and nondisclosure agreements with key employees. There can be no assurance that
such measures will provide meaningful protection for the Company's trade
secrets, know-how and other proprietary information.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
The statements included or incorporated by reference into the Company's
Securities and Exchange Commission filings and shareholder communications which
are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, the effect of changing CD
technology and the possibility that, over time, CD technology could be replaced
by another form of information storage and retrieval technology, the dependence
of the Company's growth prospects on the development of new technologies that
achieve market acceptance and create new demand for CDs and related services and
the highly competitive nature of the CD manufacturing industry which may
adversely affect prices for CDs and other aspects of the Company's business.
ITEM 2. PROPERTIES
The Company's headquarters is located off US Highway 29 in Ruckersville,
Virginia, which is approximately 20 miles north of Charlottesville, Virginia and
approximately 100 miles south of Washington, DC, on a 25-acre site with a
107,000 square foot facility, all of which the Company owns in fee simple. The
facility has the capacity to produce 165,000 discs per day utilizing 12 press
lines. In addition, the facility has two DVD manufacturing lines with a capacity
of approximately 650,000 discs per month. The Company also owns an additional
237 acres of surrounding farmland.
The Company leases approximately 42,000 square feet of office and manufacturing
space and an additional 42,000 square feet of warehouse space in Provo, Utah, to
satisfy its production requirements under the Stream CD-ROM Agreement and the
demands of its West Coast CD-ROM and CD-Audio customers. The lease for the
manufacturing space expires in May 2000. The lease for the warehouse space
expires on May 1, 1998. The Provo facility currently has the capacity to produce
192,000 discs per day utilizing 14 press lines.
EuroNimbus has leased from the Grand Duchy of Luxembourg approximately 2.5
hectares of land in Foetz for a period of thirty years. EuroNimbus is in the
process of constructing a 40,000 square foot manufacturing facility on the site.
EuroNimbus holds a five year option to lease an additional 2.5 hectares of land
abutting the current site.
The Company leases 82,000 square feet of office, manufacturing and warehouse
space in Sunnyvale, California. This facility was the former site of Nimbus
Software Services, Inc.
The Company also leases sales office space in Gardena, California, Millburn, New
Jersey and Atlanta, Georgia.
The Company's United Kingdom manufacturing facility is located in Cwmbran,
Wales, which is 130 miles west of London. The 30,000 square foot building was
constructed in 1986 and a recent addition has added 25,000 square feet. The
Company purchased the building in 1993. This facility's disc production capacity
is approximately 230,000 discs per day using 17 press lines, of which two have
twin cavity molding capability. The Company's United Kingdom subsidiary also
leases four adjacent, 12,000 square foot warehouses pursuant to three leases
which are used for packing services, warehousing and shipping. One lease expires
in November 2001 and the other two expire in 2011.
The Company's manufacturing facilities are equipped with specialized equipment
and utilize extensive automation for the manufacture of its products. The
Company believes that its property and equipment are in good operating condition
and that its facilities are adequate to meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
On March 18, 1996, the Company received notification from the United States
Environmental Protection Agency ("EPA") alleging that the Company is a
Potentially Responsible Party ("PRP") for clean-up of surface water
contamination at the Cherokee Oil Company Site (the "Site") in Charlotte, North
Carolina which was used by the Company for disposal of certain byproducts of its
manufacturing processes. Subsequently, the United States Department of Justice
notified the Company that it intended to seek recovery of the approximately $6.4
million environmental clean-up costs incurred to remediate the Site from the
Company and other PRPs, each of which was considered to be jointly and severally
liable. In April 1997, the Company and numerous other PRPs reached a settlement
in principle with the EPA. Under the terms of the settlement, 58 PRPs and the
Site owner, have agreed to reimburse the EPA $4.0 million to settle the EPA's
claim for cleanup costs. The Company has recorded a $300,000 provision for
settlement costs associated with the Company's share of the cleanup costs of the
Site. The Company's share of the aggregate settlement fund may decrease as other
PRPs join in the settlement. Management of the Company believes that the
ultimate settlement of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
The Company is, from time to time, involved in litigation that it considers to
be in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal 1997 to a vote of
the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Price Information
The information required by this section is incorporated by reference to the
section entitled "Common Stock Information" appearing on page 24 of the
Company's 1997 Annual Report to Stockholders.
Number of Stockholders
As of June 5, 1997, there were 222 record holders of the Company's Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock, intends to retain
all earnings for the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future. Furthermore, the
Company's bank loan agreement restricts the Company's ability to pay dividends.
Any future determination as to the payment of cash dividends will depend upon
the Company's results of operations, financial condition and capital
requirements, lender consent under the bank loan agreement and such other
factors as the Company's Board of Directors deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
section entitled "Selected Financial Data" appearing on page 9 of the Company's
1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing on page 10 of the Company's 1997 Annual
Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
Consolidated Financial Statements, and the related notes thereto, Report of
Independent Accountants and the Supplementary Quarterly Consolidated Financial
Data on pages 13 through 24 of the Company's 1997 Annual Report to
Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
With the exception of the information specifically incorporated by reference
from the 1997 Annual Report to Stockholders in Parts II and IV of this Form
10-K, the Company's 1997 Annual Report to Stockholders is not to be deemed filed
as part of this Form 10-K.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's directors and
executive officers is incorporated by reference to the information set forth in
the sections entitled "Proposal No. 1: Election of Directors" and "Executive
Officers of the Company" on pages 6 through 12 in the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders to be held on August 5,
1997 which will be filed with the Commission within 120 days after the end of
the Company's fiscal year ended March 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item concerning the executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Compensation" on pages 13 through 21 in the Company's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on August
5, 1997 which will be filed with the Commission within 120 days after the end of
the Company's fiscal year ended March 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item concerning the security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Securities Ownership of Certain
Beneficial Owners and Management" on pages 4 through 6 in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to be
held on August 5, 1997 which will be filed with the Commission within 120 days
after the end of the Company's fiscal year ended March 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item concerning the certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Relationships and Transactions" on pages 21
through 24 in the Company's definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders to be held on August 5, 1997 which will be filed with
the Commission within 120 days after the end of the Company's fiscal year ended
March 31, 1997.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) The following documents are filed as part of this Form 10-K:
1. Financial Statements The following consolidated financial
statements, and the related notes thereto, of the Company and the
Report of the Independent Accountants are incorporated by reference
to pages 13 through 24 of the Company's 1997 Annual Report to
Stockholders:
i) Report of Coopers & Lybrand L.L.P., Independent
Accountants.
ii) Consolidated Balance Sheets as of March 31, 1997 and 1996.
iii) Consolidated Statements of Income for the three years ended
March 31, 1997, 1996 and 1995.
iv) Consolidated Statement of Stockholder's Equity for the three
years ended March 31, 1997, 1996 and 1995.
v) Consolidated Statements of Cash Flows for the three years
ended March 31, 1997, 1996 and 1995.
vi) Notes to Consolidated Financial Statements.
2. Schedules
i) Report of Coopers & Lybrand L.L.P., Independent
Accountants.
ii) Schedule I Condensed Financial Information of
Registrant
iii) Schedule II Valuation and Qualifying Accounts
iv) All other schedules are omitted because they are not
applicable or required, or because the required information is
included in the Consolidated Financial Statements or notes.
3. Exhibits. The exhibits listed on the accompanying index to
exhibits immediately following this Item 14 are filed as a part
of, or incorporated by reference into, this Form 10-K.
b) Reports on Form 8-K. No reports on Form 8-K were filed during the
last quarter of the Company's fiscal year ended March 31, 1997.
c) Exhibits. See Item 14(a)(3) above.
d) Financial Statement Schedules. See Item 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NIMBUS CD INTERNATIONAL, INC.
Dated: June 26, 1997
L. Steven Minkel
Executive Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on June 26, 1997.
Lyndon J. Faulkner
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
L. Steven Minkel
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
Gary E. Krutul
Controller (Principal Accounting Officer)
*
Charles Ayres
Director
*
Darryl G. Behrman
Director
*
Grant G. Behrman
Director
*
Robert M. Davidson
Director
<PAGE>
*
David E. De Leeuw
Director
*
Anthony V. Dub
Director
*
Robert B. Hellman, Jr.
Director
*
David E. King
Director
*
George E. McCown
Director
*
Glenn S. McKenzie
Director
- --------------------------------------
* By L. Steven Minkel as Attorney-in-Fact.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-75632 ("Registrant's 1995 S-1")).
3.2 Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
to Registrant's 1995 S-1).
4.1 Form of Certificate Representing Common Stock (incorporated by reference
to Exhibit 4.1 to Registrant's 1995 S-1).
4.2 Amended and Restated Credit Agreement among Nimbus CD International,
Inc., Nimbus Manufacturing Inc., Nimbus Manufacturing (UK) Limited, The
Chase Manhattan Bank, as agent, and the Lenders party thereto
(incorporated by reference to Exhibit 4.2 to Registrant's 1995 S-1).
4.3 Amendment to Amended and Restated Credit Agreement among Nimbus CD
International, Inc., Nimbus Manufacturing Inc., Nimbus Manufacturing
(UK) Limited, The Chase Manhattan Bank, as agent, and the Lenders party
thereto.
4.4 Second Amendment to the Amended and Restated Credit Agreement among
Nimbus CD International, Inc., Nimbus Manufacturing Inc., Nimbus
Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
party thereto.
4.5 Third Amendment to the Amended and Restated Credit Agreement among
Nimbus CD International, Inc., Nimbus Manufacturing Inc., Nimbus
Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
party thereto.
4.6 Fourth Amendment to the Amended and Restated Credit Agreement among
Nimbus CD International, Inc., Nimbus Manufacturing Inc., Nimbus
Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
party thereto.
4.7 Fifth Amendment to the Amended and Restated Credit Agreement among
Nimbus CD International, Inc., Nimbus Manufacturing Inc., Nimbus
Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
party thereto.
10.1 Limited Liability Company Agreement of 3dcd, L.L.C. dated as of June
28, 1995 between Nimbus Manufacturing Inc. and Applied Holographics
Corporation (incorporated by reference to Exhibit 10.1 to Registrant's
1995 S-1).
10.2 Cooperation Agreement dated June 28, 1995 between Nimbus Manufacturing
(UK) Limited and Applied Holographics Embossed Limited (incorporated by
reference to Exhibit 10.2 to Registrant's 1995 S-1).
10.3 Stockholders Agreement (incorporated by reference to Exhibit 10.3 to
Registrant's 1995 S-1).
10.4 Employment Agreement dated as of April 1, 1993 between the Company and
Lyndon J. Faulkner (incorporated by reference to Exhibit 10.4 to
Registrant's 1995 S-1).
10.5 Employment Agreement dated as of November 9, 1992 between the Company
and L. Steven Minkel (incorporated by reference to exhibit 10.5 to
Registrant's 1995 S-1).
10.6 Employment Agreement dated as of March 8, 1993 between the Company and
Robert J. Headrick (incorporated by reference to Exhibit 10.6 to
Registrant's 1995 S-1).
10.7 Form of Indemnification Agreement (incorporated by reference to Exhibit
10.7 to Registrant's 1995 S-1).
10.8 Agreement by and between Nimbus CD International, Inc. and Stream
International Holdings, Inc. dated as of March 28, 1997.
10.9 Amended and Restated 1995 Nimbus CD International, Inc. Stock Option
and Stock Award Plan (incorporated by reference to Registrant's 1996
Annual Report on Form 10-K)
10.10 Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.10 to Registrant's 1995 S-1).
10.11 Asset Purchase Agreement, dated as of August 31, 1995 among Nimbus
Software Services, Inc., HLS Duplication, Inc., Nimbus Manufacturing
Inc. and Steven R. Sherman (incorporated by reference to Exhibit 10.11
to Registrant's 1995 S-1).
10.12 Nimbus CD International, Inc. 1995 Stock Option Plan for Non-employee
Directors (incorporated by reference to Exhibit 10.12 to Registrant's
1995 S-1).
10.13 CD Disc License Agreement by and between U.S. Philips Corporation and
Nimbus Records Inc. dated as of December 1, 1986 (incorporated by
reference to Exhibit 10.13 to Registrant's 1995 S-1).
10.14 CD Disc License Agreement by and between Philips Electronics N.V. and
Nimbus Manufacturing (UK) Ltd., dated as of August 31, 1994
(incorporated by reference to Exhibit 10.14 to Registrant's 1995 S-1).
10.15 Patent License Agreement by and between Nimbus Manufacturing Inc. and
Thomson S.A., dated as of October 1, 1994 (incorporated by reference to
Exhibit 10.15 to Registrant's 1995 S-1).
10.16 Employment Agreement dated as of June 10, 1996 between the Company and
David J. Trudel.
10.17 Shareholders' Agreement dated as of January 29, 1997 by and among
EuroNimbus S.A., Nimbus Manufacturing (UK) Limited and Saarbrucker
Zeitung Verlag und Druckerei G.m.b.H.
11.1 Computation of Net Income Per Share of Common Stock.
13.1 Portions of the 1997 Annual Report to Stockholders for the year ended
March 31, 1997 expressly incorporated herein by reference.
21.1 Subsidiaries of the Registrant.
24.1 Powers of attorney from officers and directors of the Company signed by
an attorney-in-fact.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 11.1
NIMBUS CD INTERNATIONAL, INC.
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
For the Years Ended March 31, 1997, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
-------- --------- ---------
Primary and fully diluted (A):
Weighted average common shares outstanding 20,862 13,894 13,805
Net additional common shares issueable
upon exercise of dilutive warrants and
stock options, determined by the
treasury stock method using the
estimated initial public offering
price for options and warrants granted
within one year prior to the Offering
and Private Placement and the average
market price for options and warrants 2,145 2,055 2,088
outstanding in periods after the Offering
Issuance of common shares by the Company
in the Offering and Private Placement 6,850 6,850
-------- --------- ---------
Pro forma common shares and equivalents 23,007 22,799 22,743
======== ========= =========
Net income - 1996 and 1995 is pro forma
for the Offering and Private Placement $9,175 $12,040 $8,196
======== ========= =========
Earnings per share - 1996 and 1995 is pro
forma for the Offering and Private $0.40 $0.53 $0.36
Placement ======== ========= =========
</TABLE>
(A) See Note 18 of Notes to Consolidated Financial Statements.
EXHIBIT 13.1
PORTIONS OF THE 1997 ANNUAL REPORT TO STOCKHOLDERS FOR THE
YEAR ENDED MARCH 31, 1997 EXPRESSLY INCORPORATED HEREIN BY REFERENCE
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Corporation State/Country of
Incorporation
Nimbus Manufacturing Inc. Virginia
Nimbus Manufacturing (UK) Limited United Kingdom
Nimbus Information Systems, Inc. Virginia
Nimbus Software Services, Inc. Delaware
CD Manufacturing (UK) Limited United Kingdom
3dcd, L.L.C. Delaware
3dcd Limited United Kingdom
EuroNimbus S.A. Luxembourg
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY FROM OFFICERS AND DIRECTORS OF THE COMPANY
SIGNING BY AN ATTORNEY-IN-FACT
POWER OF ATTORNEY
I, CHARLES AYRES, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
21, 1997.
\s\Charles Ayers
CHARLES AYERS
POWER OF ATTORNEY
I, DARRYL G. BEHRMAN, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997 which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
24, 1997.
\s\Darryl G. Behrman
DARRYL G. BEHRMAN
POWER OF ATTORNEY
I, GRANT G. BEHRMAN, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
21, 1997.
\s\Grant G. Behrman
GRANT G. BEHRMAN
POWER OF ATTORNEY
I, ROBERT M. DAVIDSON, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
21, 1997.
\s\Robert M. Davidson
ROBERT M. DAVIDSON
POWER OF ATTORNEY
I, DAVID E. DE LEEUW, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
22, 1997.
\s\David E. DeLeeuw
DAVID E. DE LEEUW
POWER OF ATTORNEY
I, ANTHONY V. DUB, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
21, 1997.
\s\Anthony V. Dub
ANTHONY V. DUB
<PAGE>
POWER OF ATTORNEY
I, DAVID KING, a duly elected Director of NIMBUS CD INTERNATIONAL, INC., a
Delaware corporation (the "Company"), do hereby constitute and appoint L. Steven
Minkel and Gary E. Krutul, each with full power of substitution, for me and in
my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
21, 1997.
\s\ David King
DAVID KING
POWER OF ATTORNEY
I, ROBERT B. HELLMAN, JR., a duly elected Director of NIMBUS CD
INTERNATIONAL, INC., a Delaware corporation (the "Company"), do hereby
constitute and appoint L. Steven Minkel and Gary E. Krutul, each with full power
of substitution, for me and in my name, place and stead, in any and all
capacities (including without limitation, as Director of the Company), to sign
the Company's Annual Report on Form 10-K for the year ended March 31, 1997,
which is to be filed with the Securities and Exchange Commission, with all
exhibits thereto, and any and all documents in connection therewith, hereby
granting unto said attorney-in-fact and agent full power and authority to do and
perform any and all acts and things requisite and necessary to be done, and
hereby ratifying and confirming all that said attorney-in-fact and agent may do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
23, 1997.
\s\Robert B. Hellman, Jr.
ROBERT B. HELLMAN, JR.
POWER OF ATTORNEY
I, GEORGE E. McCOWN, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
22, 1997.
\s\George E. McCown
GEORGE E. MCCOWN
<PAGE>
POWER OF ATTORNEY
I, GLENN McKENZIE, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware corporation (the "Company"), do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul, each with full power of substitution, for
me and in my name, place and stead, in any and all capacities (including without
limitation, as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
23, 1997.
\s\Glenn McKenzie
GLENN MCKENZIE
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (1)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor Combined Company
-----------------------------------------------------------
Fiscal Year
------------------------------
Pro
Forma
Twelve Six
Six Months Months Months
(Dollars in Ended Ended Ended Ended Ended Ended Ended
thousands,except Sept.30, March31 March31 March31 March31 March31 March31
per share data) 1992 1993 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
Operating Results:
Net sales $32,138 $69,447 $37,309 $69,934 $85,827 $118,24 $129,470
Gross profit 7,674 18,648 10,974 19,527 27,606 34,436 37,509
Restructuring
charge 6,014
Operating income 947 6,888 5,941 8,107 15,412 21,447 16,032
Income (loss)
before (16) 3,125 3,141 4,836 8,524 10,459 9,175
extraordinary
item
Extraordinary (890) (324) (2,952)
item (2)
Net income (loss) (16) 3,125 3,141 3,946 8,200 7,507 9,175
Earnings per share $0.40
Weighted average
shares outstanding 23,007
Pro Forma Operating
Data (3):
Net income $8,196 $12,040
Earnings per share $0.36 $0.53
Weighted average
shares outstanding 22,743 22,799
Financial Position:
Total assets $55,541 $59,532 $79,995 $90,753 $108,272
Total debt 18,144 18,043 63,909 26,131 25,999
Stockholders'equity (deficit) 17,206 19,339 (8,120) 43,066 52,422
Working capital 4,546 (1,415) 5,716 16,187 10,170
Other Data:
Discs sold(units):
CD-Audio 20,392 47,211 26,819 54,378 58,766 61,748 64,254
CD-ROM 626 1,791 1,165 4,865 28,982 63,930 92,143
- --------------------------------------------------------------------------------
Total discs 21,018 49,002 27,984 59,243 87,748 125,678 156,397
</TABLE>
(1) Set forth above is selected consolidated financial data of the Company for
the period October 1, 1992 (date of formation) to March 31, 1993, and for the
fiscal years ended March 31, 1994, 1995, 1996, and 1997. Also set forth above is
selected consolidated financial data of Nimbus Records Limited (the
"Predecessor") for the six months ended September 30, 1992. The historical data
of the Predecessor and the Company are substantially comparable as the effects
of purchase accounting adjustments did not materially affect operating income;
however, interest expense is not comparable due to the use of different methods
of financing before and after the Company's acquisition of the Predecessor in
October 1992. The results of operations for the twelve months ended March 31,
1993 are presented on an unaudited basis combining the Company's results of
operations for the six months ended March 31, 1993 with the results of the
Predecessor for the six months ended September 30, 1992.
(2) In November 1993, the Company refinanced its outstanding debt and incurred
an extraordinary charge of $1,302 ($890 net of tax) on the debt extinguishment.
In March 1995, the Company refinanced its outstanding debt and incurred an
extraordinary charge of $515 ($324 net of tax) on the debt extinguishment. In
October 1995, the Company refinanced its outstanding debt and incurred an
extraordinary charge of $4,164 ($2,952 net of tax ) on the debt extinguishment.
(3) The pro forma net income gives effect to the Recapitalization, the Offering
and the Private Placement (each as defined in Notes 5 and 6 to the Company's
Consolidated Financial Statements). See Note 18 of Notes to Consolidated
Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Total discs sold increased 24.4% to 156.4 million units in fiscal
1997 from 125.7 million units in fiscal 1996. The increase resulted primarily
from a 44.1% increase in CD-ROM unit sales from 63.9 million discs in fiscal
1996 to 92.1 million discs in fiscal 1997. The increase in CD-ROM unit sales was
experienced both in the United States, which increased 48.2% to 69.5 million
units in fiscal 1997 from 46.9 million units in fiscal 1996, and in the United
Kingdom, which increased 32.9% to 22.6 million units in fiscal 1997 from 17.0
million units in fiscal 1996. Overall, CD-Audio unit volume increased 4.1% to
64.3 million discs in fiscal 1997 from 61.7 million discs in fiscal 1996. In the
United States, CD-Audio volume increased 8.0% to 31.0 million discs in fiscal
1997 from 28.7 million discs in fiscal 1996, while the United Kingdom
experienced a 0.6% increase in CD-Audio unit sales to 33.2 million discs in
fiscal 1997 from 33.0 million discs in fiscal 1996. Net sales increased 9.6% to
$129.5 million in fiscal 1997 from $118.2 million in fiscal 1996. Approximately
$24.3 million of the sales increase is due to the increase in disc volume offset
by a decrease in the average disc selling price from $0.87 in fiscal 1996 to
$0.79 in fiscal 1997, or a 9.2% decrease. The price decline reflects the
continuing excess production capacity within the CD industry in both North
America and Europe, as well as a change in sales mix from audio, which has a
higher per unit packaging configuration, to unpackaged ROM discs. Turnkey and
other related service revenues of Nimbus Software Services, Inc. ("NSS")
declined 20.7% from $8.7 million in fiscal 1996 to $6.9 million in fiscal 1997
due, in part, to the loss of a significant customer and the general decline in
the floppy diskette business as it is replaced by CD-ROM as the preferred
information distribution medium.
Gross Profit. Gross profit increased 9.0% to $37.5 million in fiscal 1997 from
$34.4 million in fiscal 1996. The fiscal 1996 gross profit included a $2.0
million gain to reflect settlements reached with licensors of technology
regarding prior royalty obligations. See Note 12(a) of Notes to Consolidated
Financial Statements. This adjustment was partially offset by a $0.4 million
writedown of obsolete production equipment. Gross margin decreased slightly to
29.0% in fiscal 1997 from 29.1% in fiscal 1996. Exclusive of the two
non-recurring adjustments noted above, fiscal 1996 gross margin was 27.8%. The
improved gross margin was due to improved labor and production efficiencies
resulting from the higher unit volumes and reduced raw material and packaging
costs. In addition, the Company's gross margin was favorably impacted by the
change in production mix at the Sunnyvale facility ("Sunnyvale") from low margin
turnkey and collateral related services to CD replication which has a higher
gross margin.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 19.2% to $15.5 million in fiscal 1997 from
$13.0 million in fiscal 1996. The increase in selling, general and
administrative expenses in fiscal 1997 includes a $0.3 million reserve for
environmental clean-up costs as well as higher administrative personnel, legal,
professional and consulting fees, and expanded sales and marketing costs due to
the greater number of production facilities and increased sales. Fiscal 1996
includes a $0.5 million increase in the allowance for doubtful accounts
resulting, in part, from the filing for bankruptcy by one of the Company's
customers, partially offset by a $0.2 million reversal of accrued professional
fees in the United Kingdom. As a percentage of net sales, selling, general and
administrative expenses increased to 11.9% in fiscal 1997 from 11.0% in fiscal
1996.
Restructuring Charge. In the fourth quarter of fiscal 1997, the Company recorded
a restructuring charge of $6.0 million for the closure of Sunnyvale as part of a
program to reduce overhead costs and improve operating efficiencies. This charge
includes severance payments, commitments to third parties, write-off of
intangible assets, and the write-down of excess production and other fixed
assets.
Operating Income. Operating income decreased 25.2% to $16.0 million in fiscal
1997 from $21.4 million in fiscal 1996. Exclusive of the restructuring charge
incurred for the closure of Sunnyvale, operating income increased 2.8% to $22.0
million. The increase in operating income primarily reflects the higher unit
volume described above. Operating income as a percentage of net sales was 12.4%
and 18.1% for fiscal years 1997 and 1996, respectively.
Interest Expense. Interest expense decreased to $2.7 million in fiscal 1997 from
$5.3 million in fiscal 1996. The decrease in interest expense reflects the
reduction in borrowing levels in fiscal 1997 as a result of the application of
proceeds from the Company's initial public offering in October 1995 to debt
reduction, as well as a decline in the Company's effective interest rate in
fiscal 1997.
Income Taxes. Income tax expense decreased to $4.6 million in fiscal 1997 from
$5.6 million in fiscal 1996. The decrease in income taxes was attributable to
the decrease in income before taxes resulting from the restructuring charge
incurred for the closure of Sunnyvale. The Company's effective tax rate declined
to 33.3% in fiscal 1997 from 35.0% in fiscal 1996. The decrease in the Company's
effective tax rate reflects the higher percentage of net income attributable to
United Kingdom operations, which has a lower statutory tax rate than the United
States.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Total discs sold increased 43.3% to 125.7 million units in fiscal
1996 from 87.7 million units in fiscal 1995. The increase was the result of a
120.3% increase in CD-ROM unit sales from 29.0 million discs in fiscal 1995 to
63.9 million discs in fiscal 1996, combined with a 5.1% increase in CD-Audio
unit sales from 58.7 million discs in fiscal 1995 to 61.7 million discs in
fiscal 1996. In the United States, CD-ROM volume increased 102.2% to 46.9
million discs in fiscal 1996 from 23.2 million discs in fiscal 1995. The
increase was primarily due to an additional 16.4 million discs manufactured at
the Company's Provo facility resulting from a vendor supply agreement with
Stream International, Inc. (the "Stream CD-ROM Agreement"). In fiscal 1996, the
United Kingdom CD-ROM volume increased 193.1% to 17.0 million discs from 5.8
million discs. CD-Audio volume increased in the United States by 7.5% to 28.7
million discs in fiscal 1996 while the United Kingdom experienced a 3.1%
increase in CD-Audio unit sales to 33.0 million. Net sales increased 37.8% to
$118.2 million in fiscal 1996 from $85.8 million in fiscal 1995. Approximately
$23.4 million of the sales increase in fiscal 1996 was due to the increase in
disc volume offset by a decrease in the average disc selling price from $0.98 in
fiscal 1995 to $0.87 in fiscal 1996. Both the CD-ROM and the CD-Audio markets
experienced a decline in average disc selling price in response to an increase
in production capacity within the CD industry in both North America and Europe.
Discs produced under the Stream CD-ROM Agreement also realized lower disc prices
as, under the terms of the agreement, cost efficiencies resulting from increased
production volumes are reflected in the disc sales price. The acquisition of
substantially all of the assets of HLS Duplication, Inc., which was operated as
NSS, on August 31, 1995 contributed $8.7 million of turnkey and other related
service revenues in fiscal 1996.
Gross Profit. Gross profit increased 24.6% to $34.4 million in fiscal 1996 from
$27.6 million in fiscal 1995. The increase in gross profit was primarily due to
the higher unit volume and additional turnkey related service revenues described
above, reduced costs in the printing process and improved labor and production
efficiencies resulting from the higher unit volumes. Fiscal 1995 gross profit
included a $2.3 million gain from settlements reached with licensing companies
for prior royalty obligations, while in fiscal 1996 the Company recorded a gain
of $1.7 million resulting from a settlement with one licensing company regarding
prior royalty obligations. Gross margin decreased to 29.1% in fiscal 1996 from
32.2% in fiscal 1995. The Company's gross margin was unfavorably impacted by the
additional revenues from the turnkey and collateral related services of NSS
which have a lower gross margin than CD replication sales, as well as an
increase in the cost of polycarbonate, a primary raw material component. In
addition, the mix of product sales toward CD-ROM resulted in increased
packaging, assembly and shipping cost.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6.6% to $13.0 million in fiscal 1996 from
$12.2 million in fiscal 1995. The increase in selling, general and
administrative expenses in fiscal 1996 was due to higher administrative support,
insurance, travel and computer leasing costs associated with the increased level
of operations and the greater number of production facilities. The increased
selling, general and administrative expenses in fiscal 1996 included a $0.5
million increase in the allowance for doubtful accounts, resulting, in part,
from the filing for bankruptcy by one of the Company's customers. Fiscal 1995
selling, general and administrative expenses included non-recurring charges of
$1.0 million associated with the termination of efforts to complete a business
acquisition and an offering of securities, $0.5 million for the settlement of
litigation, and $0.4 million of compensation expense related to accelerated
vesting of stock options. As a percentage of net sales, selling, general, and
administrative expenses decreased to 11.0% in fiscal 1996 from 14.2% in fiscal
1995.
Operating Income. Operating income increased 39.0% to $21.4 million in fiscal
1996 from $15.4 million in fiscal 1995. The increase in operating income
primarily reflected the higher unit volume described above. Operating income as
a percentage of net sales was 18.1% and 18.0% for fiscal years 1996 and 1995,
respectively.
Interest Expense. Interest expense increased to $5.3 million in fiscal 1996 from
$2.0 million in fiscal 1995 due to the increased borrowings in connection with
the Recapitalization (as defined in Note 5 to the Company's Consolidated
Financial Statements).
Income Taxes. Income tax expense increased to $5.6 million in fiscal 1996 from
$5.0 million in fiscal 1995. The increase in income taxes was attributable to an
increase in income before taxes, which was partially offset by a decrease in the
Company's effective tax rate from 37.1% in fiscal 1995 to 35.0% in fiscal 1996.
The decrease in the Company's effective tax rate resulted from favorable tax
adjustments arising from an examination by the Inland Revenue of tax returns of
the Company's United Kingdom subsidiary.
Liquidity and Capital Resources
Historically, the Company has satisfied its liquidity needs through cash flows
from operations and various borrowing arrangements. Principal liquidity needs
have included capital expenditures and debt repayment.
Operating activities provided net cash of $27.7 million in fiscal 1997. Working
capital was $10.2 million at March 31, 1997 compared to $16.2 million at March
31, 1996. For fiscal 1997, accounts receivable increased $0.3 million due to
higher sales volumes and inventories remained at $2.2 million. Accounts payable,
accrued expense and income taxes payable increased $9.1 million in fiscal 1997,
largely reflecting the timing of income tax and royalty payments.
Capital expenditures were $20.5 million for fiscal 1997 and were related to the
installation of CD manufacturing capacity at the Sunnyvale facility, the
expansion of mastering capacity at the Provo facility, the addition of full DVD
manufacturing capacity at the Charlottesville facility, the addition of
manufacturing capacity at the Cwmbran facility, and equipment purchases to
increase manufacturing efficiencies. In addition, the Company spent
approximately $1.5 million on computer software and implementation costs as part
of its program to upgrade its worldwide management information system.
On January 29, 1997 the Company completed the formation of EuroNimbus S.A.
("EuroNimbus") and announced plans for the joint venture to build a new, 40,000
square foot replication plant in Luxembourg. See Note 3 of Notes to Consolidated
Financial Statements. EuroNimbus will invest approximately $17.0 million for the
new plant and accompanying mastering, replication, printing, and packaging
equipment. The capital project is anticipated to be financed by a combination of
government grants and loans, new borrowings and stockholder capital
contributions. It is expected that the Company's capital contribution will be
approximately $4.0 million.
During fiscal 1998, the Company anticipates the need for approximately $14.5
million in cash for capital expenditures to expand its compact disc production
capacity, replace and expand ancillary production equipment, and continue the
upgrade of its worldwide MIS system. The Company believes that these capital
expenditures, working capital requirements, and any future acquisitions will be
financed through a combination of funds provided by operating activities and
availability under the Company's credit agreement.
At March 31, 1997, outstanding borrowings under the credit agreement were $26.0
million and the remaining availability under the revolving credit facility was
$23.25 million.
The Company has entered into interest rate swap agreements to protect against
fluctuations in its variable rate term debt for initial notional amounts of $5.0
million and approximately $20.0 million (denominated in pounds sterling). The
interest rate caps ensure that the Company will not pay interest rates higher
than 7% on $4.7 million and not higher than 9.5% on approximately $19.1 million
of its term debt outstanding at March 31, 1997.
Seasonality and Quarterly Information
The Company's sales are seasonal, with peak sales activity normally occurring in
the third fiscal quarter as retail chains increase inventory before the holiday
season. As a result, operating income is typically higher in the third fiscal
quarter as fixed operating costs are spread over generally higher sales volume.
In addition, in order to provide for capacity demands, long lead time production
equipment is typically ordered for delivery during the first fiscal quarter and,
to a lesser extent, the second fiscal quarter. Equipment installations generally
result in some level of production inefficiency which may have a negative impact
on margins. The effect on margins may be amplified when equipment is installed
in the lower sales volume first and second quarters. Further, pricing and unit
volumes can impact comparative quarterly financial results either positively or
negatively in a manner that may not necessarily be indicative of a full year's
results.
Accounting Standards Changes
Effective March 31, 1998, the Company will adopt Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" which will supersede Accounting Principles Board ("APB") Opinion No. 15
"Earnings Per Share". This new statement requires that "basic earnings per
share" be computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. "Diluted
earnings per share" will reflect the potential dilution if stock options or
other securities would result in the issuance or exercise of additional shares
of common stock. Initial estimates by management indicate that "basic earnings
per share" will be greater than "primary earnings per share" as calculated by
APB Opinion No. 15.
Contingencies
On March 18, 1996, the Company received notification from the United States
Environmental Protection Agency ("EPA") alleging that the Company is a
potentially responsible party ("PRP") for the cleanup of surface water
contamination at the Cherokee Oil Company Site (the "Site") in Charlotte, North
Carolina which was used by the Company for the disposal of certain byproducts of
its manufacturing processes. Subsequently, the U.S. Department of Justice
notified the Company that it intended to seek recovery of the approximate $6.4
million environmental cleanup cost incurred to remediate the Site from the
Company and other PRPs, each of which is considered to be jointly and severally
liable. In April 1997, the Company and numerous other PRPs reached a settlement
in principle with the EPA. Under the terms of the settlement, 58 PRPs and the
Site owner, have agreed to reimburse the EPA $4.0 million to settle the EPA's
claim for cleanup costs. The Company has recorded a $300,000 provision for
settlement costs associated with the Company's share of the cleanup costs of the
Site. The Company's share of the aggregate settlement fund may decrease as other
PRPs join in the settlement. Management of the Company believes that the
ultimate settlement of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
The Internal Revenue Service ("IRS") recently completed an examination of the
Company's federal income tax returns for fiscal 1993, 1994 and 1995. On March
12, 1997, the IRS issued a statutory Notice of Deficiency for additional federal
income taxes in the amount of $5.0 million, plus interest, resulting from
proposed adjustments to the Company's returns. Certain other proposed changes
would eliminate the Company's U.S. net operating loss carryforwards. The Company
believes that it has substantial authority for the positions taken on the prior
years' returns and will vigorously contest the proposed adjustments. The Company
has filed a protest of the adjustments with the Appeals section of the IRS, and
believes that these adjustments will be reduced through the appeals process.
While the outcome of this matter cannot be predicated with certainty, the
Company believes that the ultimate outcome of the case will not result in a
material adverse impact on the liquidity, results of operations, or consolidated
financial position of the Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Directors
Nimbus CD International, Inc.:
We have audited the accompanying consolidated balance sheets of Nimbus CD
International, Inc. and its subsidiaries (the "Company") as of March 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nimbus CD
International, Inc. and its subsidiaries as of March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
Richmond, Virginia
May 21, 1997
COOPERS & LYBRAND L.L.P.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(Dollars in thousands, except share data)
<TABLE>
<S> <C> <C>
ASSETS 1997 1996
Current assets:
Cash and cash equivalents $7,790 $3,593
Accounts and notes receivable-trade, less
allowances for doubtful accounts of $1,812 and 26,393 26,121
$2,014
Inventories 2,217 2,177
Prepaid expenses 1,329 729
Deferred income taxes 3,415 1,766
--------- --------
Total current assets 41,144 34,386
--------- --------
Property, plant and equipment, net 63,431 50,809
Other assets and intangibles 3,697 5,558
========= ========
$108,272 $90,753
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 5,617 6,437
Current portion of long-term debt 5,159 1,463
Accrued expenses and other liabilities 13,533 6,872
Income taxes payable 6,665 3,427
--------- --------
Total current liabilities 30,974 18,199
--------- --------
Long-term debt 20,840 24,668
Deferred income taxes 3,561 4,395
Other liabilities 475 425
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000 shares
authorized, no shares issued or outstanding
Common stock, $0.01 par value, 60,000,000 shares
authorized, 39,012,786 and 38,973,173 shares
issued; 20,870,579 and 20,829,962 shares 390 390
outstanding
Paid-in capital 66,775 66,734
Retained earnings 31,969 22,794
Cumulative foreign currency translation adjustments 378 241
--------- --------
99,512 90,159
Treasury stock, at cost, 18,142,207 and 18,143,211 (47,090) (47,093)
shares
--------- --------
Total stockholders' equity 52,422 43,066
========= ========
$108,272 $90,753
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended March 31, 1997, 1996 and 1995
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Net sales $129,470 $118,245 $85,827
Cost of goods sold 91,961 83,809 58,221
--------- ---------- ---------
Gross profit 37,509 34,436 27,606
Selling, general and administrative 15,463 12,989 12,194
expenses
Restructuring charge 6,014 - -
--------- ---------- ---------
Operating income 16,032 21,447 15,412
Interest expense 2,666 5,305 1,983
Other (income) expense, net (395) 41 (121)
--------- ---------- ---------
Income before income taxes and 13,761 16,101 13,550
extraordinary item
Provision for income taxes 4,586 5,642 5,026
--------- ---------- ---------
Income before extraordinary item 9,175 10,459 8,524
Extraordinary item - extinguishment of
debt (less income tax benefit of - (2,952) (324)
$1,231 and $191)
--------- ---------- ---------
Net income $9,175 $7,507 $8,200
========= ========== =========
Net income - 1996 and 1995 are pro
forma for the Offering (Note 18) $9,175 $12,040 $8,196
========= ========== =========
Earnings per share - 1996 and 1995 are
pro forma for the Offering (Note 18) $0.40 $0.53 $0.36
========= ========== =========
Weighted average shares outstanding 23,007 22,799 22,743
========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 1997, 1996, and 1995
(Dollars in thousands, except share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative
Number of Shares Foreign
------------------- Currency
Common Treasury Common Paid-in Translatn Retaind Treasury
Stock Stock Stock Capital Adjust. Earnings Stock
Balances, April 25,695,184 $257 $12,478 $(483) $7,087
1, 1994
Issuance of
common stock 286,128 3 997
Issuance of
common stock in
recapitalization 10,817,847 108 27,192
Issuance of 1,750
warrants
Exercise of stock
options
(including
income tax 2,174,014 22 3,104
benefit of
$1,190)
Repurchase of
common stock (25,168,211)
$(63,515)
Fees and expenses
related to
recapitalzation (4,246) (1,777)
Net income 8,200
Foreign currency
translation 703
adjustments
-----------------------------------------------------------
Balances,March 31, 38,973,17 (25,168,211) 390 41,275 220 15,287 (65,292)
1995
Stock issued in
connection with
initial public
offering and 6,850,000 25,911 17,745
private
placement
Exercise of 175,000 (452) 454
warrants
Net income 7,507
Foreign currency
translation
adjustments 21
-----------------------------------------------------------
Balances,March 31, 38,973,17 (18,143,211) 390 66,734 241 22,794 (47,093)
1996
Exercise of stock
options 39,613 1,004 41 3
Net income 9,175
Foreign currency
translation
adjustments 137
===========================================================
Balances,March 31, 39,012,78 (18,142,207)$390 $66,775 $378 $31,969 $(47,090)
1997
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1997, 1996, and 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net income $9,175 $7,507 $8,200
Adjustments to reconcile net income to
net cash provided by operating
activities:
Restructuring charge 6,014
Extraordinary item 2,047 324
Depreciation and amortization 9,595 7,938 6,217
Deferred income taxes (2,500) 2,922 796
Net (gain) loss on sale of equipment (98) 361 19
and other assets
Gains on settlement of royalty (1,744) (2,300)
obligation
Write-off of public offering and 1,005
acquisition costs
Noncash compensation expense for stock 628
options
Other, net (24) (56) 70
Change in operating assets and
liabilities, net of 1996
acquisition:
Accounts and notes receivable 355 (5,694) (3,156)
Inventories 37 31 (116)
Prepaid expenses (502) 891 (1,063)
Accounts payable 1,939 (1,206) 5,373
Accrued expenses 3,670 (1,132) (1,164)
---------- ---------- --------
Net cash provided by operating 27,661 11,865 14,833
activities
---------- ---------- --------
Cash flows from investing activities:
Purchases of property, plant and (20,507) (10,087) (17,017)
equipment
Proceeds from sale of equipment and 358 64 108
other assets
Acquisition of business, net of cash (253) (4,850)
acquired
Expenditures for computer software (1,512) (929)
Other investing activities (435) (548) 112
---------- ---------- --------
Net cash used in investing activities (22,349) (16,350) (16,797)
---------- ---------- --------
Cash flows from financing activities:
Proceeds of debt 2,357 66,993
Repayment of debt (1,510) (37,000) (21,612)
Revolving credit borrowings, net (1,991) (109)
Issuance of common stock 44,886 24,055
Joint venture capital contribution 315
Proceeds from issuance of warrants 1,750
Proceeds from exercise of stock options 44 1,168
Purchase of treasury stock (65,292)
Payment of financing fees (159) (1,140) (3,686)
Payment of costs related to initial (1,230) (281)
public offering
---------- ---------- --------
Net cash (required) provided by (1,310) 5,882 2,986
financing activities
---------- ---------- --------
Effect of exchange rate changes on cash 195 (122) 59
---------- ---------- --------
Net increase in cash 4,197 1,275 1,081
Cash and cash equivalents, beginning of 3,593 2,318 1,237
year
========== ========== ========
Cash and cash equivalents, end of year $7,790 $3,593 $2,318
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Organization and Principles of Consolidation:
Nimbus CD International, Inc. was organized in October 1992 to acquire
certain companies which operate manufacturing facilities in the U.S. and U.K.
(collectively, the "Company"). The Company is a manufacturer of compact discs
("CDs") which are used primarily for the playback of pre-recorded music
("CD-Audio") and the distribution of digitally recorded information,
including data, text, video, audio and other interactive applications
("CD-ROM"). In addition, the Company manufactures Digital Versatile Discs
("DVD") for the video and CD-ROM market.
The consolidated financial statements present the operating results and
financial position of the Company and its subsidiaries, including a 70% owned
subsidiary, EuroNimbus S.A. Investments in joint ventures in which the
Company owns a 50% or less ownership interest are accounted for by the equity
method. All significant intercompany balances and transactions have been
eliminated.
2. Summary of Significant Accounting Policies:
a) Accounting estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
b) Currency translation: The assets and liabilities of all foreign
subsidiaries are translated from their respective functional currencies at
the exchange rates in effect at the balance sheet date and revenue and
expense accounts are translated at weighted average monthly rates for the
periods presented. Foreign currency translation adjustments are reflected as
a separate component of stockholders' equity. The gains and losses from
foreign currency transactions, not material in amount, are reflected in
operations.
c) Cash and cash equivalents: Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three
months or less.
d) Financial instruments: The Company enters into foreign exchange contracts
to hedge exposures related to foreign currency transactions. Gains and losses
on these contracts are recognized in the same period in which the gains or
losses from the transaction being hedged are recorded.
e) Inventories: Inventories are valued at the lower of cost or market,
with cost for raw materials determined using the first-in, first-out
method and cost for work-in-process and finished goods determined using
the average cost method.
f) Property, plant and equipment: Property, plant and equipment are
stated at cost. The costs of significant improvements are capitalized.
Maintenance and repairs are expensed as incurred. Depreciation is charged
to operations over the estimated useful lives of the assets using the
straight-line method. Depreciable lives are as follows:
Years
Buildings 40
Leasehold improvements 5-12
Machinery and equipment 5-12
When properties are sold or retired, their cost and the related accumulated
depreciation are eliminated from the accounts and the gain or loss is
reflected in operations.
g) Income taxes: The Company provides for deferred income taxes based on the
liability method of accounting for income taxes. Deferred tax liabilities and
assets are determined based on the difference between financial statement
carrying amounts and the tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
h) Other Assets and Intangibles: Purchased software and related
implementation costs are capitalized in other assets and amortized over the
estimated useful life. The excess purchase price over the fair value of
identifiable net assets acquired is allocated to goodwill and amortized over
15 years. At March 31, 1997, there was no goodwill. Goodwill of $2,787 is
included net of accumulated amortization of $96 as of March 31, 1996.
i) Impairment of Long-Lived Assets: Beginning in fiscal 1996, the review for
the possible impairment of long-lived tangible and intangible assets is
performed whenever events indicate that an asset may be impaired. In such
events, the Company estimates the future undiscounted cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
these undiscounted cash flows is less than the carrying amount of the asset,
an impairment loss is recognized. Measurement of the impairment loss is based
on the estimated fair value of the asset. After the restructuring charge, the
Company believes that there was no impairment of its tangible and intangible
noncurrent assets at March 31, 1997.
j) Stock Options: Beginning in fiscal 1997, the Company adopted the
disclosure only provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation". SFAS No. 123 allows companies to continue to recognize
compensation costs for stock-based employee compensation arrangements by
the intrinsic value method and to provide pro forma disclosure of the
impact on net income and earnings per share as if the fair value based
compensation cost had been recognized. See Note 13 for such disclosure.
3. Expansion and Acquisition:
On January 29, 1997, the Company completed the formation of EuroNimbus S.A.
("EuroNimbus") and announced plans for the joint venture to build a new,
40,000 square foot replication plant in Luxembourg. EuroNimbus will invest
approximately $17.0 million for the new plant and accompanying mastering,
replication, printing, and packaging equipment. The capital project is
anticipated to be financed by a combination of government grants and loans,
new borrowings, and stockholder capital contributions. It is expected that
the Company's capital contribution will be approximately $4.0 million.
On August 31, 1995, the Company acquired substantially all of the assets of
HLS Duplication, Inc. which the Company operated as Nimbus Software Services,
Inc. ("NSS"), for a purchase price of approximately $5.4 million in cash plus
the assumption of certain specified liabilities. The acquisition was
accounted for as a purchase for financial reporting purposes. The results of
the acquired entity, which were not material in relation to the Company, were
included in the consolidated financial results from the date of acquisition.
The assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $3,360
Excess cost over fair value of net 3,136
tangible assets acquired
Liabilities assumed (1,093)
---------
$5,403
Cash acquired (300)
=========
Cash paid for acquisition, net $5,103
=========
</TABLE>
4. Restructuring Charge:
The results of operations for fiscal 1997 include a charge of $6.0 million
($3.72 million after tax, or $0.16 per share) for costs associated with the
closure of the Company's Sunnyvale facility which operated as NSS, as part of
a program to reduce overhead costs and improve operating efficiencies. This
charge includes severance and related benefit payments of $453, commitments
to third parties of $929, write-off of intangible and other assets of $3,207,
the write-down of excess production and other fixed assets of $1,350, and
other unusual expenses of $75. At March 31, 1997, $2.8 million of this amount
remained in accrued liabilities.
The CD manufacturing equipment installed at Sunnyvale will be transferred to
the Provo plant. The costs of transferring and installing the equipment at
Provo will be recorded as incurred during fiscal 1998.
5. Recapitalization:
On March 31, 1995, certain affiliates of McCown De Leeuw & Co. ("MDC") and
Behrman Capital L.P. ("Behrman") replaced affiliates of DLJ Merchant Banking,
Inc. ("DLJMB") as the Company's majority stockholders through a series of
transactions (the "Recapitalization"). MDC and Behrman acquired 10,698,970
shares of the Company's common stock for an aggregate purchase price of
$27,000 and another investor acquired 118,876 shares of common stock for
$300. The Company refinanced its then-outstanding debt incurring an
extraordinary charge of $515 ($324 net of tax) related to the write-off of
deferred financing costs, and borrowed an additional $41,091. The Company
also received $1,750 from the issuance of warrants to purchase 693,453 shares
of its common stock for $0.01 per share. The proceeds from the issuance of
common stock, warrants and additional debt were used by the Company to
acquire 22,333,768 shares of its common stock held by DLJMB and 2,834,436
shares of common stock from certain members of management and other
stockholders for an aggregate cost of $65,292, including related fees and
expenses. The Recapitalization was accounted for as a treasury stock
transaction with no step up in the basis of the Company's assets.
6. Initial Public Offering:
On October 30, 1995 the Company completed its initial public offering with
the sale of 6,350,000 shares of common stock at an initial public offering
price of $7 per share (the "Offering").
Contemporaneously with the Offering, Behrman Capital L.P. purchased 500,000
shares of common stock of the Company in a private placement transaction (the
"Private Placement") at a price per share equal to the initial public
offering price less the underwriting discount.
The net proceeds to the Company from the Offering and the Private Placement,
after deducting underwriting discounts, commissions and expenses payable by
the Company, were $43.7 million. The Company used $41.7 million of the net
proceeds to reduce outstanding indebtedness and $2.0 million for general
corporate purposes.
The Company incurred an extraordinary charge of $4,164 ($2,952 net of tax) in
the third quarter of fiscal 1996 related to the write-off of deferred
financing costs and the costs of terminating interest rate swap agreements in
connection with the repayment of then outstanding debt with the proceeds from
the Offering and the Private Placement. Such charge has not been reflected in
the pro forma net income and per share data for fiscal 1996.
7. Inventories:
Inventories at year end consisted of the following:
<TABLE>
<S> <C> <C>
1997 1996
Raw materials $1,518 $1,849
Work-in-process 236 263
Finished goods 463 65
======== ========
$2,217 $2,177
======== ========
</TABLE>
8. Property, Plant and Equipment:
Property, plant and equipment at year end consisted of the following:
<TABLE>
<S> <C> <C>
1997 1996
Land, buildings and $20,865 $18,652
improvements
Machinery and equipment 62,925 46,986
Construction in progress 5,976 1,549
-------- --------
89,766 67,187
Less accumulated depreciation (26,335) (16,378)
-------- --------
Net property, plant and $63,431 $50,809
equipment
======== ========
</TABLE>
Depreciation expense amounted to $9,128, $7,256, and $5,974 for fiscal years
1997, 1996 and 1995 respectively.
9. Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities at year end consisted of the
following:
<TABLE>
<S> <C> <C>
1997 1996
Royalty obligations $6,722 $2,753
Taxes payable, other than 1,306 1,237
income taxes
Employee compensation and 1,406 1,863
benefits
Restructuring charge reserve 2,807
Other items 1,292 1,019
======== ========
$13,533 $6,872
======== ========
</TABLE>
10. Debt:
The Company's credit agreement provides for ongoing working capital and
capital expenditure needs. The credit agreement provides for a term loan of
$25.0 million and a revolving credit facility, the aggregate principal amount
of which shall not exceed $25.0 million outstanding at any time. A portion of
the revolving loan commitment may be utilized for letters of credit, a
swingline facility and an overdraft facility. The credit agreement has a dual
currency option, which permits the Company to borrow in U.S. dollars or
pounds sterling. Loans under the revolving credit facility may be borrowed,
repaid and reborrowed, subject to a schedule of mandatory repayments and
commitment reductions.
The credit agreement requires a commitment fee of .375% on the unused portion
of the available line of credit amount. Interest is payable in arrears for
optionally selected interest periods, with interest payable not to exceed a
three-month period. The weighted average interest rate on outstanding
borrowings at March 31, 1997 was 8.3%.
Long-term debt at year end consisted of the following:
<TABLE>
<S> <C> <C>
1997 1996
Variable rate term loan
(effective interest rate of 8.4%
at March 31, 1997, and 7.9% at
March 31, 1996), payable in
quarterly installments of varying $24,249 $24,381
amounts commencing in
December, 1996 with the
final maturity in September,
2000
Variable rate revolving
loans (effective interest 1,750 1,750
rate of 7.3% at March 31,
1997, and 7.1% at March 31,
1996)
-------- --------
Total 25,999 26,131
Less current maturities 5,159 1,463
-------- --------
$20,840 $24,668
======== ========
</TABLE>
The credit agreement provides for the prepayment of principal based on the
Company's cash flow (as defined) or upon the occurrence of certain specified
events. The scheduled annual principal payments, after fiscal 1998 are $7,636
in 1999, $7,636 in 2000, and $3,818 in 2001. Interest paid on the outstanding
debt during fiscal 1997, 1996 and 1995 was $2,284, $4,721 and $1,882,
respectively. No interest was capitalized during fiscal 1997, 1996 and 1995.
The recorded value of the Company's long-term debt at March 31, 1997 and 1996
approximates its fair value.
The Company has entered into interest rate swap agreements to protect against
fluctuations in its variable rate term debt through September 30, 1998, as
required by the a credit agreement. The Company purchased interest rate caps
for initial notional amounts of $5,000 and approximately $20,000 (denominated
in pounds sterling), each declining over the term of the related borrowings.
The cost of these agreements was approximately $308 and is being amortized
over the terms of the agreements.
The interest rate caps ensure that the Company will not pay interest at rates
higher than 7.0% on $4,700 and not higher than 9.5% on $19,139 of its term
debt outstanding at March 31, 1997. These interest rate agreements did not
have any material effect on the Company's interest expense for fiscal 1997 or
1996.
The estimated fair value of the Company's interest rate swap agreements which
hedge outstanding borrowings was an asset of $16 as of March 31, 1997 and
$1,011 at March 31, 1996.
Substantially all of the Company's tangible and intangible assets are pledged
as collateral for borrowings under the credit agreement. The credit agreement
subjects the Company to certain restrictions and covenants, including
limitations on the incurrence of additional debt, capital expenditures, asset
sales and the maintenance of certain financial ratios. The credit agreement
restricts the payment of dividends on the Company's common stock and, at
March 31, 1997, none of the Company retained earnings was available for the
payment of such dividends.
11. Income Taxes:
The components of income before income taxes and extraordinary items were as
follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
------- -------- -------
Domestic $1,850 $8,162 $6,764
Foreign 11,911 7,939 6,786
======= ======== =======
Income before income taxes and $13,761 $16,101 $13,550
extraordinary items ======= ======== =======
The provision for income taxes consisted of the following:
Current 1997 1996 1995
------- -------- -------
Federal $2,742 $1,057 $2,039
State 355 156 178
Foreign 3,972 2,492 2,013
------- -------- -------
Total current 7,069 3,705 4,230
------- -------- -------
Deferred
Federal (2,069) 1,733 164
State (253) 296 25
Foreign (161) (92) 607
------- -------- -------
Total deferred (2,483) 1,937 796
------- -------- -------
Total income tax expense $4,586 $5,642 $5,026
======= ======== =======
</TABLE>
The principal reasons for the differences between the federal statutory
income tax rate and the Company's effective income tax rate on income before
extraordinary item were as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
------- ------- -------
Federal statutory tax rate 34.0% 34.0% 34.0%
Increase (decrease) in taxes resulting
from:
State taxes, net of federal tax effect 0.5 1.9 1.0
U.S. tax attributable to deemed
repatriation of foreign subsidiary 0.7 0.8
earnings (net of foreign tax credit)
Difference between U.S. federal
statutory rate and foreign effective
rates in 1996, primarily (1.7) (1.9) 2.3
attributable to an examination by
foreign tax authorities
Release of valuation allowance (5.1)
Other 0.5 0.3 4.1
------- ------- -------
Effective tax rate 33.3% 35.0% 37.1%
======= ======= =======
</TABLE>
Cash payments for income taxes were $4,345, $1,275 and $1,855 for fiscal
years 1997, 1996 and 1995, respectively.
The components of the net deferred tax assets and liabilities as of March 31,
1997 were as follows:
<TABLE>
<S> <C> <C> <C>
Domestic Foreign Total
------- ------- -------
Deferred tax assets:
Accrued royalties $939 $695 $1,634
Accounts receivable 384 52 436
Other accrued liabilities 767 232 999
Foreign tax credits 963 963
Net operating loss carryforward 1,876 1,876
------- ------- -------
Deferred tax asset 4,929 979 5,908
------- ------- -------
Deferred tax liabilities:
Property, plant and equipment (4,920) (1,134) (6,054)
------- ------- -------
Deferred tax liability (4,920) (1,134) (6,054)
------- ------- -------
Net deferred tax asset (liability) $9 $(155) $(146)
======= ======= =======
</TABLE>
The components of the net deferred tax assets and liabilities as of March 31,
1996 were as follows:
<TABLE>
<S> <C> <C> <C>
Domestic Foreign Total
Deferred tax assets:
Accrued royalties $276 $276
Accounts receivable $401 401
Other accrued liabilities 425 425 850
Net operating loss carryforward 2,115 2,115
------- ------- -------
Deferred tax asset 2,941 701 3,642
------- ------- -------
Deferred tax liabilities:
Property, plant and equipment (5,254) (1,017) (6,271)
------- ------- -------
Deferred tax liability (5,254) (1,017) (6,271)
------- ------- -------
Net deferred tax liability $(2,313) $(316) $(2,629)
======= ======= =======
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards for U.S.
tax return purposes of approximately $5,002, which expire in the years 2003
though 2008. Due to certain ownership changes as of October 1, 1992, the use
of these net operating losses is limited to approximately $640 per year.
No provision for income taxes has been made for $8.1 million of undistributed
earnings of the Company's foreign subsidiaries which have been indefinitely
reinvested. It is not practicable to determine the amount of U.S. income tax
which would be payable if such undistributed foreign earnings were
repatriated through dividend remittances because any U.S. taxes payable on
such dividends would be offset, at least in part, by foreign tax credits.
The Internal Revenue Service ("IRS") recent completed an examination of the
Company's federal income tax returns for fiscal 1993, 1994 and 1995. On March
12, 1997, the IRS issued a statutory Notice of Deficiency for additional
federal income taxes in the amount of $5.0 million, plus interest, resulting
from proposed adjustments to the Company's returns. Certain other proposed
changes would eliminate the Company's U.S. net operating loss carryforwards.
The Company believes that it has substantial authority for the positions
taken on the prior years' returns and will vigorously contest the proposed
adjustments. The Company has filed a protest of the adjustments with the
Appeals section of the IRS, and believes that these adjustments will be
reduced through the appeals process. While the outcome of this matter cannot
be predicted with certainty, the Company believes that the ultimate outcome
of the case will not result in a material adverse impact on the Company's
financial position or results of operations.
12. Commitments and Contingencies:
a) Royalties: The Company is party to various licensing agreements for
technology associated with its product and the related manufacturing process
under which the Company is obligated to pay royalties ranging from $.019 to
$.05 per disc sold. Royalty expense incurred under these agreements amounted
to $11,343, $9,037 and $6,258 for fiscal years 1997, 1996 and 1995,
respectively. During fiscal 1996, the Company reached a settlement with one
licensing company and reduced its accrued liability for this and certain
other prior royalties by $2,049. During fiscal 1995, the Company reached
settlements with certain licensing companies for prior year royalties,
recognizing a gain of $2,294. The Company believes that its accrued expense
adequately provide for royalties payable to patent holders for proprietary
technology.
b) Operating leases: The Company leases manufacturing facilities, warehouse
space, equipment and other property under various agreements which expire
from 1998 through 2011. Aggregate rent expense for these leases amounted to
$3,202, $1,678 and $494 for fiscal years 1997, 1996 and 1995, respectively.
At March 31, 1997, future obligations under operating lease agreements were
as follows:
<TABLE>
<S> <C>
Fiscal Year Ending March 31, Amount
1998 $2,678
1999 1,983
2000 1,769
2001 877
2002 242
Thereafter 202
==========
$7,751
==========
</TABLE>
c) Capital expenditures: At March 31, 1997, commitments for capital
expenditures amounted to approximately $801.
d) Litigation and related matters: On March 18, 1996, the Company received
notification from the United States Environmental Protection Agency ("EPA")
alleging that the Company is a potentially responsible party ("PRP") for the
cleanup of surface water contamination at the Cherokee Oil Company Site (the
"Site") in Charlotte, North Carolina which was used by the Company for the
disposal of certain byproducts of its manufacturing processes. Subsequently,
the U.S. Department of Justice notified the Company that it intended to seek
recovery of the approximately $6.4 million environmental cleanup cost
incurred to remediate the Site from the Company and other PRPs, each of which
is considered to be jointly and severally liable. In April 1997, the Company
and numerous other PRPs reached a settlement in principle with the EPA. Under
the terms of the settlement, 58 PRPs and the Site owner, have agreed to
reimburse the EPA $4.0 million to settle the EPA's claim for cleanup costs.
The Company has recorded a $300,000 provision for settlement costs associated
with the Company's share of the cleanup costs of the Site. The Company's
share of the aggregate settlement fund may decrease as other PRPs join in the
settlement. Management of the Company believes that the ultimate settlement
of this matter will not have a material adverse effect on the Company's
financial position or results of operations.
From time to time, the Company is involved in litigation that it considers to
be in the normal course of business. Certain parties have alleged that the
Company is liable for its producing discs from data provided by its customers
that contain copyrighted material not belonging to such customers. The
Company is not presently involved in any legal proceedings which the Company
expects individually or in the aggregate to have a material adverse effect on
its financial condition or results of operations.
13. Stock Option Plans:
The Company has adopted the Nimbus CD International, Inc. 1995 Stock Option
and Stock Award Plan (the "Nimbus Plan") which provides for grants to
officers and key employees of stock options, stock appreciation rights,
restricted stock awards or common stock in lieu of bonuses. Under the terms
of the Nimbus Plan, 2,715,449 shares of the Company's non-voting common stock
were authorized to be issued. Awards and their terms are authorized by the
Compensation Committee of the Company's Board of Directors.
In October 1995, the Company adopted the Nimbus CD International, Inc. 1995
Stock Option Plan for Non-employee members of the Company's Board of
Directors (the "Directors Plan"). Under the terms of the Directors Plan,
50,000 shares of common stock have been reserved for issuance thereunder.
Awards of options to independent directors amounted to 7,500 shares in fiscal
1997 and 10,000 shares in fiscal 1996.
The exercise price of options granted under the Nimbus Plan and the Directors
Plan is the fair market value of the Company's common stock at the dates of
grant. All options expire 10 years from the date of grant and vest over
periods of up to 10 years with earlier vesting upon the attainment of certain
performance measurements or upon the occurrence of certain other events.
No restricted stock awards have been made under the Nimbus Plan.
Non-qualified stock options to purchase 477,958 shares of common stock were
granted in exchange for options granted under previous Company plans. On
April 3, 1995, the Company awarded non-qualified options to purchase
1,163,865 shares of non-voting common stock. These options will vest ratably
over five years from the date of grant. On May 31, 1995, the Company awarded
non-qualified options to purchase 451,258 shares of non-voting common stock.
These options will vest if the Company meets certain performance measurements
or six years from the date of grant. In fiscal 1997, the Company awarded
non-qualified options to purchase 205,500 shares of non-voting common stock
that will vest ratably within five years from the dates of the grants.
At March 31, 1997, 32,500 common shares were available for future grant under
the Directors Plan and 469,078 common shares were available for future grant
under the Nimbus Plan.
The following is a summary of the activity in the Company's stock option
plans for fiscal years 1997, 1996 and 1995:
<TABLE>
<S> <C> <C>
Weighted
Number of Average
Stock Exercise
Options Price
------------ -------------
Outstanding, March 31, 1994 2,631,666 $0.55
Granted 37,605 1.06
Canceled (17,298) 1.06
Exercised (2,174,015) 0.54
------------ -------------
Outstanding, March 31, 1995 477,958 0.62
Granted 1,625,123 2.55
Canceled (42,210) 2.52
------------ -------------
Outstanding March 31, 1996 2,060,871 2.10
Granted 213,000 15.68
Canceled (10,000) 16.50
Exercised (40,617) 1.02
============ =============
Outstanding March 31, 1997 2,223,254 $3.36
============ =============
</TABLE>
Shares under option at March 31, 1997 were at the following exercise prices:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Options Currently
Outstanding Exercisable
---------------------------------- -----------------------
Wtd. Wtd. Avg.
Ex. Price No. of Avg. Contractual No. of Wtd. Avg.
Range Options Exercise Life Options Exercise
Price (years) Price
$0.53-$7.00 2,020,254 $2.12 6.31 935,844 $1.63
$7.01-$16.50 203,000 $15.64 9.17 44,500 $15.23
========= =========
2,223,254 980,344
========= =========
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for stock options granted under the plans. If the Company had
determined the compensation based on the fair value of the options on the
date of grant in accordance with SFAS No. 123, the pro forma net income and
earnings per share would be as follows:
<TABLE>
<S> <C> <C>
1997 1996
--------- ---------
Net income as reported $9,175 $12,040
Net income pro forma 8,719 11,803
Earnings per share - $0.40 $0.53
as reported
Earnings per share - $0.39 $0.54
pro forma
</TABLE>
The weighted average fair value of options granted in 1997 and 1996 was
$10.69 and $1.74 respectively. The fair value of each option granted was
estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted average assumptions:
<TABLE>
<S> <C> <C>
1997 1996
--------- ---------
Risk-free interest rate 6.4% 6.8%
Expected life in years 5-6 5-6
Expected volatility 71.8% 70.0%
Expected dividend yield 0.0% 0.0%
</TABLE>
14. Related-Party Transactions:
During fiscal 1995, the Company paid to McCown De Leeuw & Co., Behrman
Capital L.P., and DLJ Merchant Banking, Inc. approximately $5.7 million in
transaction costs related to the Recapitalization. Approximately $4.0 million
of the costs was recorded as a reduction of paid-in capital and $1.5 million
was recorded as an addition to treasury stock. The remaining transaction
costs were charged to expense.
15. Employee Benefit Plans:
The Company has adopted a 401(k) savings and investment plan which covers
substantially all U.S. employees. Contributions to the plan are at the
discretion of the Company. The expense recognized for the plan amounted to
$459, $343 and $296 for fiscal years 1997, 1996 and 1995 respectively.
The Company has adopted a defined contribution retirement plan which covers
substantially all U.K. employees. Contributions to the plan are at the
discretion of the Company. The expense recognized for the plan amounted to
$439, $413 and $395 for fiscal years 1997, 1996 and 1995 respectively.
16. Geographic Segment Information:
A summary of the Company's operations by geographic area for fiscal years
1997, 1996 and 1995 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------------------------------------------------------
Net Operating Net Operating Net Operating
Sales Income Assets Sales Income Assets Sales Income Assets
United $80,236 $2,965 $68,056 $71,654 $10,793 $57,925 $48,663 $8,319 $52,171
States
United 50,095 13,067 40,216 46,919 10,698 32,828 37,466 7,141 27,824
Kingdom
Interarea (861) (328) (44) (302) (48)
sales
====================================================================
$129,47 $16,032 $108,27 $118,24 $21,447 $90,753 $85,827 $15,41 $79,995
====================================================================
</TABLE>
Interarea sales represented shipments of CDs and equipment between geographic
locations. Interarea sales were made at prices which approximate cost and
have been eliminated from consolidated net sales.
17. Off-Balance Sheet Risk and Concentration of Credit Risk:
The Company enters into foreign exchange contracts to hedge foreign currency
transactions and to protect it from risk due to exchange rate movements
because gains and losses on these contracts offset gains and losses on the
transactions being hedged. The Company does not engage in speculation. At
March 31, 1997, the Company was not party to any forward exchange contracts.
The Company's customer base is primarily American and British recording and
software companies. One customer operating under a vendor supply agreement
accounted for 15% of fiscal 1997 net sales, and 17% of fiscal 1996 sales. No
other customer represented more than 10% of consolidated sales for fiscal
years 1997, 1996 or 1995. The Company performs credit evaluations of its
customers and maintains reserves for credit losses. The provision for
doubtful accounts amounted to $1,031, $1,268 and $514 for fiscal 1997, 1996
and 1995, respectively.
18. Pro Forma Earnings per Share:
The pro forma net income for fiscal 1996 and 1995 gives effect to the
Recapitalization, the Offering and the Private Placement, and pro forma
earnings per share are computed based on the total number of shares of common
stock issued and outstanding at March 31, 1996 and 1995, as adjusted for the
following assumptions as if each had occurred on April 1, 1994: (i) the
assumed exercise of warrants and stock options outstanding during each year,
determined by the treasury stock method using the public offering price of
$7.00 per share for options and warrants granted within one year prior to the
Offering and the Private Placement and the average market price for options
and warrants outstanding in periods after the Offering; (ii) the net
additional debt incurred in the Recapitalization, at an average interest rate
of 9.2%, resulting in additional interest expense of $2,512 ($1,557 net of
tax) for the fiscal year ended March 31, 1995; (iii) the issuance by the
Company of 6,350,000 shares of common stock in the Offering and 500,000
shares in the Private Placement; (iv) the application by the Company of the
net proceeds of the Offering to repay $41.7 million of outstanding debt; and
(v) an assumed average outstanding borrowing of $28,300 at an average
interest rate of 9.2% resulting in a reduction of historical interest expense
of $2,551 ($1,582 net of tax) for fiscal 1996, and $1,983 ($1,229 net of tax)
for fiscal 1995.
Historical earnings per share data for fiscal 1996 and 1995 have been omitted
as the historical capitalization of the Company prior to the Recapitalization
and the Offering is not indicative of its capital structure following such
events.
19. Accounting Standards Changes:
Effective March 31, 1998, the Company will adopt Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 128
"Earnings Per Share" which will supersede Accounting Principles Board ("APB")
Opinion No. 15 "Earnings Per Share". This new statement requires that "basic
earnings per share" be computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. "Diluted earnings per share", will reflect potential dilution if
stock options or other securities would result in the issuance or exercise of
additional shares of common stock. Initial estimates by management indicate
that "basic earnings per share" will be greater than "primary earnings per
share" as calculated by APB Opinion No.
15.
Quarterly Financial Data (Unaudited):
Summarized quarterly financial data for fiscal years 1997 and 1996 follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended
-----------------------------------------------------------
1997 June 30 Sept. 30 Dec. 31 March 31
Discs sold 33,027 36,874 49,991 36,505
Net sales $29,229 $31,361 $40,352 $28,528
Gross profit 7,952 9,401 12,885 7,271
Operating income (loss) 3,733 6,041 9,083 (2,825)
Net income (loss) 2,009 3,547 5,510 (1,891)
Earnings per share $0.09 $0.15 $0.24 $(0.08)
Stock price:
High $ 20-3/8 $ 14-3/4 $ 11-1/8 $ 12-5/8
Low 7-3/4 8-5/8 7-7/8 8-1/2
Three Months Ended
-----------------------------------------------------------
1996 June 30 Sept. 30 Dec. 31 March 31
Discs sold 21,680 33,228 37,531 33,239
Net sales $21,307 $30,545 $36,645 $29,748
Gross profit 7,212 8,982 9,880 8,362
Operating income 3,529 6,072 7,213 4,633
Income before
extraordinary item 994 2,808 3,980 2,677
item
Net income 994 2,808 1,028 2,677
Net income - pro
forma for the 1,655 3,451 4,257 2,677
Offering
Earnings per
share: pro $0.07 $0.15 $0.19 $0.12
forma for the
Offering
Stock price:
High $9-3/4 $9-1/8
Low 7 6-1/2
</TABLE>
Common Stock Information
The Company's common stock commenced trading on the Nasdaq National Market on
October 26, 1995 under the symbol NMBS. Prior to that date, there was no
established public trading market for the common stock.
Set forth are the daily high and low sales prices for the Company's common
stock for the period indicated, as reported by MicroQuote II. The current
quoted price of the stock is listed daily in The Wall Street Journal in the
National Association of Securities Dealers Automated Quotation System
(Nasdaq). As of June 5, 1997, there were 222 shareholders of record. The
Company has not paid any dividends on its common stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 26, 1997
NIMBUS CD INTERNATIONAL, INC.
(Registrant)
L. Steven Minkel
Executive Vice President and
Chief Financial Officer
Gary E. Krutul
Corporate Controller
(Principal Accounting Officer)
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
CONDENSED BALANCE SHEETS
<TABLE>
<S> <C> <C>
March 31, March 31,
1997 1996
---------- ---------
ASSETS
Cash $3 $2
Prepaid expenses 12 149
Other assets 5,667 5,652
Investment in subsidiaries, at equity 47,149 37,834
======== ========
Total assets $52,831 $43,637
======== ========
LIABILITIES
Accounts payable 18 23
Accrued expenses 391 548
-------- ---------
Total liabilities 409 571
-------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding
Common stock, $0.01 par value; 60,000,000 shares
authorized; 39,012,786 and 38,973,173 shares
issued; 20,870,579 and 20,829,962 shares 390 390
outstanding
Paid-in capital 66,775 66,734
Retained earnings 31,969 22,794
Cumulative foreign currency translation adjustments 378 241
-------- ---------
99,512 90,159
Treasury stock, at cost 18,142,207 and 18,143,211 (47,090) (47,093)
shares
-------- ---------
Total stockholders' equity 52,422 43,066
======== =========
Total liabilities and stockholders' equity $52,831 $43,637
======== =========
</TABLE>
The information regarding long-term debt and credit agreements of subsidiaries
contained in Note 10 of the Notes to Consolidated Financial Statements is
incorporated herein by reference. Nimbus CD International, Inc. has guaranteed
the repayment of the outstanding debt of its subsidiaries.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
CONDENSED STATEMENTS OF INCOME
For the fiscal years ended March 31, 1997, 1996 and 1995
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
======== ========= =========
Equity in earnings of subsidiaries, net of $9,175 $7,507 $8,200
applicable income tax ======== ========= =========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
For the fiscal years ended March 31, 1997, 1996 and 1995
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
-------- --------- ---------
Cash flows from operating activities:
Net income $9,175 $7,507 $8,200
Less undistributed earnings of subsidiaries (9,175) (7,507) (8,200)
Write-off of public offering and acquisition 1,005
costs
Change in:
Prepaid expenses 137 (129) (13)
Accounts payable (5) (619) 530
Accrued expenses (157) (43) (1,227)
Other assets (78) 20 73
-------- --------- ---------
Net cash provided by (used in) operating (103) (771) 368
activities -------- --------- ---------
Cash flows from investing activities:
Refund of costs related to proposed 112
acquisition
Advances to subsidiaries, net 156 (4,267) (483)
Purchase of property and equipment (96) (14)
-------- --------- ---------
Net cash provided (used) in investing 60 (4,281) (371)
activities: -------- --------- ---------
Cash flows from financing activities:
Issuance of common stock 44,886 24,055
Proceeds from issuance of warrants 1,750
Proceeds from exercise of stock options 44 1,168
Purchase of treasury stock (65,292)
Payment of costs related to initial public (1,230) (281)
offering
Proceeds (repayments) of loans from (38,603) 38,603
subsidiaries, net
-------- --------- ---------
Net cash provided by financing activities 44 5,053 3
-------- --------- ---------
Increase in cash 1 1
Cash, beginning of year 2 1 1
-------- --------- ---------
Cash, end of year $3 $2 $1
======== ========= =========
</TABLE>
The information regarding related party transactions contained in Note 14 of the
Notes to Consolidated Financial Statements is incorporated herein by reference.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
SCHEDULE II
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Balance Additions
at Charged Acquisi- Deductions Balance
Description Beginning to Costs tion of Write-Offs Adjust- at End
of Year and Business 1 ments2 of Year
Expenses
- -----------------------------------------------------------------------------
Allowance for
doubtful accounts:
Fiscal year ended $2,014 $1,031 $1,286 $53 $1,812
March 31, 1997
Fiscal year ended $1,989 $1,268 $50 $1,246 $(47) $2,014
March 31, 1996
Fiscal year ended $2,518 $514 $1,043 $77 $1,989
March 31, 1995
</TABLE>
1 Represents accounts written off as uncollectible, net of collections on
accounts previously written off.
2 Represents foreign currency translation adjustments of foreign
subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919550
<NAME> Nimbus CD International, Inc.
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 7,790
<SECURITIES> 0
<RECEIVABLES> 28,205
<ALLOWANCES> 1,812
<INVENTORY> 2,217
<CURRENT-ASSETS> 41,144
<PP&E> 89,766
<DEPRECIATION> 26,335
<TOTAL-ASSETS> 108,272
<CURRENT-LIABILITIES> 30,974
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 52,032
<TOTAL-LIABILITY-AND-EQUITY> 108,272
<SALES> 129,470
<TOTAL-REVENUES> 129,470
<CGS> 91,961
<TOTAL-COSTS> 91,961
<OTHER-EXPENSES> 21,477
<LOSS-PROVISION> 1,031
<INTEREST-EXPENSE> 2,666
<INCOME-PRETAX> 13,761
<INCOME-TAX> 4,586
<INCOME-CONTINUING> 9,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,175
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
December 8, 1995
Nimbus CD International, Inc.
Nimbus Manufacturing Inc.
CD Manufacturing (UK) Limited
Nimbus Manufacturing (UK) Limited
P.O. Box 7427
Charlottesville, Virginia 22906
Re: Amended and Restated Credit Agreement dated as
of October 30, 1995
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement
(the "Credit Agreement") dated as of October 30, 1995 by and among Nimbus CD
International, Inc., Nimbus Manufacturing Inc., Nimbus Manufacturing (UK)
Limited, the Lenders listed therein as lenders and The Chase Manhattan Bank,
N.A., as agent. Capitalized terms used herein without definition shall have the
meanings assigned those terms in the Credit Agreement.
Each of the undersigned parties to the Credit Agreement hereby
acknowledges and agrees as follows:
1. Subsection 1.1 of the Credit Agreement is hereby amended by deleting
each of the defined terms "Adjusted Domestic Sterling Rate" and "Domestic
Sterling Rate Loans" therefrom (but not the definitions of such terms contained
therein) and substituting the terms "Adjusted Eurosterling Rate" and
"Eurosterling Rate Loans", respectively, therefor and all references to Adjusted
Domestic Sterling Rate and Domestic Sterling Rate Loans in the Credit Agreement,
the other Loan Documents and related documents delivered in connection with the
Credit Agreement shall refer to Adjusted Eurosterling Rate and Eurosterling Rate
Loans, respectively;
2. The third paragraph of subsection 2.1A(iii) of the Credit Agreement is
hereby amended by deleting the following contained therein in its entirety:
"no later than 12:00 Noon (New York time) at least one Business Day in
advance of the proposed Funding Date, a notice (which shall be deemed to
be a Notice of Borrowing given by Company) requesting Lenders to make
Revolving Loans that are Base Rate Loans, in the case of U.S. Borrower, or
Revolving Loans that are Domestic Sterling Rate Loans, in the case of U.K.
Borrower"
and substituting the following therefor:
"a notice (which shall be deemed to be a Notice of Borrowing given by
Company) requesting Lenders to make Revolving Loans no later than 12:00
Noon (New York time) or 12:00 Noon (London time), as applicable, (i) for
Base Rate Loans, in the case of U.S. Borrower, at least one Business Day
in advance of the proposed Funding Date, or (ii) for Eurosterling Rate
Loans, in the case of U.K. Borrower, at least three Business Days in
advance of the proposed Funding Date";
3. The fourth paragraph of subsection 2.1A(iii) of the Credit Agreement is
hereby amended by deleting the phrase "[u]pon one Business Day's notice from
Swing Line Lender" contained therein in its entirety and substituting the phrase
"[u]pon (i) one Business Day's notice from Swing Line Lender, in the case of
Base Rate Loans, or (ii) three Business Day's notice from Swing Line Lender, in
the case of Eurosterling Rate Loans" therefor;
4. The first paragraph of subsection 2.1B of the Credit Agreement is
hereby amended by deleting the phrase "(i) for Base Rate Loans and Sterling
Loans, at least one Business Day in advance of the proposed Funding Date, and
(ii) for Eurodollar Rate Loans, at least three Business Days in advance of the
proposed Funding Date" contained therein in its entirety and substituting the
phrase "(i) for Base Rate Loans, at least one Business Day in advance of the
proposed Funding Date, and (ii) for Eurosterling Rate Loans or Eurodollar Rate
Loans, at least three Business Days in advance of the proposed Funding Date"
therefor;
5. Clause (a) of subsection 2.4B(iii) of the Credit Agreement is
hereby amended by deleting the phrase "in excess of such amount" contained
therein in its entirety;
6. Clause (b) of subsection 3.2(i) of the Credit Agreement is hereby
amended by deleting the reference to "1/2 of 1%" contained therein and
substituting "1.75%" therefor;
7. The terms of paragraphs one through six above shall be deemed to be
effective as of the Closing Date; and
8. Schedule 2.1 to the Credit Agreement is hereby amended by deleting it
in its entirety and substituting in place thereof a new Schedule 2.1 in the form
of Annex A to this letter agreement and the terms of this paragraph 8 shall be
effective as of the date of effectiveness of those certain Assignment Agreements
entered into by the Lenders.
This letter agreement may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original for all purposes; but
all such counterparts together shall constitute but one and the same instrument.
THE CHASE MANHATTAN BANK, N.A.,
individually and as Agent
(L.S.) Mark McGoldrick, Vice President
BANK OF SCOTLAND
By:
MIDLAND BANK PLC
By:
NATIONSBANK, N.A.
By:
ACKNOWLEDGED AND AGREED:
NIMBUS CD INTERNATIONAL, INC.,
as Parent and Guarantor
NIMBUS MANUFACTURING INC.,
as U.S. Borrower
(L.S.) L. Steven Minkel
Executive Vice President
NIMBUS MANUFACTURING (UK) LIMITED,
as U.K. Borrower
(L.S.) L. Steven Minkel
Director
<PAGE>
Annex A
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
<TABLE>
<S> <C> <C> <C>
Term Loan Revolving Pro Rata
Lenders Commitment Loan Share
Commitment
The Chase Manhattan Bank, $6,666,667.00 $6,666,667.00 26.666668%
N.A.
NationsBank, N.A. $6,666,666.50 $6,666,666.50 26.666666%
Midland Bank PLC $6,666,666.50 $6,666,666.50 26.666666%
Bank of Scotland $5,000,000.00 $5,000,000.00 20%
Total $25,000,000.00 $25,000,000.00 100%
</TABLE>
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Second Amendment") dated as of November 14, 1996, is to that Amended and
Restated Credit Agreement dated as of October 30, 1995 as amended by that First
Amendment to Amended and Restated Credit Agreement dated as of December 8, 1995
(as amended and modified hereby and as further amended and modified from time to
time hereafter, the "Credit Agreement"; terms used but not otherwise defined
herein shall have the meanings assigned in the Credit Agreement), by and among
NIMBUS CD INTERNATIONAL, INC., as Parent and Guarantor (the "Company"), NIMBUS
MANUFACTURING INC., as U.S. Borrower, NIMBUS MANUFACTURING (UK) LIMITED, as U.K.
Borrower (together with Nimbus Manufacturing Inc., each a "Borrower" and
collectively, the "Borrowers"), the Lenders listed on the signature pages hereto
and NATIONSBANK, N.A. (the "Agent"), as successor agent to The Chase Manhattan
Bank, N.A. (the "Replaced Agent").
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrowers a $50,000,000 credit facility;
WHEREAS, the Agent individually in its capacity as a Lender has assumed
the Commitments of the Replaced Agent in their entirety;
WHEREAS, concurrently with the effectiveness of this Amendment, The Chase
Manhattan Bank shall resign as Agent pursuant to Section 9.5(A) of the Credit
Agreement and shall resign as Swing Line Lender pursuant to Section 9.5(B) of
the Credit Agreement and be replaced in each capacity by NationsBank, N.A.;
WHEREAS, the Company, the Borrowers, the Lenders and the Agent desire to
amend the Credit Agreement to provide for certain modifications to reflect the
assignment of the role of agent from the Replaced Agent to the Agent; and
WHEREAS, the Lenders have agreed to the requested changes on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respects:
1. In connection with the assignment of the role of agent from the
Replaced Agent to the Agent, all references in the Credit Agreement to
"The Chase Manhattan Bank, N.A." shall be replaced with "NationsBank,
N.A." and all references to "Chase" shall be replaced with "NationsBank".
2. All references to the terms "Overdraft", "Overdraft Account",
"Overdraft Amount" and "Overdraft Commitment" in the Credit Agreement are
hereby deleted in their entirety, and in connection therewith, there shall
be no overdraft facility available to the U.K. Borrower under the terms of
the Credit Agreement.
3. The definition of "Adjusted Eurodollar Rate" in Section 1.1
is amended and modified to read as follows:
"Adjusted Eurodollar Rate" means, for the Interest Period for
each Eurodollar Rate Loan comprising part of the same borrowing
(including conversions, extensions and renewals), a per annum
interest rate determined pursuant to the following formula:
Adjusted Eurodollar Rate = Interbank Offered Rate/
1 - Eurodollar Reserve Percentage
4. The definition of "Agent's Funding and Payment Office" in
Section 1.1 is amended and modified to read as follows:
"Agent's Funding and Payment Office" means the office of Agent
located at Independence Center, 101 North Tryon Street,
NC1-001-15-04, Charlotte, North Carolina 28255, for the attention of
Agency Services (or, if NationsBank shall no longer be Agent, such
offices of the successor Agent as specified by such successor Agent
in a written notice to the Loan Parties and Lenders).
5. The definition of "Eurodollar Reserve Percentage" is added
to Section 1.1 to read as follows:
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable
with respect to Eurocurrency liabilities as that term is defined in
Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of
Eurodollar Rate Loans is determined), whether or not a Lender has
any Eurocurrency liabilities subject to such reserve requirement at
that time. Eurodollar Rate Loans shall be deemed to constitute
Eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without benefits of credits for proration,
exceptions or offsets that may be available from time to time to a
Lender. The Adjusted Eurodollar Rate shall be adjusted automatically
on and as of the effective date of any change in the Eurodollar
Reserve Percentage.
6. The definition of "Interbank Offered Rate" is added to
Section 1.1 to read as follows:
"Interbank Offered Rate" means, for the Interest Period for
each Eurodollar Rate Loan comprising part of the same borrowing
(including conversions, extensions and renewals), a per annum
interest rate (rounded upwards, if necessary, to the nearest whole
multiple of 1/100 of 1%) equal to the rate of interest determined by
the Agent on the basis of the offered rates for deposits in dollars
for a period of time corresponding to such Interest Period (and
commencing on the first day of such Interest Period), which appear
on the Reuters Screen LIBO Page as of 11:00 A.M. (London time) two
(2) Business Days before the first day of such Interest Period
(provided that if at least two such offered rates appear on the
Reuters Screen LIBO Page, the rate in respect of such Interest
Period will be the arithmetic mean of such offered rates). As used
herein, "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rates of major
banks).
7. The definition of "Interest Rate Determination Date" in
Section 1.1 is amended and modified to read as follows:
"Interest Rate Determination Date" means, each date for
calculating the Adjusted Eurodollar Rate or the Adjusted
Eurosterling Rate, for purposes of determining the interest rate in
respect of an Interest Period. The Interest Rate Determination Date
(i) in respect of calculating the Adjusted Eurodollar Rate shall be
the second Business Day prior to the first day of the related
Interest Period and (ii) in respect of calculating the Adjusted
Eurosterling Rate shall be the second Business Day prior to the
related Interest Period.
8. Section 2.4(E)(i) of the Credit Agreement entitled "Fluctuations
in Currency Exchange Rates" is amended and modified to read as follows:
(i) Fluctuations in Currency Exchange Rates. The Dollar
Equivalent of any Sterling Loans shall be calculated on the Funding
Date for such Sterling Loans and/or at the beginning of each
subsequent Interest Period and such calculation shall remain in
effect for purposes of this Agreement until the next date on which
an event described in the foregoing clause occurs and a
recalculation is made.
9. Section 7.4(vi) of the Credit Agreement is amended and
modified to read as follows:
(vi) Company and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; provided that the
maximum aggregate liability, contingent or otherwise, of Company and
its Subsidiaries in respect of all such Contingent Obligations shall
at no time exceed (a) $2,000,000 during such time as NationsBank,
N.A. shall provide a standby letter of credit in support of the U.K.
Borrower's overdraft facility and (b) $500,000 at all other times.
10. Schedule 2.1 to the Credit Agreement is hereby deleted in its
entirety and replaced with Annex A attached hereto.
B. The Loan Parties hereby represent and warrant that:
1. Any and all representations and warranties made by the Loan
Parties and contained in the Credit Agreement (other than those which
expressly relate to a prior period) are true and correct in all material
respects as of the date of this Second Amendment; and
2. No Default or Event of Default currently exists and is continuing
under the Credit Agreement as of the date of this Second Amendment.
C. The effectiveness of this Second Amendment is conditioned upon
receipt by the Agent of the following:
1. Copies of this Second Amendment executed by the Loan
Parties and the Lenders; and
2. Copies of the resolutions of the Loan Parties approving the
terms and authorizing execution and delivery of this Second Amendment.
D. The Loan Parties will execute such additional documents as are
reasonably requested by the Agent to reflect the terms and conditions of this
Second Amendment.
E. Each of the Loan Parties, as applicable, affirm the liens and security
interests created and granted in the Credit Agreement and the other Loan
Documents and agree that this Second Amendment shall in no manner adversely
affect or impair such liens and security interests.
F. The Company acknowledges and consents to all of the terms and
conditions of this Second Amendment and agrees that this Second Amendment does
not operate to reduce or discharge the Company's obligations under the Credit
Agreement or the other Loan Documents. The Company acknowledges and agrees that
the Company has no claims, counterclaims, offsets, credits or defenses to the
Loan Documents and the performance of the Company's obligations thereunder or if
the Company has any such claims, counterclaims, offsets, credits or defenses to
the Loan Documents or any transaction related to the Loan Documents, the same
are hereby waived, relinquished and released in consideration of the Lenders'
execution and delivery of this Second Amendment.
G. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
H. The Loan Parties jointly and severally agree to pay all reasonable
costs and expenses in connection with the preparation, execution and delivery of
this Second Amendment, including without limitation the reasonable fees and
expenses of the Agent's legal counsel.
I. This Second Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Second Amendment to produce or
account for more than one such counterpart.
J. This Second Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Second Amendment to Amended and Restated Credit Agreement to be duly
executed under seal and delivered as of the date and year first above written.
COMPANY: NIMBUS CD INTERNATIONAL, INC.,
as Parent and Guarantor
By___________________________________
Name_________________________________
Title__________________________________
U.S. BORROWER NIMBUS MANUFACTURING INC.
By___________________________________
Name_________________________________
Title__________________________________
U.K. BORROWER NIMBUS MANUFACTURING (UK) LIMITED
By___________________________________
Name_________________________________
Title__________________________________
BANKS NATIONSBANK, N.A., individually in its capacity
as a Lender and in its capacity as Agent
By___________________________________
Name_________________________________
Title__________________________________
BANK OF SCOTLAND
By___________________________________
Name_________________________________
Title__________________________________
MIDLAND BANK, PLC
By___________________________________
Name_________________________________
Title__________________________________
<PAGE>
Annex A
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
<TABLE>
<S> <C> <C> <C>
Term Loan Revolving Loan Pro Rata
Lenders Commitment Commitment Share
NationsBank, N.A. $13,333,333.50 $13,333,333.50 53.333334%
Midland Bank PLC $6,666,666.50 $6,666,666.50 26.666666%
Bank of Scotland $5,000,000.00 $5,000,000.00 20%
TOTAL: $25,000,000.00 $25,000,000.00 100%
</TABLE>
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Third
Amendment") dated as of November 21, 1996, is to that Credit Agreement dated as
of October 30, 1995 (as amended by that First Amendment to Amended and Restated
Credit Agreement dated as of December 8, 1995, as further amended by that Second
Amendment to Amended and Restated Credit Agreement dated as of November 14,
1996, and as amended and modified hereby and as further amended and modified
from time to time hereafter, the "Credit Agreement"; terms used but not
otherwise defined herein shall have the meanings assigned in the Credit
Agreement), by and among NIMBUS CD INTERNATIONAL, INC., as Parent and Guarantor,
NIMBUS MANUFACTURING INC., as U.S. Borrower, NIMBUS MANUFACTURING (UK) LIMITED,
as U.K. Borrower, the Lenders party thereto and NATIONSBANK, N.A., as Agent (the
"Agent").
W I T N E S S E T H :
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrowers a $50,000,000 revolving credit facility;
WHEREAS, the U.K. Borrower has requested that the Agent provide a standby
letter of credit on its behalf in favor of The Chase Manhattan Bank or such
other lender providing the U.K. Borrower's overdraft facility (the "Overdraft
Letter of Credit");
WHEREAS, the Borrowers wish to amend the Credit Agreement to include the
Overdraft Letter of Credit in the definition of "Loan Documents" and thereby
making the Overdraft Letter of Credit a secured obligation of the Borrowers;
WHEREAS, the Required Lenders have agreed to the requested amendment on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respect:
1. The definition of "Loan Documents" in Section 1.1 of the
Credit Agreement is amended and modified to read as follows:
"Loan Documents" means this Agreement, the Notes, the Letters
of Credit and Revolving Credit Guarantees (and any applications for,
or reimbursement agreements or other documents or certificates
executed by Company or the applicable Borrower in favor of an
Issuing Lender relating to, the Letters of Credit or the Revolving
Credit Guarantees), the Guaranties, any Interest Rate Agreements or
Currency Agreement entered into between any Borrower and any Lender,
the letter of credit in the amount of 1,000,000 British pounds
issued by NationsBank, N.A. on behalf of the U.K. Borrower in favor
of The Chase Manhattan Bank or other overdraft lender to support the
overdraft account of the U.K. Borrower, and the Collateral
Documents; provided that for all purposes under any Guaranty or
Collateral Document to which U.K. Borrower is a party, the term
"Loan Documents" shall include, in addition to the foregoing, any
agreements or instruments evidencing any Permitted Lender
Indebtedness.
B. The Borrowers will execute such additional documents as are
reasonably requested by the Lenders to reflect the terms and conditions of
this Third Amendment.
C. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
D. This Third Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Third Amendment to produce or
account for more than one such counterpart.
E. This Third Amendment and the Credit Agreement, as amended hereby, shall
be deemed to be contracts made under, and for all purposes shall be construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Third Amendment to Amended and Restated Credit Agreement to be duly
executed under seal and delivered as of the date and year first above written.
COMPANY: NIMBUS CD INTERNATIONAL, INC.,
as Parent and Guarantor
By___________________________________
Name_________________________________
Title__________________________________
U.S. BORROWER NIMBUS MANUFACTURING INC.
By___________________________________
Name_________________________________
Title__________________________________
U.K. BORROWER NIMBUS MANUFACTURING (UK) LIMITED
By___________________________________
Name_________________________________
Title__________________________________
BANKS NATIONSBANK, N.A., individually in its capacity
as a Lender and in its capacity as Agent
By___________________________________
Name_________________________________
Title__________________________________
BANK OF SCOTLAND
By___________________________________
Name_________________________________
Title__________________________________
MIDLAND BANK, PLC
By___________________________________
Name_________________________________
Title__________________________________
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Fourth Amendment") dated as of December 30, 1996, is to that Credit Agreement
dated as of October 30, 1995 (as amended by that First Amendment to Amended and
Restated Credit Agreement dated as of December 8, 1995, as further amended by
that Second Amendment to Amended and Restated Credit Agreement dated as of
November 14, 1996, as further amended by that Third Amendment to Amended and
Restated Credit Agreement dated as of November 21, 1996, and as amended and
modified hereby and as further amended and modified from time to time hereafter,
the "Credit Agreement"; terms used but not otherwise defined herein shall have
the meanings assigned in the Credit Agreement), by and among NIMBUS CD
INTERNATIONAL, INC., as Parent and Guarantor, NIMBUS MANUFACTURING INC., as U.S.
Borrower, NIMBUS MANUFACTURING (UK) LIMITED, as U.K. Borrower, the Lenders party
thereto and NATIONSBANK, N.A., as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrowers a $50,000,000 revolving credit facility;
WHEREAS, the Borrowers wish to amend the Credit Agreement to modify the
Minimum Fixed Charge Coverage Ratio;
WHEREAS, the Required Lenders have agreed to the requested amendment on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respect:
1. Section 7.6(B) of the Credit Agreement is amended and
modified to read as follows:
"B. Minimum Fixed Charge Coverage Ratio. The ratio of
(i) Consolidated EBITDA to (ii) Consolidated Fixed Charges for
any four-Fiscal Quarter period ending during any of the periods
set forth below shall be not less than the following:
December 30, 1996 to June 30, 1997 0.90 to 1.00
July 1, 1997 and thereafter 1.00 to 1.00"
B. The Borrowers will execute such additional documents as are
reasonably requested by the Lenders to reflect the terms and conditions of
this Fourth Amendment.
C. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
D. This Fourth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Fourth Amendment to produce or
account for more than one such counterpart.
E. This Fourth Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Fourth Amendment to Amended and Restated Credit Agreement to be duly
executed under seal and delivered as of the date and year first above written.
COMPANY: NIMBUS CD INTERNATIONAL, INC.,
as Parent and Guarantor
By___________________________________
Name_________________________________
Title__________________________________
U.S. BORROWER NIMBUS MANUFACTURING INC.
By___________________________________
Name_________________________________
Title__________________________________
U.K. BORROWER NIMBUS MANUFACTURING (UK) LIMITED
By___________________________________
Name_________________________________
Title__________________________________
BANKS NATIONSBANK, N.A., individually in its capacity
as a Lender and in its capacity as Agent
By___________________________________
Name_________________________________
Title__________________________________
BANK OF SCOTLAND
By___________________________________
Name_________________________________
Title__________________________________
MIDLAND BANK, PLC
By___________________________________
Name_________________________________
Title__________________________________
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Fifth
Amendment") dated as of February 5, 1997, is to that Amended and Restated Credit
Agreement dated as of October 30, 1995 (as amended by that First Amendment to
Amended and Restated Credit Agreement dated as of December 8, 1995, as further
amended by that Second Amendment to Amended and Restated Credit Agreement dated
as of November 14, 1996, as further amended by that Third Amendment to Amended
and Restated Credit Agreement dated as of November 21, 1996, as further amended
by that Fourth Amendment to Amended and Restated Credit Agreement dated as of
December 30, 1996, and as amended and modified hereby and as further amended and
modified from time to time hereafter, the "Credit Agreement"; terms used but not
otherwise defined herein shall have the meanings assigned in the Credit
Agreement), by and among NIMBUS CD INTERNATIONAL, INC., as Parent and Guarantor,
NIMBUS MANUFACTURING INC., as U.S. Borrower, NIMBUS MANUFACTURING (UK) LIMITED,
as U.K. Borrower, the Lenders party thereto and NATIONSBANK, N.A., as Agent (the
"Agent").
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrowers a $50,000,000 revolving credit facility;
WHEREAS, the Borrowers wish to amend the Credit Agreement to modify
certain provisions contained therein;
WHEREAS, the Requisite Lenders have agreed to the requested amendment on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respect:
1. The definition of "Consolidated Capital Expenditures" in Section
1.1 of the Credit Agreement is amended and modified to read as follows:
"Consolidated Capital Expenditures" means, for any period, the
sum of (i) the aggregate of all expenditures (whether paid in cash
or other consideration or accrued as a liability and including that
portion of Capital Leases which is capitalized on the consolidated
balance sheet of Company and its Subsidiaries) by Company and its
Subsidiaries during that period then in conformity with GAAP, are
included in "purchases of property, plant or equipment" or
comparable items reflected in the consolidated statement of cash
flows of Company and its Subsidiaries plus (ii) to the extent not
covered by clause (i) of this definition, the aggregate of all
expenditures by Company and its Subsidiaries during that period to
acquire (by purchase or otherwise) the business, property (except
inventory in the ordinary course of business) or fixed assets of any
Person, or stock or other evidence of beneficial ownership of any
Person that, as a result of the acquisition of such stock or other
evidence, becomes a Subsidiary of Company; provided, however, that
Investments with respect to share capital contributions to
EuroNimbus S.A. permitted pursuant to Section 7.3 shall not be
included in the determination of Consolidated Capital Expenditures
hereunder."
2. Sections 7.1(v) and 7.1(vi) of the Credit Agreement are
amended and modified to read as follows:
"(v) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any
wholly-owned Subsidiary of Company (other than EuroNimbus S.A. in
the event it becomes a wholly-owned Subsidiary) may become and
remain liable with respect to Indebtedness to Company or any other
wholly-owned Subsidiary of Company provided that (a) all such
intercompany Indebtedness shall be evidenced by promissory notes,
(b) all such intercompany Indebtedness owned by Company to any of
its respective Subsidiaries shall be subordinated in right of
payment to the payment in full of the Obligations pursuant to the
terms of the applicable promissory notes or an intercompany
subordination agreement, and (c) any payment by Company or by any
Subsidiary of Company under any guaranty of the Obligations shall
result in a pro tanto reduction of the amount of any intercompany
Indebtedness owed by Company or by such Subsidiary to Company or to
any of its Subsidiaries for whose benefit such payment is made;
(vi) Company and its Subsidiaries may become and remain liable
with respect to other Indebtedness in an aggregate principal amount
not to exceed $3,000,000, less the aggregate amount of any liability
with respect to Contingent Obligations outstanding pursuant to
clause (b) of subsection 7.4(ii); provided, however, that with
respect to the fiscal years ending March 31, 1998 and March 31, 1999
only, EuroNimbus S.A. may become and remain liable with respect to
other Indebtedness in an aggregate amount at any time outstanding
not to exceed $12,000,000; provided, further, that at any time
occurring thereafter, EuroNimbus S.A. may become and remain liable
with respect to other Indebtedness in an aggregate amount at any
time outstanding not to exceed $16,500,000."
3. Section 7.3 of the Credit Agreement is amended and modified
in its entirety to read as follows:
"7.3 Investments; Joint Ventures.
Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment
in any Person, including any Joint Venture, except:
(i) Company and its Subsidiaries may make and own
Investments in Cash Equivalents;
(ii) Company and its Subsidiaries may make and own
other Investments (excluding Investments in EuroNimbus
S.A.) in an aggregate amount not to exceed $1,500,000; and
(iii) Company and its Subsidiaries may make and own
Investments with respect to share capital contributions to
EuroNimbus S.A. in an aggregate amount not to exceed
$5,000,000."
B. Notwithstanding the provisions of Sections 6.09 and 6.10 of the Credit
Agreement, the Lenders hereby confirm and agree that EuroNimbus S.A. shall not
be required to become a Subsidiary Guarantor under the Credit Agreement;
provided, however, if Company or any of its Subsidiaries shall at any time
during the term of the Credit Agreement pledge or otherwise encumber the capital
stock of EuroNimbus S.A., then an Event of Default shall be deemed to have
occurred under the terms of the Credit Agreement.
C. Company hereby represents and warrants that (except as otherwise
permitted under the terms of the Credit Agreement) with respect to any grants
extended to, or in favor of, EuroNimbus S. A. by (a) the Government of the
Grand Duchy of Luxembourg or any agency or instrumentality thereof (the
"Government), neither Company nor any of its Subsidiaries (other than
EuroNimbus S. A.) shall incur any repayment obligation to the Government
under any circumstances, and (b) with respect to the Societe Nationale de
Credit et d'Investissement ("SNCI"), neither Company nor any of its
Subsidiaries (other than EuroNimbus S.A.) shall incur any repayment
obligation to SNCI under any circumstances.
D. The Borrowers will execute such additional documents as are
reasonably requested by the Lenders to reflect the terms and conditions of
this Fifth Amendment.
E. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
F. This Fifth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Fifth Amendment to produce or
account for more than one such counterpart.
G. This Fifth Amendment and the Credit Agreement, as amended hereby, shall
be deemed to be contracts made under, and for all purposes shall be construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Fifth Amendment to Amended and Restated Credit Agreement to be duly
executed under seal and delivered as of the date and year first above written.
COMPANY: NIMBUS CD INTERNATIONAL, INC.,
as Parent and Guarantor
By___________________________________
Name_________________________________
Title__________________________________
U.S. BORROWER NIMBUS MANUFACTURING INC.
By___________________________________
Name_________________________________
Title__________________________________
U.K. BORROWER NIMBUS MANUFACTURING (UK) LIMITED
By___________________________________
Name_________________________________
Title__________________________________
BANKS NATIONSBANK, N.A., individually in its capacity
as a Lender and in its capacity as Agent
By___________________________________
Name_________________________________
Title__________________________________
BANK OF SCOTLAND
By___________________________________
Name_________________________________
Title__________________________________
MIDLAND BANK, PLC
By___________________________________
Name_________________________________
Title__________________________________
SHAREHOLDERS' AGREEMENT
Dated as of January 29, 1997
By and Among
EURONIMBUS S.A.,
NIMBUS MANUFACTURING (UK) LIMITED
and
SAARBRUCKER ZEITUNG VERLAG UND DRUCKEREI G.m.b.H.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................. 2
1. Definitions............................................... 2
ARTICLE II BOARD OF DIRECTORS...................................... 6
2.1 Composition.............................................. 6
2.2 Chairman and Deputy Chairman of the Board of Directors... 7
2.3 Term..................................................... 7
2.4 Vacancies................................................ 7
2.5 Removal.................................................. 7
2.6 Meetings, Notice......................................... 8
2.7 Quorum................................................... 8
2.8 Committees............................................... 8
2.9 Voting................................................... 8
2.10 Major Management Decisions.............................. 9
2.11 Significant Management Decisions........................ 9
2.12 Approval of Certain Transactions........................ 10
2.13 Related Party Transactions.............................. 11
2.14 General Manager......................................... 11
2.15 Operating Committee..................................... 11
ARTICLE III TRANSFER OF SHARES...................................... 11
3.1 Restrictions............................................. 11
3.2 Permitted Transfers...................................... 12
3.3 Sales by Nimbus Subject to Tag-Along Rights............. 12
3.4 Grant to Nimbus of Bring-Along Rights................... 13
3.5 Saarbrucker's Right of First Offer from Nimbus.......... 13
3.6 Saarbrucker Right to Sell after Five Years;
Nimbus's Right of First Offer from Saarbrucker.......... 15
3.7 Change of Control........................................ 16
3.8 Transferee's Agreement................................... 17
ARTICLE IV IMPLEMENTATION.......................................... 18
4.1 Appointment.............................................. 18
4.2 Luxembourg Law........................................... 18
4.3 Best Efforts............................................. 18
ARTICLE V ACCOUNTING AND OTHER INFORMATION........................ 18
5.1 Quarterly Reports........................................ 18
5.2 Audits................................................... 19
5.3 Selection of Independent Public Accountants.............. 19
5.4 Access to Information Concerning Properties and Records.. 19
ARTICLE VI DISPUTE RESOLUTION...................................... 19
6.1 Dispute Resolution....................................... 19
6.2 Procedures............................................... 20
6.3 Awards................................................... 20
6.4 Enforcement.............................................. 20
6.5 Site and Language........................................ 20
ARTICLE VII SCOPE OF BUSINESS; EXCLUSIVITY.......................... 20
7.1 Scope of Business........................................ 20
7.2 Exclusivity.............................................. 20
ARTICLE VIII MISCELLANEOUS......................................... 21
8.1 Entire Agreement; Amendment.............................. 21
8.2 Captions................................................. 21
8.3 Counterparts............................................. 21
8.4 Notices.................................................. 21
8.5 Binding Effect; Benefit; Assignment...................... 23
8.6 Amendment and Modification............................... 23
8.7 Applicable Law........................................... 23
8.8 Severability............................................. 23
8.9 Termination.............................................. 24
8.10 Confidentiality......................................... 24
<PAGE>
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of January 29, 1997 by and among EURONIMBUS
S.A., ("EuroNimbus") a corporation (sociJtJ anonyme) organized and existing
under the laws of the Grand Duchy of Luxembourg, NIMBUS MANUFACTURING (UK)
LIMITED ("Nimbus") a corporation organized and existing under the laws of
England and Wales and an indirect wholly-owned subsidiary of Nimbus CD
International, Inc. ("Nimbus Parent"), and SAARBRUCKER ZEITUNG VERLAG UND
DRUCKEREI G.m.b.H. ("Saarbrucker") a limited liability company organized and
existing under the laws of the Federal Republic of Germany.
W I T N E S S E T H :
WHEREAS, Nimbus owns 70% of the outstanding shares of common stock of EuroNimbus
and Saarbrucker owns 30% of the outstanding shares of common stock of
EuroNimbus; and
WHEREAS, Nimbus and Saarbrucker wish to provide a stable management environment
for EuroNimbus and provide a basis for the conduct of its business operations,
in part by restricting the transferability of the common stock of EuroNimbus, as
set forth herein; and
WHEREAS, the parties desire to enter into this Agreement to otherwise regulate
the relationship between Nimbus and Saarbrucker as Shareholders and to provide
for the operations of EuroNimbus.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency
whereof is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1. Definitions. When used in this Agreement, the following terms
shall have the respective meanings specified below:
I.1 "Affiliate" shall mean and include, with reference to any Person, any
other Person other than EuroNimbus, Controlling, Controlled by or under common
Control with such Person.
I.2 "Agreement" and "this Agreement" shall mean this Shareholders'
Agreement.
I.3 "Beneficially Own" shall have the meanings specified
therefor in Rule 13d-3 under the U.S. Securities Exchange Act of
1934, as amended.
I.4 "Board of Directors" shall have the meaning specified therefor in
Section 2.1 hereof.
I.5 "Business Day" shall mean any day, excluding Saturday, Sunday or any
day which shall be a legal holiday in the States of New York or Virginia, the
Federal Republic of Germany, the Grand Duchy of Luxembourg or the United
Kingdom.
I.6 "Chairman" shall mean the Chairman of the Board of Directors.
I.7 "Change of Control" shall have the meaning specified therefor in
Section 3.7 hereof.
I.8 "Change of Control Notice" shall have the meaning specified therefor
in Section 3.7 hereof.
I.9 "Common Stock" shall mean the shares of common stock without
designation of par value of EuroNimbus.
I.10 "Control" shall mean the power to vote more than 50% of the Voting
Securities of an Entity or otherwise control the management and affairs of such
Entity (including by way of the power to veto any material act or decision).
I.11 "Deputy Chairman" shall mean the Deputy Chairman of the Board of
Directors.
I.12 "Director" shall have the meaning specified therefor in Section 2.1
hereof.
I.13 "Entity" shall mean any Person that is not a natural Person.
I.14 "EuroNimbus" shall have the meaning specified therefor in the
preamble to this Agreement.
I.15 "Fair Market Value" shall mean the price at which EuroNimbus, as a
going concern, could be sold in an arms' length transaction to an unaffiliated
bona fide third party purchaser in an orderly sale without regard to the
illiquidity of its Common Stock and shall reflect the aggregate exercise or
conversion price payable to EuroNimbus upon the exercise or conversion of all
warrants, rights and options to purchase capital stock of EuroNimbus and
convertible securities, the exercise or conversion of which is taken into
account in determining the fully-diluted per share fair market value of
EuroNimbus.
I.16 "FMV Arbitrator" shall have the meaning specified therefor in Section
3.7 hereof.
I.17 "FMV Arbitrator Notice" shall have the meaning specified thereforein
Section 3.7 hereof.
I.18 "General Manager" shall have the meaning specified therefor in
Section 2.14 hereof.
I.19 "Major Decision" shall have the meaning specified therefor in Section
2.10 hereof.
I.20 "Nimbus" shall have the meaning specified therefor in the preamble to
this Agreement.
I.21 "Nimbus Nominee" shall have the meaning specified therefor in Section
2.1 hereof.
I.22 "Nimbus Offer" shall have the meaning specified therefor in Section
3.5 hereof.
I.23 "Nimbus Offer Price" shall have the meaning specified thereof in
Section 3.5 hereof.
I.24 "Nimbus Offer Termination Event" shall the meaning specified therefor
in Section 3.5 hereof.
I.25 "Nimbus Parent" shall have the meaning specified therefor in the
preamble to this Agreement.
I.26 "Nimbus Put Notice" shall have the meaning specified therefor in
Section 2.11 hereof.
I.27 "Nimbus Put Price" shall have the meaning specified therefor in
Section 2.11 hereof.
I.28 "Nimbus Shares" shall mean all Voting Securities of EuroNimbus
presently owned or hereafter acquired by Nimbus and its Permitted Transferees.
I.29 "Operating Committee" shall have the meaning specified therefor in
Section 2.15 hereof.
I.30 "Permitted Transferee" shall have the meaning specified therefor in
Section 3.2 hereof.
I.31 "Permitted Transfer" shall have the meaning specified therefor in
Section 3.2 hereof.
I.32 "Person" shall mean and include any individual, partnership,
association, joint stock company, joint venture, corporation, trust, limited
liability company, unincorporated organization, or a government, agency or
political subdivision thereof.
I.33 "Put Option" shall have the meaning specified therefor in Section 3.7
hereof.
I.34 "Put Option Notice" shall have the meaning specified therefor in
Section 3.7 hereof.
I.35 "Put Option Price" shall have the meaning specified therefore in
Section 3.7 hereof.
I.36 "Saarbrucker" shall have the meaning specified therefor in the
preamble to this agreement.
I.37 "Saarbrucker Nominee" shall have the meaning specified therefor in
Section 2.1 hereof.
I.38 "Saarbrucker Offer" shall have the meaning specified therefor in
Section 3.6 hereof.
I.39 "Saarbrucker Offer Price" shall have the meaning specified therefor
in Section 3.6 hereof.
I.40 "Saarbrucker Offer Termination Event" shall have the meaning
specified therefor in Section 3.6 hereof.
I.41 "Saarbrucker Shares" shall mean all Voting Securities of EuroNimbus
presently owned or hereafter acquired by Saarbrucker and its Permitted
Transferees.
I.42 "Sale of the Business" shall have the meaning specified therefor in
Section 3.4 hereof.
I.43 "Shareholder" shall mean each of Nimbus and Saarbrucker and each of
their respective Permitted Transferees.
I.44 "Shares" shall mean the Nimbus Shares and/or the Saarbrucker Shares.
I.45 "Significant Decision" shall have the meaning specified therefor in
Section 2.11.
I.46 "Tag-Along Notice" shall have the meaning specified therefor in
Section 3.3 hereof.
I.47 "Transfer" shall have the meaning specified therefor in Section 3.1
hereof.
I.48 "U.S. GAAP" shall mean generally accepted accounting principles in
the United States set forth in opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession in the United States, in each case as the
same are applicable to the circumstances as of the date of determination.
I.49 "Tribunal" shall have the meaning specified therefor in Section 6.2
hereof.
I.50 "Voting Securities" shall mean, with respect to any Person, any
shares of stock or other equity interest thereof having general voting power
under ordinary circumstances to elect a majority of the Board of Directors or
other final decision making body of such Person (irrespective of whether at the
time any other class or classes of equity interests of such Entity shall have or
might have voting power by reason of the happening of any contingency).
ARTICLE II
BOARD OF DIRECTORS
1. Composition. (a) All affairs of EuroNimbus shall be managed by EuroNimbus'
Board of Directors (the "Board of Directors"). The Articles of Association of
EuroNimbus shall provide for a Board of Directors consisting of five or ten
directors (the "Directors"). The Board of Directors shall initially consist of
five Directors. Subject to Section 2.1(b), Nimbus shall be entitled to nominate
three Directors of the Board of Directors (each such Director, a "Nimbus
Nominee") and Saarbrucker shall be entitled to nominate two Directors of the
Board of Directors (each such Director, a "Saarbrucker Nominee"). The Directors
shall be appointed annually by the general meeting of the shareholders. The
Shareholders may only appoint those individuals nominated as described above.
Nimbus shall cause all of the Nimbus Shares to be voted in favor of the
Saarbrucker Nominees at each such general meeting of the shareholders to appoint
Directors and Saarbrucker shall cause all of the Saarbrucker Shares to be voted
in favor of the Nimbus Nominees at each such general meeting of the shareholders
to appoint Directors.
(b) Subject to applicable law, the Shareholders may, by majority vote,
increase the number of Directors from five to ten. In the event that the number
of directors is increased to ten, the number of Nimbus Nominees shall be seven
and the number of Saarbrucker Nominees shall be three.
2. Chairman and Deputy Chairman of the Board of Directors. The Board of
Directors shall annually, by majority vote of the Directors, elect a Chairman
(the "Chairman"), who shall be a Nimbus Nominee and who shall preside at all
meetings of the Board of Directors and at all meetings of the shareholders at
which such person is present, but who shall have and perform no other special
duties. In addition, the Board of Directors shall annually, by majority vote of
the Directors, elect a Deputy Chairman (the "Deputy Chairman") who shall be a
Saarbrucker Nominee and who shall preside at all meetings of the Board of
Directors in the absence of the Chairman, but who shall have and perform no
other special duties.
3. Term. Directors shall hold office until the next annual general meeting of
the shareholders to appoint Directors and until their successors shall have been
duly appointed and shall have qualified, unless sooner displaced.
4. Vacancies. Whenever any vacancy shall have occurred in the Board of
Directors as a result of the death, resignation or other action or inaction of a
Director, such vacancy shall be filled by a majority of the Board of Directors;
provided, however, that the person chosen to fill such vacancy shall be a
nominee of the Shareholder which nominated the Director being replaced. The
person chosen to fill such vacancy shall hold office until the next annual
general meeting of the shareholders to appoint Directors and until his successor
is duly appointed and qualified.
5. Removal. A Director may be removed only with the consent of the
Shareholder who appointed such Director. The Shareholders agree that if Nimbus
shall notify Saarbrucker of Nimbus' desire to remove a Nimbus Nominee from the
Board of Directors, the Shareholders promptly shall do all things necessary
pursuant to EuroNimbus' Articles of Association and Luxembourg law to remove
such Nimbus Nominee and Saarbrucker shall cause all of the Saarbrucker Shares to
be voted in favor of such removal. The Shareholders further agree that if
Saarbrucker shall notify Nimbus of Saarbrucker's desire to remove a Saarbrucker
Nominee from the Board of Directors, the Shareholders promptly shall do all
things necessary pursuant to EuroNimbus' Articles of Association and Luxembourg
law to remove such Saarbrucker Nominee and Nimbus shall cause all of the Nimbus
Shares to be voted in favor of such removal. The term of any Director so removed
shall forthwith terminate and there shall be a vacancy or vacancies in the Board
of Directors, to be filled as provided in Section 2.4.
6. Meetings, Notice. (a) Regular meetings will be held at times and intervals
as shall be decided by the Board of Directors. Special meetings may be held at
any time upon the request of any two Directors and shall be held in such
locations as specified in the call or in a waiver of notice thereof.
(b) Directors may participate in a meeting of the Board of Directors or
any committee thereof, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at the meeting.
7. Quorum. A quorum for the transaction of business shall be present at any
meeting of the Board of Directors if a majority of the Directors then in office
are present or represented by proxy, but if at any meeting of the Board of
Directors there shall be less than a quorum present or represented by proxy, a
majority of those present or represented by proxy may adjourn the meeting from
time to time until a quorum shall have been obtained.
8. Committees. The Board of Directors may, in its discretion, designate one
or more committees of the Board of Directors and appoint Directors to constitute
and serve on such committee or committees. Such committees shall have and may
exercise such powers as shall be conferred or authorized by the resolution
appointing them; provided that neither a Major Decision nor a Significant
Decision may be delegated to any such committee.
9. Voting. (a) Subject to the provisions of Sections 2.10 and 2.11, any
question presented to, or action taken by, the Board of Directors shall be
approved or disapproved at a meeting, at which a quorum shall be present and
acting throughout, in accordance with the votes of the majority of the entire
Board of Directors.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting by
unanimous written consent of all Directors or members of such committee, as the
case may be.
10. Major Management Decisions. Any proposal to change the jurisdiction of
organization of EuroNimbus (such decision, a "Major Decision") shall require the
prior written approval pursuant to a unanimous vote of the Shareholders.
11. Significant Management Decisions. (a) The following acts, expenditures,
decisions and obligations made or incurred by EuroNimbus (each a "Significant
Decision") shall require the approval of holders of at least 75% of the total
outstanding shares of Common Stock:
(i) except as otherwise permitted by Article III hereof, the sale,
conveyance, pledge, hypothecation, encumbrance, transfer or other
disposition by a Shareholder of any shares of Common Stock;
(ii) the discontinuance, winding up, dissolution or liquidation of
EuroNimbus' affairs;
(iii) any proposal to amend EuroNimbus' Articles of Association; and
(iv) any proposal to increase or decrease the authorized share capital
of EuroNimbus.
(b) In the event that any action described in clause (ii) of
Section 2.11(a) above shall not be approved by the Shareholders because of
the failure of Saarbrucker to vote the Saarbrucker Shares in favor of such
action, then Nimbus shall have the right, by notifying Saarbrucker within
30 days after the vote in respect of such action (the "Nimbus Put
Notice"), to sell to Saarbrucker, and Saarbrucker shall purchase from
Nimbus, all, but not less than all, of the Nimbus Shares at an aggregate
price equal to (i) the Fair Market Value of EuroNimbus multiplied by (ii)
the percentage of outstanding common stock represented by the Nimbus
Shares (the "Nimbus Put Price"). Upon receipt of the Nimbus Put Notice,
Nimbus and Saarbrucker shall promptly endeavor to agree on the Fair Market
Value of EuroNimbus for the purpose of determining the Nimbus Put Price.
In the event that Nimbus and Saarbrucker reach a written agreement as to
the Fair Market Value, the sale and purchase of the Nimbus Shares pursuant
to this Section 2.11(b) shall take place within ten days after such
written agreement is reached. In the event that a written agreement as to
the Fair Market Value has not been reached by Nimbus and Saarbrucker
within five days after the date of receipt of the Nimbus Put Notice by
Saarbrucker, then the determination of the Fair Market Value shall be
submitted to an internationally recognized accounting firm selected in
accordance with Section 3.7(d); provided, however, that Saarbrucker shall
submit the FMV Arbitrator Notice to Nimbus within ten days after receipt
of the Nimbus Put Notice; and, provided, further, that Nimbus shall select
the FMV Arbitrator within five days after receipt of the FMV Arbitrator
Notice from Saarbrucker. The FMV Arbitrator selected for purposes of this
Section 2.11(b) shall render a determination in accordance with Section
3.7(d); provided, however, that the FMV Arbitrator shall render a
determination of the Fair Market Value within 15 days of the selection of
the FMV Arbitrator. The decision of the FMV Arbitrator shall be final and
binding upon the parties hereto. In the event that the determination of
the Fair Market Value of EuroNimbus is submitted to the FMV Arbitrator,
the sale and purchase of the Nimbus Shares pursuant to this Section
2.11(b) shall take place within five days after a final determination is
reached by the FMV Arbitrator. On the date of receipt of the Nimbus Put
Price, Nimbus shall cause the Nimbus Shares to be transferred to
Saarbrucker and the appropriate notations to be made in EuroNimbus' share
register. Saarbrucker agrees that, in the event of any sale and purchase
of the Nimbus Shares pursuant to this Section 2.11(b), it shall cease any
use of the "EuroNimbus" name and any form or derivation thereof. In the
event that Nimbus elects to exercise its right to sell the Nimbus Shares
to Saarbrucker pursuant to this Section 2.11(b) and Saarbrucker fails to
consummate the purchase of the Nimbus Shares in accordance with this
Section 2.11(b), then Saarbrucker (y) shall be deemed to have voted the
Saarbrucker Shares in favor of the action described in clause (ii) above
that was not approved by the Shareholders, and (z) shall take all
necessary steps to approve and effect such action.
12. Approval of Certain Transactions. Each Shareholder promptly shall cause
its Shares to be voted to approve any Major Decision or Significant Decision
requiring such Shareholder approval to the extent that such action, decision or
transaction has been approved by the Board of Directors in accordance with
Section 2.10 or 2.11. The Shareholders shall not act to authorize or implement
any Major Decision or Significant Decision without such Major Decision or
Significant Decision having been first approved by the Board of Directors in
accordance with Section 2.10 or Section 2.11, as the case may be.
13. Related Party Transactions. Except as the Shareholders may otherwise
agree, any transaction between EuroNimbus, on the one hand, and either
Shareholder or any Affiliate of either Shareholder, on the other hand, shall be
on terms and conditions which could be obtained from an unaffiliated third party
in an arm's length transaction.
14. General Manager. The Board of Directors shall, with the approval of that
number of Directors which represents at least 75% of the total voting power of
the Board of Directors, appoint a General Manager of EuroNimbus (the "General
Manager"). The General Manager shall be the chief executive officer of
EuroNimbus and shall, subject to the supervision of the Board of Directors and
the provisions of this Agreement, the Articles of Association and applicable
law, exercise general management and control of EuroNimbus' affairs and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The General Manager shall have the power to execute bonds, mortgages and
other contracts and agreements and instruments of EuroNimbus and shall do and
perform such other duties as from time to time may be assigned by the Board of
Directors.
15. Operating Committee. The Board of Directors may establish an Operating
Committee (the "Operating Committee") comprised of representatives of Nimbus and
Saarbrucker or such other persons as the Board of Directors shall determine.
Notwithstanding any other provision of this Article II to the contrary (other
than the provisions under Sections 2.10 and 2.11), the Board of Directors may
delegate to the Operating Committee, to the extent permitted by applicable law,
any supervisory and management responsibilities of the Board of Directors.
ARTICLE III
TRANSFER OF SHARES
1. Restrictions. No Shareholder shall sell, assign, transfer, pledge,
hypothecate or otherwise dispose of or encumber any of its Shares or any
interest therein, to any Person (each of such actions, a "Transfer") except in
accordance with the provisions of this Agreement. The Shareholders agree that it
is their intention that the provisions of this Article III shall govern the
transfer of Shares. To the extent, and only to the extent, necessary to
effectuate the provisions of this Article III, the Shareholders hereby waive any
rights which they may have under EuroNimbus' Articles of Association or, to the
extent such rights may be waived, under Luxembourg law which may be inconsistent
with the terms of this Agreement. The Shareholders hereby agree that they shall
promptly take all such actions as may be necessary or appropriate in accordance
with Luxembourg law to effectuate the provisions of this Article III including,
without limitation, the adoption of shareholder resolutions approving Share
transfers.
2. Permitted Transfers. Notwithstanding anything to the contrary contained
herein, a Shareholder may at any time effect any of the following Transfers
(each a "Permitted Transfer" and each transferee, a "Permitted Transferee"):
(i) A Transfer by a Shareholder to any Affiliate of such Shareholder so
long as such Affiliate is a corporation, partnership or limited liability
company.
(ii) A Transfer by a Shareholder made pursuant to Section 3.3,
3.4, 3.5, 3.6 or 3.7 hereof;
(iii) With respect to Nimbus, a pledge of the Nimbus Shares to any bank or
other financial institution.
3. Sales by Nimbus Subject to Tag-Along Rights. (a) In the event that
Nimbus proposes at any time to effect a Transfer (other than a Permitted
Transfer described in Section 3.2 above) of any of the Nimbus Shares, then
Nimbus shall promptly give written notice (the "Tag-Along Notice") to EuroNimbus
and Saarbrucker at least thirty days prior to the closing of such Transfer. The
Tag-Along Notice shall describe in reasonable detail the proposed Transfer
including, without limitation, the name of and the number of Shares to be
purchased by the transferee, the purchase price of each Share to be sold, any
other significant terms of such sale and the date such proposed sale is expected
to be consummated.
(b) Saarbrucker shall have the right, exercisable upon irrevocable written
notice to Nimbus within twenty days after receipt of the Tag-Along Notice, to
participate in such sale on the same terms and conditions as set forth in the
Tag-Along Notice, including, without limitation, the making of all
representations, warranties, indemnifications (including participating in any
escrow arrangements) and similar agreements, and to sell its pro rata portion of
the number of Shares owned by it.
(c) Saarbrucker shall effect its participation in the sale by delivering
on the date scheduled for such sale to the prospective transferee one or more
certificates, which represent the number of Shares which Saarbrucker is entitled
to sell in accordance with this Section 3.3. In addition, Saarbrucker shall
deliver such other documents and certificates as are required in connection with
such sale and cause the Saarbrucker Shares being sold pursuant to this Section
3.3 to be transferred to the prospective transferee and the appropriate
notations to be made in EuroNimbus' share register.
(d) The exercise or non-exercise of the rights of Saarbrucker hereunder to
participate in one or more Transfers by Nimbus shall not adversely affect its
right to participate in subsequent Transfers subject to this Section 3.3.
4. Grant to Nimbus of Bring-Along Rights. (a) Each time the Shareholders of
EuroNimbus meet for the purpose of approving a "Sale of the Business" (as such
term is hereinafter defined), Saarbrucker agrees to vote all of the Saarbrucker
Shares, and to sell all of the Saarbrucker Shares, as directed by Nimbus. In
order to effect the foregoing covenant, Saarbrucker hereby grants to Nimbus with
respect to all of the Saarbrucker Shares an irrevocable proxy (which is deemed
to be coupled with an interest) for the term of this Agreement with respect to
any shareholder vote to effect the Sale of the Business. As used herein, "Sale
of the Business" shall mean any transaction or series of transactions (whether
structured as a stock sale, merger, consolidation, reorganization, asset sale or
otherwise) negotiated on an arm's-length basis, which results in the sale or
transfer of all or substantially all of the assets or shares of capital stock of
EuroNimbus to an unaffiliated bona fide third party in which all consideration
payable to holders of the Common Stock is distributed pro rata pursuant to stock
ownership.
(b) In furtherance of its covenants in Section 3.4(a), Saarbrucker hereby
agrees to cooperate fully with Nimbus and the purchaser in any such Sale of the
Business, and to execute and deliver all documents (including purchase
agreements) and instruments as Nimbus and the purchaser reasonably request to
effect such Sale of the Business, including, without limitation, the making of
all representations, warranties and indemnifications (including participating in
any escrow arrangements) and similar arrangements. Nimbus agrees that upon such
Sale of the Business each Shareholder will receive its pro rata share of the
consideration paid by the purchaser determined on the basis of such
Shareholder's share ownership.
5. Saarbrhcker's Right of First Offer from Nimbus. (a) Nimbus agrees not to
trigger its tag-along obligations described in Section 3.3 or exercise its
bring-along rights described in Section 3.4 without first offering to
Saarbrucker the right to purchase such Nimbus Shares, the sale of which by
Nimbus to a third party would be governed by Section 3.3 or 3.4, for a specified
per Share price in cash (the "Nimbus Offer Price") to be determined by Nimbus in
its sole discretion (such offer being hereinafter referred to as the "Nimbus
Offer"). The Nimbus Offer shall be made by Nimbus by delivery to Saarbrucker of
a notice in writing setting forth the number of Shares to be offered and the
Nimbus Offer Price for such Shares. Within 30 days after delivery to Saarbrucker
of such notice, Saarbrucker may accept the Nimbus Offer in whole only and not in
part and only on the terms so stated. Such acceptance shall be made in the
manner described in Section 3.5(b) below. Any failure of acceptance prior to the
expiration of such 30-day period set forth above shall be deemed to be a
rejection of the Nimbus Offer.
(b) If Saarbrucker shall elect to accept the Nimbus Offer, Saarbrucker
shall, within the 30-day period set forth above, notify Nimbus in writing of the
acceptance of the Nimbus Offer. The closing of the purchase by Saarbrucker shall
take place no later than 90 days after the acceptance of the Nimbus Offer and
shall be subject to a stock purchase agreement between the parties containing
representations, warranties, terms and conditions customary for a transaction in
which the purchaser is already familiar with the company whose shares are being
transferred. On the date scheduled for closing, the Nimbus Offer Price in
respect of all of the Shares to which the Nimbus Offer related shall be paid in
full by Saarbrucker against transfer of such Shares to Saarbrucker and the
making of appropriate notations in EuroNimbus' share register.
(c) If Saarbrucker rejects the Nimbus Offer or fails to accept the Nimbus
Offer within the requisite time period (each "a Nimbus Offer Termination
Event"), Nimbus shall have the right to sell the Shares to which the Nimbus
Offer related to a Person other than Saarbrucker, provided that such sale shall
be (i) made at a price per Share in cash equal to or greater than 95% of the
Nimbus Offer Price and (ii) consummated within 180 days after the applicable
Nimbus Offer Termination Event. If Nimbus is unable to find purchasers for all
of the Shares to which the Nimbus Offer related on the terms and conditions
described above, or is unable to consummate such sales, within such 180-day
period, such Shares shall, subject to clause (d) below, again be subject to the
provisions of this Section 3.5.
(d) Notwithstanding the above, if Saarbrucker shall accept the Nimbus
Offer but then fail to close such purchase within the requisite time period,
then (i) Nimbus shall have the right to sell the Shares to which the Nimbus
Offer related without restriction and (ii) all further rights of Saarbrucker
under this Section 3.5 shall terminate and be of no further force and effect.
The parties acknowledge that if Saarbrucker shall accept the Nimbus Offer but
then fail to close such purchase within the requisite time period, this Section
3.5(d) shall constitute Nimbus' exclusive remedy for such failure to close,
unless such failure to close was caused by Saarbrucker's willful misconduct or
bad faith.
6. Saarbrucker Right to Sell after Five Years; Nimbus's Right of ' III.6
Saarbrhcker Right to Sell after Five Years; Nimbus's Right of First Offer from
Saarbrhcker. (a) If after five years Saarbrucker shall desire to sell all, but
not less than all, of the Saarbrucker Shares, Saarbrucker shall first offer to
Nimbus the right to purchase all, but not less than all, of the Saarbrucker
Shares for a specified per Share price in cash (the "Saarbrucker Offer Price")
to be determined by Saarbrucker in its sole discretion (such offer being
hereinafter referred to as the "Saarbrucker Offer"). The Saarbrucker Offer shall
be made by Saarbrucker by delivery to Nimbus of a notice in writing setting
forth the number of Shares to be offered and the Saarbrucker Offer Price for
such Shares. Within 30 days after delivery to Nimbus of such notice, Nimbus may
accept the Saarbrucker Offer in whole only and not in part and only on the terms
so stated. Such acceptance shall be made in the manner described in Section
3.6(b) below. Any failure of acceptance prior to the expiration of such 30-day
period set forth above shall be deemed to be a rejection of the Saarbrucker
Offer.
(b) If Nimbus shall elect to accept the Saarbrucker Offer, Nimbus shall,
within the 30-day period set forth above, notify Saarbrucker in writing of the
acceptance of the Saarbrucker Offer. The closing of the purchase by Nimbus shall
take place no later than 90 days after the acceptance of the Saarbrucker Offer
and shall be subject to a stock purchase agreement between the parties
containing representations, terms and conditions customary for a transaction in
which the purchaser is already familiar with the company whose shares are being
transferred. On the date scheduled for closing, the Saarbrucker Offer Price in
respect of all of the Shares to which the Saarbrucker Offer related shall be
paid in full by Nimbus against transfer of such Shares to Nimbus and the making
of appropriate notations in EuroNimbus' share register.
(c) If Nimbus rejects the Saarbrucker Offer or fails to accept the
Saarbrucker Offer within the requisite time period (each "a Saarbrucker Offer
Termination Event"), Saarbrucker shall have the right to sell the Shares to
which the Saarbrucker Offer related to a Person other than Nimbus, provided that
such sale shall be (i) made at a price per Share in cash equal to or greater
than 95% of the Saarbrucker Offer Price and (ii) consummated within 180 days
after the applicable Saarbrucker Offer Termination Event. If Saarbrucker is
unable to find purchasers for all of the Shares to which Saarbrucker Offer
related on the terms and conditions described above, or is unable to consummate
such sales, within such 180-day period, such Shares shall, subject to clause (d)
below, again be subject to the provisions of this Section 3.6.
(d) Notwithstanding the above, if Nimbus shall accept the Saarbrucker
Offer but then fail to close such purchase within the requisite time period,
then (i) Saarbrucker shall have the right to sell the Shares to which the
Saarbrucker Offer related without restriction and (ii) all further rights of
Nimbus under this Section 3.6 shall terminate and be of no further force and
effect. The parties acknowledge that if Nimbus shall accept the Saarbrucker
Offer but then fail to close such purchase within the requisite time period,
this Section 3.6(d) shall constitute Saarbrucker's exclusive remedy for such
failure to close, unless such failure to close was caused by Nimbus' willful
misconduct or bad faith.
7. Change of Control. (a) Notwithstanding anything to the contrary contained
herein, if Nimbus Parent shall undergo a Change of Control, Saarbrucker shall
have a one-time option, exercisable in accordance with this Section 3.7, to sell
to Nimbus all, but not less than all, of the Saarbrucker Shares (the "Put
Option") at an aggregate price (the "Put Option Price") equal to (i) the Fair
Market Value as of the date of the Change of Control multiplied by (ii) the
percentage of outstanding common stock represented by the Saarbrucker Shares.
(b) Within 30 days of the occurrence of a Change of Control, Nimbus shall
notify (a "Change of Control Notice") EuroNimbus and Saarbrucker in writing of
all details of such Change of Control, including the identity of the Person
exercising control over the business and affairs of Nimbus Parent as a result of
such Change of Control. Within 30 days after delivery to Saarbrucker of a Change
of Control Notice, Saarbrucker may elect to exercise the Put Option in whole
only and not in part and only in accordance with the provisions of this Section
3.7. If Saarbrucker elects to exercise the Put Option, Saarbrucker shall notify
Nimbus and EuroNimbus in writing (the "Put Option Notice") of its election to
exercise the Put Option, which such decision shall be irrevocable, within the
30-day period set forth above. Any failure to notify Nimbus and EuroNimbus
within such period shall be deemed a decision not to exercise the Put Option,
and the Put Option shall thereupon terminate.
(c) Upon receipt of the Put Option Notice, Nimbus and Saarbrucker shall
promptly endeavor to agree on the Fair Market Value of EuroNimbus for the
purpose of determining the Put Option Price. In the event that Nimbus and
Saarbrucker reach a written agreement as to the Fair Market Value, the sale and
purchase of the Saarbrucker Shares pursuant to this Section 3.7 shall take place
within 90 days after such written agreement is reached. On the date of receipt
of the Put Option Price, Saarbrucker shall cause the Saarbrucker Shares to be
transferred to Nimbus and the appropriate notations to be made in EuroNimbus'
share register.
(d) In the event that a written agreement as to the Fair Market Value has
not been reached by Nimbus and Saarbrucker within 90 days after the date of
receipt of the Put Option Notice by Nimbus, then the determination of the Fair
Market Value shall be submitted to an internationally recognized accounting firm
selected in accordance with this Section 3.7(d). Within 120 days after receipt
by Nimbus of the Put Option Notice, Saarbrucker shall designate not less than
three internationally recognized accounting firms by written notice (the "FMV
Arbitrator Notice") to Nimbus. Within 30 days after receipt of the FMV
Arbitrator Notice, Nimbus shall select one of the internationally recognized
accounting firms designated by Saarbrucker in the FMV Arbitrator Notice (the
"FMV Arbitrator"), the costs of which shall be borne equally by Nimbus and
Saarbrucker. Each Shareholder shall, and shall cause EuroNimbus to, upon
reasonable notice, afford the FMV Arbitrator and its representatives full access
during normal business hours to the properties, books and records of EuroNimbus
and shall cause EuroNimbus to furnish such additional information as the FMV
Arbitrator and its representatives shall reasonably request. Within 180 days of
the submission to the FMV Arbitrator, the FMV Arbitrator shall render a
determination of the Fair Market Value in accordance with this Section 3.7(d)
along with documentation supporting its determination. The decision of the FMV
Arbitrator shall be final and binding upon the parties hereto. The sale and
purchase of the Saarbrucker Shares pursuant to this Section 3.7(d) shall take
place within ninety days after a final determination is reached by the FMV
Arbitrator. On the date of receipt of the Put Option Price, Saarbrucker shall
cause the Saarbrucker Shares to be transferred to Nimbus and the appropriate
notations to be made in EuroNimbus' share register.
(e) For the purposes of this Agreement, "Change of Control" shall mean any
transaction, the result of which is that any Person becomes the Beneficial Owner
of more than 50% of the total aggregate voting power of all classes of
outstanding Voting Securities of Nimbus Parent.
8. Transferee's Agreement. No Shares shall be transferred to any Person not
a party to this Agreement unless such transfer is made in accordance with this
Agreement and unless the transferee agrees in writing to be bound by the terms
of this Agreement and to assume the obligations of the transferring shareholder
hereunder.
ARTICLE IV
IMPLEMENTATION
1. Appointment. Promptly upon the execution and delivery of the deed of
incorporation of EuroNimbus, Nimbus and Saarbrucker shall, at a special meeting
of the shareholders, appoint the initial Directors of EuroNimbus in accordance
with Article II hereof.
2. Luxembourg Law. Each of the Shareholders, to the fullest extent permitted
by Luxembourg law, waives any rights that it may have under Luxembourg law which
might be inconsistent with the terms of this Agreement and, to the extent such
rights cannot validly be waived, each such Shareholder will exercise such rights
only to the extent consistent with this Agreement.
3. Best Efforts. In the event that the Board of Directors takes or fails to
take any action, which action or failure to take action in any way impedes the
full implementation of the terms of this Agreement, the Shareholders shall, to
the extent practicable, do all things permitted by Luxembourg law that are
necessary, including the removal of Directors, as the case may be, to permit the
full implementation of this Agreement and shall cause the adoption of any
necessary Shareholders' resolution in connection therewith.
ARTICLE V
ACCOUNTING AND OTHER INFORMATION
1. Quarterly Reports. EuroNimbus shall prepare in accordance with generally
accepted accounting principles in Luxembourg, with a reconciliation to U.S.
GAAP, an unaudited consolidated balance sheet of EuroNimbus as at the end of
each of the first three quarters of each calendar year and the related
statements of income, shareholders' equity and cash flows for each of such
quarters then ended which shall be delivered to the Board not more than 30 days
after the end of each such calendar quarter.
2. Audits. As soon as practicable and in any event within 120 days after the
end of each fiscal year, EuroNimbus shall deliver to each Shareholder its
financial statements prepared in accordance with applicable legal requirements,
containing a consolidated balance sheet of EuroNimbus as at the end of such year
and the related statements of income, shareholders' equity and cash flow for the
year then ended, prepared in accordance with generally accepted accounting
principles in Luxembourg, with a reconciliation to U.S. GAAP, all certified by
the independent public accountants to EuroNimbus.
3. Selection of Independent Public Accountants. The Shareholders agree to vote
their respective shares in favor of such independent public accountants of
EuroNimbus as shall be recommended by a majority of the Board of Directors of
EuroNimbus, it being understood that such independent public accountants shall
initially be Coopers & Lybrand, SociJtJ civile.
4. Access to Information Concerning Properties and Records. Each of the
Shareholders and their respective counsel, accountants, consultants and other
representatives, shall, upon reasonable notice, be entitled to full access
during normal business hours to the properties, books and records of EuroNimbus
in order that they may have the opportunity to make such investigations as they
shall reasonably desire of the affairs of EuroNimbus including making copies of
such information that they may reasonable desire in furtherance of such
investigation. The Shareholders shall take all action necessary or appropriate
to ensure EuroNimbus shall cause its officers and employees to furnish such
additional financial and operating data and other information and respond to
such inquiries as the Shareholders shall from time to time reasonably request.
Any information so obtained may be used by the Shareholders in any manner
permitted by this Agreement.
ARTICLE VI
DISPUTE RESOLUTION
1. Dispute Resolution. Any dispute, controversy or claim arising out of or in
connection with this Agreement, or the breach, termination or validity hereof,
shall be settled by final and binding arbitration under the Rules of Arbitration
of the International Chamber of Commerce.
2. Procedures. Any disputes subject to resolution pursuant to this Article
VIII shall be resolved through the following procedure. The arbitral tribunal
(the "Tribunal") shall be composed of three arbitrators who shall be appointed
as follows: each Shareholder shall have the right to appoint one arbitrator; the
two arbitrators so appointed shall then appoint a third arbitrator who shall
serve as chairperson. If a party, or parties, entitled to appoint an arbitrator,
fails to appoint an arbitrator within thirty (30) days of receiving notice of
the commencement of the arbitration, such arbitrator shall at the written
request of any party be appointed by the International Chamber of Commerce.
3. Awards. Any award made by the Tribunal shall be final and binding upon
each party to this Agreement, each of whom expressly waives all right to appeal
or recourse to any court.
4. Enforcement. Any award made by the Tribunal may be enforced by any court
having jurisdiction in the same manner as a judgment in such court.
5. Site and Language. The place of arbitration conducted hereunder shall be
Luxembourg and the language of the arbitration shall be French (with
simultaneous translation into English and German).
ARTICLE VII
SCOPE OF BUSINESS; EXCLUSIVITY
1. Scope of Business. EuroNimbus shall manufacture compact discs (including
CD-Audio, CD-ROM, DVD and DVD-ROM products) and related printing and packaging
components through the establishment of a manufacturing facility in Luxembourg
for sale throughout the European Union. EuroNimbus shall use all commercially
reasonable efforts to supply Saarbrucker and its Affiliates with all of their
respective compact disc requirements, it being understood that EuroNimbus will
give priority treatment to the compact disc requirements of Saarbrucker and its
Affiliates to the extent such requirements relate to contractual obligations of
Saarbrucker and its Affiliates to the European Union.
2. Exclusivity. Saarbrucker agrees that, for so long as Nimbus and
Saarbrucker are Shareholders of EuroNimbus, Saarbrucker and its Affiliates shall
purchase from EuroNimbus all of its CD-Audio, CD-ROM, DVD and DVD-ROM
requirements and further agrees that it shall not sell or market, directly or
indirectly, any compact disc product that is not manufactured by EuroNimbus.
ARTICLE VIII
MISCELLANEOUS
1. Entire Agreement; Amendment. This Agreement and the Agreements referred
to herein (and the documents and instruments contemplated by each of such
agreements to be executed, delivered and performed by the parties thereto)
contain the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior arrangements or understandings
with respect thereto.
2. Captions. The descriptive headings of the several Articles and Sections
are inserted for convenience only, do not constitute part of this Agreement and
shall not in any way affect the meaning or interpretation of this Agreement.
3. Counterparts. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto and each
such executed counterpart shall be deemed to be an original instrument.
4. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person or
by mail or overnight courier, postage prepaid, or sent by telex, telegram or
telecopier (confirmed by mail with postage prepaid), as follows:
(a) if to Nimbus, to it at:
Nimbus Manufacturing (UK) Limited
Llantarnam Park, Cwmbran, Gwent NP44 3AB
United Kingdom
Telephone: (1633) 877121
Telecopier: (1633) 865520
Attention: Howard Nash
with a copy to:
Nimbus CD International, Inc.
623 Welsh Run Road, Guildford Farm,
Ruckersville, Virginia 22968
Telephone: (804) 985-1100
Telecopier: (804) 985-4692
Attention: L. Steven Minkel
and a further copy to:
White & Case
1155 Avenue of the Americas, New York, New York, 10036
Telephone: (212) 819-8200
Telecopier: (212) 354-8113
Attention: Frank L. Schiff, Esq.
(b) if to Saarbrucker, to it at:
Saarbrucker Zeitung Verlag und Druckerei, G.m.b.H
Gutenbergstrasse 11-23, 66117 Saarbrhcken
Federal Republic of Germany
Telephone: (49) 681-502-4000
Telecopier: (49) 681-502-4099
Attention: Ghnter Kamissek
(c) if to EuroNimbus, to it at:
c/o Bonn & Schmitt
Avenue Guillaume 62, B.P. 522, L-2015 Luxembourg
Telephone: (0352) 45 58 58
Telecopier: (0352) 45 58 59
Attention: Alex Schmitt, Esq.
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third Business Day after the
mailing thereof or unless if by overnight courier, in which case, on the second
Business Day after dispatch thereof, except for a notice of a change of address,
which shall be effective only upon receipt thereof.
5. Binding Effect; Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party, except as otherwise
permitted by this Agreement. Nothing in this Agreement, expressed or implied, is
intended to confer on any Person other than the parties hereto or their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
6. Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented only in a writing executed by all of
the parties hereto.
7. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of Luxembourg, without regard to the conflict of laws
rules thereof.
8. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
9. Termination. This Agreement may be terminated by express
written agreement of the Shareholders.
10. Confidentiality. Subject to the requirements of applicable law, each
party shall, and shall cause its employees, servants, agents and representatives
to, maintain in confidence all information received from EuroNimbus and shall
use such information only for the benefit of EuroNimbus, and shall not, and
shall cause its employees, servants, agents and representatives not to, disclose
any such information to a third party or make any unauthorized use thereof. Each
party shall, and shall cause its employees, servants, agents and representatives
to, treat all such information with the same degree of care against disclosure
or unauthorized use which it affords to its own confidential information. The
obligation of confidentiality and non-use shall not apply to any information
which (a) was not previously treated as confidential by EuroNimbus, (b) is or
becomes generally available to the public through no fault of the receiving
party, (c) is independently developed by the receiving party or (d) is received
in good faith from a third party who discloses such information to the receiving
party on a non-confidential basis.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
executed in its name and on its behalf by its officer duly authorized thereunto,
effective as of the date first written above.
NIMBUS MANUFACTURING (UK)
LIMITED
By
Name:
Title:
SAARBRUCKER ZEITUNG VERLAG UND
DRUCKEREI G.m.b.H.
By
Name:
Title:
EURONIMBUS S.A.
By
Name:
Title:
EMPLOYMENT CONTRACT
THIS AGREEMENT, effective as of June 10, 1996, is made between Nimbus
Manufacturing Inc., a Virginia Corporation, hereinafter "The Company" and
David J. Trudel, hereinafter "The Employee".
WHEREAS, the Company desires to employ Employee; and
WHEREAS, Employee desires to accept such employment;
NOW, THEREFORE, in consideration of the foregoing and the material advantages
accruing to the parties and covenants contained herein, the Company and Employee
mutually agree as follows:
1. Employment and Duties
The Company agrees that it will employ Employee as Executive Vice
President and General Manager of North American Operations of the Company
for the Term (as hereafter defined). Employee agrees to devote his full
time and attention during normal working hours to the business of the
Company and to perform those services usually commensurate with the
responsibilities of a General Manager. Employee agrees to undertake full
management responsibility for the North American operations of the
Company, and to perform other further services as may be assigned to him
from time to time by the Board of Directors of the Company and the
President and Chief Executive Officer of Nimbus Manufacturing Inc.
consistent with his position.
2. Term
The Company agrees to employ Employee and Employee agrees to serve the
Company for the following period (the "Term"):
(a) One year beginning June 10, 1996 and continuing through June 9,
1997; and
(b) Thereafter for six-month periods until this Agreement is terminated
by either party in accordance with (Sections 5, 6, 7, or 8 of this
Agreement).
3. Salary
During the Term, the Company shall pay to Employee, in approximately equal
biweekly payments, a salary payable at the rate of not less than $181,000
per year, subject to withholding as required by law or agreed to by the
parties.
The parties agree that Employee=s salary cannot be deceased during the
Term, but can be increased at the sole discretion of the Company. The
Company agrees to a salary review no later than June 10, 1997.
4. Other Benefits
During the Term, Employee shall be entitled to:
(a) participate in such employee benefit programs, including pension
programs and 401(k) programs, as are generally available to other
employees of the Company from time to time subject to any changes or
amendments to such programs made by the Company;
(b) accrue and take vacation and other leave time in the same manner and
fashion as are generally available to other employees of the Company
taking into account length of service and position subject to any
changes or amendments to such leave policies from time to time made
by the Company, but in no event less than three weeks vacation
annually;
(c) The Company agrees to a minimum bonus of 20% of salary for fiscal
1997 if the agreed bonus objectives are achieved. The bonus
objectives for fiscal 1997 will be agreed not later than July 30,
1996;
(d) an automobile allowance of eight hundred dollars ($800.00) per
month;
(e) reimbursement for substantiated, reasonable expenses incurred by
Employee in performing the duties hereunder in accordance with the
policies of the Company.
5. Termination by Death or Disability
(a) Should Employee die during the Term, the Company shall be obligated
to pay to Employee=s personal representative any salary and benefits
to which Employee may be entitled pursuant to Section 7 hereof.
(b) Should Employee become physically or mentally unable to perform
substantially all of the duties of employment, Employee will be
entitled to disability benefits as provided by the benefit programs
of the Company. Employee will not be entitled to collect salary
under this Agreement while receiving such disability benefits.
6. Termination for Cause
(a) The Company may elect to terminate its obligations hereunder for
cause and remove Employee from employment with the Company. The
company is not required to give prior written notice of an intention
to terminate for cause. If the Company does so, all its obligations
to Employee under this Agreement shall cease immediately upon the
termination of employment.
(b) For purposes of this section, "cause" shall mean:
i. continued and deliberate neglect by Employee of employment
duties;
ii. criminal misconduct of Employee in connection with the
performance of any duties, including by way of example but not
limitation, misappropriation of funds or property of the
Company or any of its subsidiaries, attempting to secure
personally any profit in connection with any transaction
entered into on behalf of the Company or any of its
subsidiaries or affiliates;
iii. conduct by Employee that would result in material injury to
the reputation of the Company or any of its subsidiaries or
affiliates if Employee were retained in his position with
the Company, including by way of example but not
limitation, conviction of a felony; or
iv. a lawsuit or other legal action being threatened or brought
against Employee, the Company or both by third parties
alleging that Employee, in executing or performing this
Agreement, has violated other agreements, covenants or duties
owed by Employee to such third party.
7. Termination Not for Cause
If the Company terminates it obligations hereunder and removes Employee
from employment for reasons other than for cause, then the Company shall
be obligated to pay to Employee the greater of:
(a) an amount equal to one year's salary for the first year and an
amount equal to six months salary thereafter;
(b) all salary and benefits specified in this Agreement from the date of
termination to the end of the then current Term, without any further
extensions pursuant to Section 2(b) except that the Company shall
not be obligated to make any contributions to its pension plan on
behalf of Employee beyond those due as of the date of Employee's
removal.
8. Termination by Employee
If Employee resigns or voluntarily terminates employment with the Company,
the Company's obligations to Employee under this Agreement shall terminate
and the Company shall have no further liability to Employee hereunder.
Employee agrees to give at least 90 days notice before resigning or
voluntarily terminating employment.
9. Confidentiality
Any and all agreements between the Company and Employee regarding
confidentiality and/or employee invention remain in full force and effect
of their own accord and by their own terms and are not modified,
superseded or governed by the terms of this Agreement, nor do they
terminate upon the termination of this Agreement.
10. Noncompetition
(a) After termination of Employee=s employment with the Company, for
whatever reason, Employee will not, for a one (1) year period
following such date of termination, without the written permission
of the Company, in the United States of America, directly or
indirectly:
i. enter into the employ or render any services to any person
or entity engaged in any ACompetitive Business@ (as defined
below);
ii. engage in any Competitive Business for his own account;
iii. become interested in any Competitive Business as an
individual, partner, shareholder, creditor, director,
officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity; provided,
however, that nothing contained in this paragraph shall
prohibit Employee from acquiring, solely as an investment
through market purchases, securities of any corporation
registered under the Securities Exchange Act of 1934 and
which are publicly traded so long as Employee is not a
party of any control group of such corporation; or
iv. enter into the employ of or render any services to any
person, firm or corporation that was, within two years
prior to the expiration of the term of this Agreement, a
party to an agreement with the Company having a term of one
year or more and under which any goods, property or
services of a substantial value to the Company was to be
sold, leased, licensed or furnished to or by the Company on
an exclusive basis;
v. the phrase "Competitive Business" as used herein shall mean
the manufacture of compact disc products, which shall mean
any optical disc containing digital information or designed
to have recorded thereon digital information, which digital
information is encoded in accordance with the basic EFM
coding scheme and the CIRC error correction scheme as
defined in the standard specification of the sound storage
and reproduction system known as the "Compact Disc Digital
Audio System" developed and defined by N.V. Philips
Gloeilampenfabrieken. For purposes of this Agreement,
compact disc products shall include each of the optical
discs presently or heretofore manufactured by Nimbus
Manufacturing Inc. or its subsidiaries on a commercial
scale, namely CD-A, CD-ROM, CD-XA, CD-I, CD-V, DVD, and
DVD-ROM.
(b) In the event of a breach of any of the provisions of Section 10,
the Company shall have the right to have such provisions
specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any breach or threatened
breach will likely cause irreparable injury to the Company and
that money damages will likely not provide an adequate remedy to
the Company. Any payment which the Company may owe Employee as
of the termination of his employment is contingent upon
Employee's continued compliance with the provisions of this
Agreement.
(c) Upon termination of employment, the Company may notify anyone
thereafter employing Employee of the existence and provisions of
this Agreement.
11. Indemnification
Employee shall be indemnified to the fullest extent permitted by law,
jointly and severally, by the Company and by each subsidiary of the
Company, both during the Term and thereafter with respect to Employee's
conduct while services as a director, officer or employee of the Company
or any of its subsidiaries
12. Stock Options
Nimbus CD International, Inc. has granted to Employee, the following stock
options subject to the terms and conditions of the 1995 Stock Option and
Stock Award Plan: 20,000 shares of common stock to vest ratably over five
years with the first vesting period to be March 31, 1997. The option to
purchase stock will be at $_____.
13. Moving Expenses
The Company agrees to pay on Employee=s behalf and to reimburse Employee
for all reasonable costs relating to Employee's relocation to Virginia
from Connecticut, including the following:
(a) temporary living expenses for six months from starting date to a
maximum of $1,200 per month against agreed costs;
(b) Realtor's commissions for the sale of the Employee's legal
residence in an amount not to exceed 3% of the contracted sales
price;
(c) documented packing, moving and storage expenses;
(d) $3,000 to cover closing costs on Employee=s residence.
(e) general expenses to a maximum of $5,000 for house search to be
agreed.
Based on current tax law, the Company will increase Employee's salary by
the amount of the actual incurred cost and will withhold and pay
applicable tax due on items less the $3,000 exemption permitted under the
code. No gross up for tax purposes is required for item (c) above.
16. Severability
The invalidity or unenforceability of any provision of this Agreement or
the invalidity or unenforceability or any provision of this Agreement as
applied to a particular occurrence or circumstances shall not affect the
validity or enforceability of any of the other provisions of this
Agreement or the other applicability of such provision as the case may be.
The rights and remedies available to the Company under this Agreement
shall be in addition to and not in lieu of any other rights and remedies
available. If any of the provisions of this Agreement are held to be
unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such
determination shall have the power to reduce the duration and/or area of
such provision and in its reduced form said provisions shall then be
enforceable.
17. Binding Effect
This Agreement shall be binding on the Employee and on the Company, and
any successor, assign, subsidiary, parent or division of the Company.
Should there be a consolidation or merger of the Company with or into
another corporation, or a purchase of all or substantially all of the
assets of the Company by another entity, it is agreed that the surviving
or acquiring corporation will be liable for the performance of all of the
Company=s obligations under this Agreement.
18. Applicable Law
This Agreement shall be construed and enforced under and in accordance
with the laws of the Commonwealth of Virginia.
This Agreement signed this ____________ day of ___________.
NIMBUS MANUFACTURING INC.
By: _________________________________
Lyndon J. Faulkner
President and Chief Executive Officer
EMPLOYEE
---------------------------------------
David J. Trudel
AGREEMENT
by and between
NIMBUS CD INTERNATIONAL, INC., NIMBUS MANUFACTURING INC.
and
Stream International Holdings Inc.
dated as of 28 March 1997
TABLE OF CONTENTS
Page
ARTICLE I
MANUFACTURER AND MARKETING OF CDs
1.1 Requirements of NMI 5
1.2 Minimum Quantity 6
1.3 Compensatory Payments and Rebate Payments 7
1.4 Prices 8
1.5 Payment 8
1.6 Forecast 9
1.7 Orders 9
1.8 Input Materials 9
1.9 Production and Delivery 9
1.10 Quality 10
1.11 Defective Copies 10
1.12 Technical and Sales Support and Cooperation 11
ARTICLE II
FACILITIES
2.1 [Intentionally Deleted] 11
2.2 Capacity 11
2.3 Security 11
2.4 Output of Designated Facility 12
2.5 Operating Committee 12
ARTICLE III
NEW TECHNOLOGY AND NON-U.S. SERVICES
3.1 New Services 12
3.2 New Media and Processes 12
ARTICLE IV
RESTRICTIONS ON CERTAIN CONDUCT
4.1 Nondisclosure 13
4.2 No Hiring or Solicitation of Employees 14
ARTICLE V
REPRESENTATIONS OF NIMBUS AND NMI
5.1 Organizational Status 15
5.2 Corporate Authority 15
5.3 Authorization of the Transaction 15
5.4 Validity 15
5.5 Noncontravention 15
ARTICLE VI
REPRESENTATION OF STREAM
6.1 Organizational Status 16
6.2 Corporate Authority 16
6.3 Authorization of the Transaction 16
6.4 Validity 16
6.5 Noncontravention 16
ARTICLE VII
TERM
7.1 Term and Renewal 17
7.2 Termination 17
ARTICLE VIII
INDEMNIFICATION AND DAMAGES
8.1 Intellectual Property 17
8.2 Sales and Use Tax 17
8.3 Other Indemnity by Stream 18
8.4 Other Indemnity by Nimbus and NMI 18
8.5 Limitation of Damages 18
8.6 Exclusive Remedy 19
ARTICLE IX
ENFORCEMENT
9.1 No Implied Waiver 19
ARTICLE X
DISPUTES
10.1 Attorneys' Fees 19
10.2 Arbitration 19
ARTICLE XI
NOTICES
11.1 Delivery of Notice 20
11.2 Change of Address 21
ARTICLE XII
GENERAL PROVISIONS
12.1 No Third-Party Beneficiaries 21
12.2 Relationship of Parties 21
12.3 Amendment and Waiver 21
12.4 Counterparts 21
12.5 Parties in Interest 22
12.6 Entire Agreement and Transaction; Release 22
12.7 Applicable Law 22
12.8 Headings 23
12.9 Expenses 23
12.10 Severability 23
12.11 Construction 23
12.12 Conflicts 23
12.13 Time of Essence 23
ANNEXES
A Glossary
B Supplemental Services
C Standard Form of Terms and Conditions
D Input Material Guidelines
AGREEMENT
THIS AGREEMENT is made and entered into as of the ________ day of March, 1997 by
and between NIMBUS CD INTERNATIONAL, INC., a Delaware corporation ("Nimbus"),
NIMBUS MANUFACTURING INC., a Virginia corporation and a wholly owned subsidiary
of Nimbus ("NMI"), and Stream International Holdings Inc., a Delaware
corporation ("Stream"). Capitalized terms used herein shall have the meanings
ascribed to them in the Glossary which is Annex A hereto.
WHEREAS, Nimbus is engaged through NMI in the United States and through other
subsidiaries in certain other areas of the world in the production and sale of
digitally encoded nonphotographic laser scanned optical information storage
media meeting certain established industry specifications, commonly known as
compact discs ("CDs") and in the providing of services related to such
production and sale;
WHEREAS, Stream is engaged in the production and distribution of information in
print and other media and in the business of acquiring rights -- whether as
creator, purchaser, licensee or otherwise -- to proprietary information and
marketing that information, together with information in the public domain, in a
variety of formats, including CD ROM and other CD formats;
WHEREAS, Nimbus and NMI, desiring to have the benefit of Stream's marketing
expertise, and Stream, as successor-in-interest to R.R. Donnelley & Sons Company
("Donnelley"), desiring to have the benefit of NMI's manufacturing expertise,
each as it relates primarily to CD ROM, entered into a certain Agreement dated
as of April 6, 1994, which they subsequently amended by the First Amendment and
Restatement Agreement dated as of April 1, 1995 (the "Original Agreement"), both
of which they each, respectively, now desire to cancel (except for the
obligations of the parties thereto to make payments for products delivered or
services rendered thereunder which are unpaid at the date hereof) and replace
with this AGREEMENT;
NOW, THEREFORE, in consideration of the above premises, the cancellation of the
Original Agreement and the representations and agreements herein contained, the
parties hereto mutually agree as follows:
ARTICLE I
MANUFACTURE AND MARKETING OF CDs
1.1 Requirements of NMI.
1.1.1. During the Term, NMI will supply Stream with certain of its CD
Requirements on the terms and conditions set forth herein. NMI's obligation to
supply CDs shall be suspended for the duration of any event of Force Majeure or
any failure of Stream to comply with its obligations under Section 1.8 hereof.
1.1.2. Affiliates of Stream shall be entitled to purchase Basic Services
and Supplemental Services from NMI on the terms and conditions set forth herein.
1.2 Minimum Quantity.
1.2.1. Stream agrees to purchase and pay for when due and Nimbus agrees to
deliver in accordance with the terms hereof the following number of CDs during
the period specified (the "Minimum Quantity"):
Production Period Quantity-U.S.
1.2.1(a) From April 1, 1997
through March 31, 1998 27,500,000 units
1.2.1(b) From April 1, 1998
through December 31, 1998 20,625,000 units
"U.S." quantities refers to CDs produced for Stream's United States operations.
1.2.2. Subject to the provisions of Section 1.3, Stream must purchase and pay
for when due in accordance with the terms hereof a minimum number of CDs during
each calendar month period (the "Minimum Monthly Requirement"), as follows: for
CDs, the Minimum Monthly Requirement with respect to U.S. quantities shall be
2,291,667 units commencing on April 1, 1997. Only CDs produced for Stream's
United States operations shall count against the Minimum Quantity and the
Minimum Monthly Requirement for U.S. quantities.
1.2.3. The following shall count toward Stream satisfying the Minimum
Quantity and the Minimum Monthly Requirement:
(a) all CDs produced as U.S. quantities during the Production Period for
Stream or any Affiliate of Stream;
(b) all CDs purchased by Stream or any Affiliate of Stream in accordance
with the provisions of Subsection 1.9.5 or 1.9.6;
(c) DVD/DVD-ROM units purchased by Stream from Nimbus during the Pro-
duction Period;
(d) All CDs produced at the Designated Facility from the Designated
Capacity for NMI customers as permitted under the last sentence of
Section 2.4.1 hereof.
1.2.4. The following shall not count toward Stream satisfying the Minimum
Quantity or the Minimum Monthly Requirement:
(a) to the extent that Stream's order for delivery of CDs in any
calendar month exceeds the Agreed Capacity and NMI does not have the
capacity in the Designated Facility to satisfy the order.
1.2.5. For purposes of determining whether the Minimum Quantity or Minimum
Monthly Requirement has been purchased pursuant to this Section 1.2, the Minimum
Quantity or Minimum Monthly Requirement for the applicable Production Period
shall be reduced to the extent (and in proportion to the duration of the period)
that Stream is unable to purchase the Minimum Quantity or Minimum Monthly
Requirement as the result of:
(a) an event of Force Majeure;
(b) functional or quality problems discovered with respect to CDs
produced by NMI; or
(c) manufacturing delays occasioned by the failure of NMI to
comply with its delivery obligations under this Agreement.
1.2.6. Such Minimum Quantity or Minimum Monthly Requirement will not be
reduced as a result of:
(a) delivery delays or functional or quality problems that arise
from Input Materials supplied by Stream; or
(b) delays resulting from Stream's failure to meet its forecasting
or other obligations under this Agreement.
1.3 Compensatory Payments and Rebate Payments.
1.3.1. The number of CDs purchased by Stream from NMI as U.S. quantities (i.e.
CDs delivered during such calendar month which are paid for when due in
accordance with the provisions hereof) shall be recorded on a calendar month
basis. At the end of each calendar quarter, the monthly purchases as recorded
shall be aggregated and if, with respect to the Monthly Minimum Requirement,
there is a
(a) net deficit for the quarter, Stream shall pay to NMI, as a
compensatory payment ("Compensatory Payment"), an amount equal
to:
(i) the difference between 6,875,000 units minus the
actual number of Raw Discs produced during such
quarter multiplied by;
(ii) $0.29 for the Production Period from April 1, 1997 through
March 31, 1998 and $0.25 for the Production Period from April
1, 1998 through December 31, 1998;
(b) net surplus for the quarter, NMI shall rebate to Stream, as a
rebate payment ("Rebate Payment"), an amount equal to:
(i) the difference between the actual number of Raw
Discs produced during such quarter minus 6,875,000
units, multiplied by
(ii) $0.29 for the Production Period from April 1, 1997
through March 31, 1998 and $0.25 for the
Production Period from April 1, 1998 through
December 31, 1998;
provided, however, that the Rebate Payments to be made by NMI to Stream shall
not exceed the aggregate of all Compensatory Payments theretofore received by
NMI from Stream less the aggregate amount of Rebate Payments theretofore made by
NMI to Stream.
1.3.2. Notwithstanding the foregoing, no Compensatory Payment and no Rebate
Payment shall be due with respect to any Production Period for which the Minimum
Quantity is purchased and paid for when due. Any Compensatory Payments and
Rebate Payments made during such Production Period for which the Minimum
Quantity is purchased shall be refunded to the party making such payment at the
end of such Production Period.
1.4 Prices.
1.4.1. The price for Basic Services in respect of U.S. quantities (i.e., the
production of Raw Discs) for the Production Period commencing April 1, 1997
shall be $.47 per unit for the first 24,000,000 units. For all other units, the
price will be $.46 per unit.
1.4.2. The price for Basic Services in respect of U.S. quantities (i.e.,
the production of Raw Discs) for the Production Period commencing April 1, 1998
through December 31, 1998 shall be $.41 per unit.
1.4.3. The prices for Supplemental Services in respect of U.S. quantities shall
be as set forth in Annex B for the Production Period beginning April 1, 1997.
New prices shall be established at the beginning of the Production Period
beginning April 1, 1998 as mutually agreed by the parties.
1.4.4. NMI presently pays $0.094 U.S. royalties to certain third parties for
intellectual property associated with the manufacture of CDs. If, during the
term of the Agreement, such royalties decline by more than $0.03/unit, the
prices set forth in Sections 1.4.1 and 1.4.2 shall be reduced by one-half of the
amount of the decline over $0.03/unit.
1.5 Payment.
Payment for all CDs shall be due 60 days from the later of (a) the delivery of
such CDs or (b) the date on any NMI invoice for such CDs. Compensatory and
Rebate Payments are due within 30 days of receipt of invoice. A late charge at
the rate of one percent (1%) per month (12% annually) will be charged for all
amounts not paid when due.
1.6 Forecast.
Within thirty (30) days in advance of each calendar quarter, Stream shall
deliver to NMI a forecast, on a monthly basis, of its anticipated monthly
requirements for CDs and Masterings during the following twelve (12) months.
Such forecast shall not be binding on either party, but shall represent Stream's
best estimate when provided of its anticipated requirements.
1.7 Orders.
1.7.1. Stream shall from time to time place orders for CDs, DVDs and Masterings
with NMI pursuant to a purchase order, provided, however, that no order shall be
for less than 200 CDs and DVDs, except at mutually agreed pricing, and provided
further, however, that all orders shall include packaging in at least one of the
packaging formats (or any mutually agreed additions or substitutions) listed on
Annex B attached hereto.
1.7.2 The Standard Terms and Conditions of Sale governing each order shall be
those of NMI which are then in effect at the beginning of each Production Period
and shall be in substantially the form of Annex C attached hereto. To the extent
that there is any conflict between the terms in the body of this Agreement and
the Standard Terms and Conditions which is an Annex hereto, the provisions set
forth in the body of this Agreement shall apply.
1.8 Input Materials.
Stream shall provide to NMI, in a timely manner to permit NMI to satisfy the
requested delivery schedule of CDs in a commercially reasonable manner, all
Input Material conforming to the Standard Terms and Conditions of Sale and NMI's
general Guidelines for Input Materials from time to time established by NMI, the
current form of which is included herein by reference as Annex D hereto. (See
Annexes C and D.)
1.9 Production and Delivery.
1.9.1. All CDs shall be manufactured in respect of the U.S. quantities (unless
Stream shall otherwise approve) at the Designated Facility; provided, however,
that the number of CDs which Stream may request annually to be produced at NMI's
Other Facilities and counted toward satisfying Stream's Minimum Quantity for
such Production Period shall be as mutually agreed between NMI and Stream
annually. To the extent capacity is not available at the requested facility,
then NMI shall have the obligation to fill the order from its other facilities
if capacity is available and shall use commercially reasonable efforts to make
such capacity available.
1.9.2. NMI shall be permitted to ship, and Stream shall be obligated to pay
for, the following:
(a) for orders of 2,000 CDs or less, no less than 100% and no more
than 103% of the number ordered (excluding any defective CDs);
(b) for orders of 2,001 to up to 10,000 CDs, no less than 100% and
no more than 102% of the number ordered (excluding any
defective CDs); and
(c) for orders in excess of 10,001 CDs, no less than 100% and no
more than 101% of the number ordered (excluding any defective
CDs).
1.9.3. NMI acknowledges the importance to Stream's business of the timely
delivery of non-defective CDs and DVDs to meet marketing requirements and
customer demand, and Stream acknowledges the importance to NMI's business of
Stream's timely delivery of Input Materials and the timely giving of notices so
as to permit timely performance of NMI's obligations hereunder.
1.9.4. NMI shall use commercially reasonable efforts to meet Stream's re-
quirements with respect to timely delivery.
1.9.5. Without limiting any other remedy which may be available to Stream, if
NMI fails or is unable to fulfill any order submitted by Stream hereunder,
Stream may secure the services of any source to fulfill such order.
1.9.6. On order entry, NMI will notify Stream if the specified delivery
requirements cannot be met, in which case the parties will consult to work out a
mutually agreed delivery schedule. In the event a delivery schedule cannot be
agreed on, Stream shall place the order with another vendor and the order will
be counted towards Stream's Minimum Quantity or Minimum Monthly Requirement up
to, and to the extent that, the order would not cause NMI to exceed the
Designated Capacity computed on a monthly basis.
1.10 Quality.
1.10.1. All CDs and DVDs shall conform to the quality of the Input Material
provided by Stream with regard to signal quality and, in addition, shall conform
to NMI's then prevailing quality standards, which shall be at least comparable
to Philips Electronics, N.V. specifications for CD-ROM ("Yellow Book") or such
then current standards for DVD as specified by Nimbus.
1.10.2. NMI agrees to use commercially reasonable efforts to maintain the
Designated Facility in conformance with all requirements for ISO 9002.
1.11 Defective Copies.
1.11.1. NMI warrants that CDs and DVDs shipped to Stream shall be substantially
free of manufacturing defects as defined by NMI's then prevailing quality
standards. In the event such CDs and DVDs should not conform to such NMI
standards, Stream may return defective CDs and DVDs to NMI and NMI shall inspect
such CDs and DVDs and, at Stream's discretion:
(a) credit Stream for returned defective CDs and DVDs in accord-
ance with its prevailing practices; or
(b) replace the defective CDs and DVDs to satisfy the customer's
order requirements unless otherwise specified by Stream.
1.11.2. Stream shall pay NMI $.01 for each CD and DVD returned to NMI as
defective which, after inspection, NMI determines, subject to Stream's
verification upon Stream's reasonable request:
(a) not to be a CD or DVD produced pursuant to this Agreement;
(b) not to be defective; or
(c) to be defective for a reason other than a manufacturing
defect.
1.11.3. To the extent that Stream is required by its Customer to warrant the
quality of a CD or DVD, then NMI will issue to Stream for transfer to the Stream
Customer a mutually agreed warranty substantially in conformance with the
warranty given by NMI to Stream for a period not to exceed 30 years.
1.12 Technical and Sales Support and Cooperation.
During the Term, NMI shall provide technical and sales support in the field to
Stream on the same basis as provided by NMI to its own sales force. Such
technical and sales support is to be administered on a schedule from time to
time agreed to between NMI and Stream. Stream shall reimburse NMI for all
reasonable out of pocket travel and service costs incurred by NMI in providing
the technical training but not the mutually agreed upon travel associated with
normal business.
ARTICLE II
FACILITIES
2.1 [Intentionally Deleted]
2.2 Capacity.
2.2.1. The Designated Capacity of the Designated Facility is 32,000,000 Raw
Discs on an annualized basis (assuming relatively level monthly demand for Raw
Discs).
2.3 Security.
NMI shall employ security systems and procedures which are equal to standards
prevailing at other First Class Facilities, to prevent theft, pirating,
unauthorized exhibition, copying or duplication of any Stream material delivered
to NMI or manufactured by NMI hereunder. Stream agrees that it will not prevent
NMI from complying with NMI's requirement under this Section 2.3 in the
Designated Facility, and NMI agrees that authorized Stream personnel will have
access to the Designated Facility to conduct normal business.
2.4 Output of Designated Facility.
2.4.1. Stream will have first call on the output with respect to the Designated
Capacity subject to the restrictions of this Agreement. NMI shall be free to
utilize in its sole discretion and without any restriction as to customers
served or other limitation of any kind, all capacity in excess of the Designated
Capacity. Additionally, upon approval by Stream, NMI may utilize such portion of
the Designated Capacity as from time to time is not required to satisfy the
requirements of Stream.
2.4.2. To the extent that Stream requests product to be produced at NMI's Other
Facilities, NMI and its subsidiaries may take similar quantities of product from
the Designated Capacity.
2.5 Operating Committee.
During the Term, NMI agrees to operate the Designated Facility consistent with
its normal operating procedure under the supervision of an Operating Committee,
consisting of three representatives of NMI and three representatives of Stream
(in each case such representatives must be reasonably acceptable to the other
party). The Operating Committee shall meet in person or by conference telephone
call at least monthly and as necessary for the purpose of reviewing the
operations with respect to the Designated Facility and the current production
schedule.
ARTICLE III
NEW TECHNOLOGY AND NON-U.S. SERVICES
3.1 New Services.
NMI shall offer to provide to Stream any mastering or replication services using
new technologies or new media (including, but not limited to, DVD) and
holographic technologies that NMI may from time to time hereinafter offer to its
other customers on the same terms and conditions by NMI to its other customers.
Subject to the foregoing, should Stream elect to have NMI provide to it such
services using such new technologies or media, pricing shall be as mutually
agreed.
3.2 New Media and Processes.
Each of Stream and NMI shall regularly consult with and advise the other as to
the emergence in the marketplace of any demand for information media in the
Territory in addition to CD ROM. If Stream shall in the future require the
production of any non-proprietary, digitally encoded information media in
addition to CDs, Stream shall notify NMI of such need and shall offer NMI the
opportunity to submit a proposal to Stream to incorporate that manufacturing
capability into its then current facilities which would enable NMI to produce
such new media for Stream. If NMI shall in the future offer production services
of any non-proprietary digitally encoded information media in addition to CDs,
NMI shall notify Stream of such services and shall offer Stream the opportunity
to utilize such services at the Designated Facility at the same terms and
conditions offered by NMI to its other customers.
3.3 DVD. Should Stream wish to order DVD or DVD ROM units in volume from NMI,
Stream DVD units will be made available subject to mutual agreement on prices,
terms and capacity provided that the prices and terms offered by NMI shall be
market prices and terms as mutually agreed by NMI and Stream.
3.4 Basic Services Outside U.S. Stream and Nimbus acknowledge that Stream may
purchase 2,500,000 Raw Discs from Nimbus for its operations outside the United
States during the Production Period. In that regard, Stream and Nimbus shall
endeavor to determine a mutually agreeable market price for Basic Services
outside the United States. Stream and Nimbus agree that quotations based on
similar terms and conditions from MPO, Sonopress and CD Plant will be acceptable
quotations as a basis for determining market price.
ARTICLE IV
RESTRICTIONS ON CERTAIN CONDUCT
4.1 Nondisclosure.
The parties hereto shall regard all the terms of this Agreement and all
information relating to their respective operations as confidential information
received in trust and shall not use the other party's customer information to
gain a competitive advantage over the other. Neither party shall disclose,
reveal, publish, report or transfer any such confidential information to any
person or entity including any non-operating owner, shareholder, partner or
director except:
(a) to such employees of each party in their capacity as such,
such information as may be required for the performance of
their responsibilities hereunder;
(b) to the extent necessary to comply with law or the valid order
of a court of competent jurisdiction, in which event the party
making such disclosure shall so notify the other and shall
seek confidential treatment of such information;
(c) as part of each party's normal reporting or review procedure
to its parent company, its auditors and its attorneys
(provided that such auditors and attorneys agree to be bound
by the provisions of this Article IV);
(d) in order to enforce the rights of each party pursuant to this
Agreement; and
(e) to third parties as part of a due diligence process in
connection with any assignment permitted by Section 12.5
hereof.
The provisions of this Article IV shall not apply after all or any portion of
such confidential information has been voluntarily disclosed to the public by
the party originally possessing such information or independently disclosed by
other or has otherwise entered into the public domain through lawful means;
provided, however, that such exception shall only apply to the portion of such
confidential information so disclosed. Failure by either party to comply in all
material respects with the provisions of this Section 4.1 shall constitute a
material breach of this Agreement.
4.2 No Hiring or Solicitation of Employees.
Except as the parties may mutually agree, during the Term of this Agreement and
for a period of eighteen (18) months thereafter, neither party shall, nor shall
it permit its affiliates to, directly or indirectly, whether as an individual,
partner, principal, agent, employee officer, director, shareholder or in any
other capacity:
(a) employ any person who is then, or within the prior eighteen (18)
months was, employed as a manager or sales representative by the other or any
affiliate of the other.
(b) solicit for employment any person who is then, or within the
prior eighteen (18) months was, employed by the other party or
any affiliate of the other party, or request, influence or
advise any person who is now or shall be at the time of the
solicitation employed by or in the service of the other party
or any affiliate of the other party to leave such employment
or service of the other party or any affiliate of the other
party; or
(c) influence or advise any competitor of or anyone intending to
compete with the other party or any affiliate of the other
party to employ or otherwise engage the services of any person
who is now or shall be at the time of the solicitation
employed by or in the service of the other party or any
affiliate of the other party.
ARTICLE V
REPRESENTATIONS OF NIMBUS AND NMI
As an inducement to Stream to enter into this Agreement, Nimbus and NMI hereby
represent to Stream, as of the date of the Agreement, as to the matters set
forth in Sections 5.1 through 5.5.
5.1 Organizational Status.
5.1.1. Nimbus is a validly existing corporation and in good standing under the
laws of the State of Delaware. Nimbus has the corporate power and authority
required to carry on its activities as they are now conducted and to own the
stock of NMI.
5.1.2. NMI is a validly existing corporation and in good standing under the
laws of the State of Virginia. NMI has the corporate power and authority
required to carry on its activities as they are now conducted.
5.2 Corporate Authority.
Nimbus and NMI have full legal right and corporate power, without the Consent of
any other Person, to execute, deliver and to perform their obligations under
this Agreement.
5.3 Authorization of the Transaction.
All corporate and other actions required to be taken by Nimbus and NMI to
authorize the execution, delivery and performance of this Agreement and all
transactions contemplated hereby have been duly and properly taken. No Consent,
approval or authorization of, or filing of any certificate, notice, application,
report or other document with, any governmental authority, is required on the
part of Nimbus or NMI in connection with the valid execution and delivery of
this Agreement or the performance by Nimbus of any of its obligations hereunder
or by NMI of any of its obligations hereunder.
5.4 Validity.
This Agreement has been duly executed and delivered by Nimbus and NMI and is a
lawful, valid and legally binding obligation of Nimbus and NMI, enforceable
against each of Nimbus and NMI in accordance with its terms and conditions,
except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by general
equitable principles.
5.5 Noncontravention.
The execution, delivery and performance of this Agreement are not prohibited by,
do not violate or conflict with any provision of, or result in a default (or, to
the knowledge of Nimbus and NMI, an event which with notice or lapse of time or
both, would become a default) under or a breach of:
(a) the Certificate or Articles of Incorporation or By-laws of
Nimbus and NMI;
(b) any regulation, order, decree or judgment of any court or
governmental agency; or
(c) any law applicable to Nimbus or NMI.
ARTICLE VI
REPRESENTATION OF STREAM
As an inducement to Nimbus and NMI to enter into this Agreement, Stream hereby
represents to Nimbus and NMI, as of the date of this Agreement, to the matters
set forth in this Article VI.
6.1 Organizational Status.
Stream is a validly existing corporation and in good standing under the laws of
the State of Delaware. Stream has the corporate power and authority required to
carry on its activities as they are now conducted.
6.2 Corporate Authority.
Stream has full legal right and authority, without the Consent of any other
Person, to execute, deliver and to perform its obligations under this Agreement.
6.3 Authorization of the Transaction.
All corporate and other actions required to be taken by Stream to authorize the
execution, delivery and performance of this Agreement and all transactions
contemplated hereby have been duly and properly taken. No Consent, approval or
authorization of, or filing of any certificate, notice, application, report or
other document with, any governmental authority, is required on the part of
Stream in connection with the valid execution and delivery of this Agreement, or
the performance by Stream of any of its obligations hereunder.
6.4 Validity.
This Agreement has been duly executed and delivered by Stream and is a lawful,
valid and legally binding obligation of Stream, enforceable against Stream in
accordance with its terms and conditions, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general equitable principles.
6.5 Noncontravention.
The execution, delivery and performance of this Agreement are not prohibited by,
do not violate or conflict with any provision of, or result in a default under
or a breach of:
(a) Stream's Certificate of Incorporation or By-laws;
(b) any regulation, order, decree or judgment of any court or
governmental agency; or
(c) any law applicable to Stream.
ARTICLE VII
TERM
7.1 Term and Renewal.
The Term of this Agreement shall commence on April 1, 1997 and shall continue
until December 31, 1998 unless terminated in accordance with 7.2 below.
7.2 Termination.
The Term of this Agreement may be terminated at any time:
(a) by mutual consent of the parties; or
(b) by either party upon 90 days' written notice of a material
breach of a material provision hereof which has not been
reasonably cured within such 90 days period.
ARTICLE VIII
INDEMNIFICATION AND DAMAGES
8.1 Intellectual Property.
8.1.1. Stream shall indemnify and hold harmless Nimbus and NMI against any and
all losses, damages, costs, expenses, attorneys' fees or other liabilities,
including, without limitation, costs incurred in successfully asserting the
right to indemnification hereunder which arise out of or are founded on any
claim that NMI's replication or packaging of any CD for Stream or any of its
Affiliates violates the property, personal, copyright or other rights, of any
Person.
8.1.2. Nimbus and NMI shall indemnify and hold harmless Stream against any and
all losses, damages, costs, expenses, attorneys' fees or other liabilities,
including, without limitation, costs incurred in successfully asserting the
right to indemnification hereunder which arise out of or are founded on any
claim that the production process used by NMI or the electronic format of the
CDs produced thereby violates the property, personal, copyright or other rights
of any Person.
8.2 Sales and Use Tax.
8.2.1. Stream shall indemnify and hold Nimbus and NMI harmless against any and
all losses, damages, costs, expenses, attorneys' fees or other liabilities
including, without limitation, costs incurred in successfully asserting the
right to indemnification hereunder, which arise out of or are founded on any
claim against Nimbus or NMI for any sales or use tax liability incurred by
Nimbus or NMI as a result of, or at the order of sales to Stream or its
Affiliates.
8.2.2. Stream shall, upon request of NMI, defend Nimbus and NMI in any audit or
other proceeding brought by the taxing authority in any jurisdiction with
respect to sales and use tax.
8.3 Other Indemnity by Stream.
8.3.1. Stream represents and warrants that, to the best of Stream's knowledge,
by entering into this Agreement it will not be in violation of any term or
provision of any other agreement to which Stream is a party (collectively, the
"Stream Agreements").
8.3.2. Stream shall indemnify and hold each of Nimbus and NMI harmless against
any and all Damages which arise out of or relate to any Claim by any party to
the Stream Agreements which is based or founded on the Stream Agreements or
which are the result of the non-truthfulness of any of Stream's representations
and warranties herein.
8.4 Other Indemnity by Nimbus and NMI.
8.4.1. Nimbus and NMI represent and warrant that, to the best of their
knowledge, by entering into this Agreement they will not be in violation of any
term or provision of any other agreement to which they are a party
(collectively, the "Nimbus Agreements").
8.4.2. Nimbus and NMI shall indemnify and hold Stream harmless against any and
all Damages which arise out of or relate to any Claim by any party to the Nimbus
Agreements which is based or founded on the Nimbus Agreements or which are as a
result of the non-truthfulness of any of Nimbus' and NMI's representations and
warranties herein.
8.4.3. THE WARRANTIES, SET FORTH IN THIS AGREEMENT ARE IN LIEU OF, TO THE
EXTENT PERMITTED BY LAW, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
8.5 Limitation of Damages.
Notwithstanding any other provision herein, neither party shall be liable to the
other for any lost profits or other consequential damages, whether foreseeable
or unforeseeable, arising out of such party's inability, as determined by law,
to perform their respective obligations under this Agreement.
8.6 Exclusive Remedy.
NMI's and Nimbus' sole and exclusive remedy, whether in contract or in tort,
arising out of or relating to any failure by Stream to purchase the Minimum
Quantity or the Monthly Minimum Requirement are the Compensatory Payments set
forth in Section 1.3.
ARTICLE IX
ENFORCEMENT
9.1 No Implied Waiver.
No course of dealing between the parties and no delay in exercising any right,
power or remedy conferred hereby or now or hereafter existing at law, in equity,
by statute or otherwise, shall operate as a waiver of, or otherwise prejudice,
any such right, power or remedy.
ARTICLE X
DISPUTES
10.1 Attorneys' Fees.
In the event of any suit or other proceeding between the parties hereto with
respect to any of the transactions contemplated herein or the subject matter
hereof, the prevailing party shall, in addition to such other relief as the
court may award, be entitled to recover attorneys' fees, expenses and costs of
investigation, all as actually incurred, including, without limitation,
attorneys' fees, expenses and costs of investigation incurred in appellate
proceedings or in any action or participation in, or in connection with, any
case or proceeding under any bankruptcy, insolvency or reorganization
proceeding.
10.2 Arbitration.
10.2.1. Any controversy or Claim arising out of or relating to this Agreement or
the breach thereof, including any claim or controversy as to the arbitrability
of any claim or controversy and any claim for rescission, shall be settled by
arbitration in New York, New York in accordance with the commercial arbitration
rules of the American Arbitration Association and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
ARTICLE XI
NOTICES
11.1 Delivery of Notice.
All notices, requests, demands and other communications hereunder shall be in
writing and shall be, personally delivered or sent by facsimile transmission
with confirming copy sent by overnight courier (such as Express Mail, Federal
Express, etc.) and a delivery receipt obtained and addressed to the intended
recipient as follows:
(a) If to Nimbus or NMI:
Nimbus CD International, Inc.
623 Welsh Run Road, Ruckersville, Virginia 22968
Attention: Lyndon Faulkner and L. Steven Minkel
Telphone: (804) 985-1100
Facsimile: (804) 985-4794
With copies to:
NMI
85 East Bay Boulevard, Provo, Utah 84605
Attention: General Manager
Telephone: (801) 375-6797
Facsimile: (801) 374-8757
White & Case
1155 Avenue of the Americas, New York, New York 10036
Attention: Frank L. Schiff, Esq.
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
(b) If to Stream International Holdings Inc.:
Terence M. Leahy, Chief Executive Officer
Stream International Holdings Inc.
105 Rosemont Road, Westwood, Mass. 02090
Telephone: (617) 751-1008
Facsimile: (617) 751-7090
With copies to:
Alicia T. Brophey, Vice-President & General Counsel
Stream International Holdings, Inc.
105 Rosemont Road
Westwood, Mass. 02090
Telephone: (617) 751-1359
Facsimile: (617) 751-7670
11.2 Change of Address.
Any party may change its address for receiving notice by giving written notice
to the others named above. All such notices shall be effective immediately upon
confirmation of facsimile or completion of personal delivery.
ARTICLE XII
GENERAL PROVISIONS
12.1 No Third-Party Beneficiaries.
This Agreement constitutes an agreement solely among the parties hereto and is
not intended to and will not confer any rights, remedies, obligations or
liabilities, legal or equitable, on any person other than the parties hereto and
their respective successors or assigns, or otherwise constitute any person a
third party beneficiary under or by reason of this Agreement.
12.2 Relationship of Parties.
Nothing in this Agreement, expressed or implied, is intended to or shall
constitute the parties hereto as partners or participants in a joint venture.
12.3 Amendment and Waiver.
No amendment or waiver of any provision of this Agreement shall in any event be
effective, unless the same shall be in writing and signed by the parties hereto,
and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
12.4 Counterparts.
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and-the same Agreement.
12.5 Parties in Interest.
This Agreement shall bind and inure to the benefit of the parties named herein,
in each case with respect to the obligations and rights applicable to them, and
their respective, successors and assigns; provided, however, that the parties
hereto shall only be permitted to assign this Agreement as part of the
assignment of substantially all of the assets and liabilities of, in the case of
Stream, its software manufacturing business and in the case of Nimbus and NMI,
the NMI business. In the event of any such assignment, the assignor shall have
no further liability or obligation to the parties to this Agreement and the
assignee shall assume all liabilities and obligations of its assignor.
12.6 Entire Agreement and Transaction; Release.
This Agreement, including the Annexes listed in the Table of Contents in the
forepart hereof and the documents delivered pursuant hereto, together with any
other confidentiality agreements previously entered into between the parties,
constitute the entire agreement among the parties with respect to the
transactions contemplated hereby and supersede all other agreements and
understandings among the parties including the First Amendment and Restatement
dated April 1, 1995 and the Agreement dated April 6, 1994.
Each Party, on behalf of itself, its affiliates, its predecessors in interest,
and its successors and assigns hereby releases the other parties and their
affiliates, predecessors in interest, successors and assigns from any and all
claims, obligations and liabilities, known or unknown, arising out of or related
to the prior agreements between the parties including, without limitation, any
claims, obligations and liabilities arising under the April, 1995 First
Amendment and Restatement or the Original Agreement provided, however, that no
party is released from any obligation to make payments for products delivered or
services rendered under the Original Agreement which are unpaid as of the date
of this Agreement.
Upon the execution of the Agreement by Donnelley as to this Section 12.6, this
release is intended to and will extend on a mutual basis to Donnelley which
signed the Original Agreement; provided, however, that the effectiveness of all
other provisions of this Agreement are not dependent on Donnelley's execution of
the Agreement.
12.7 Applicable Law.
This Agreement shall be governed by and construed in accordance with the
internal substantive laws of the State of New York. Should any provision of this
Agreement be determined to be invalid, void or unenforceable by a court of
competent jurisdiction for any reason, the remaining provisions shall remain in
full force and effect.
12.8 Headings.
The section and other headings contained in this Agreement are for convenience
of reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.9 Expenses.
Each party to this Agreement shall pay its own costs and expenses in connection
with the transactions contemplated hereby.
12.10 Severability.
Any term or provision of this Agreement which is held invalid or unenforceable
by a court of competent jurisdiction, shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining rights of the Person intended to be benefited by such provision and
provisions of this Agreement.
12.11 Construction.
This Agreement has been negotiated by the parties hereto, and legal or equitable
principles that might require the construction of this Agreement or any
provision hereof against the party drafting this Agreement shall not apply in
any construction or interpretation of this Agreement.
12.12 Conflicts.
If there is any conflict or inconsistency between a provision in this Agreement
and that of an Annex, the provision of this Agreement shall prevail.
12.13 Time of Essence.
Time is of the essence in this Agreement.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be duly
executed, all as of the date first written above.
NIMBUS CD INTERNATIONAL, INC. STREAM INTERNATIONAL HOLDINGS
INCORPORATED
By:______________________________ By:_________________________________
Name: ___________________________ Name: ______________________________
Title: ____________________________ Title: _______________________________
As to Section 12.6 only:
NIMBUS MANUFACTURING INC. R. R. DONNELLEY & SONS COMPANY
By: _____________________________ By:________________________________
Name: ___________________________ Name:______________________________
Title: ____________________________ Title:_______________________________
<PAGE>
ANNEX A
GLOSSARY
As used in the Agreement and the Annexes thereto, the following terms shall have
the meanings as set forth herein:
Affiliate: Affiliate of any Person shall mean any other Person which, directly
or indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any commitment with responsibility for
administering, any Pension Plan). A Person shall be deemed to be "controlled by"
any other Person if such other Person possesses, directly or indirectly, power:
(i) to vote 90% or more of the securities (on a fully diluted basis) having
ordinary voting power for the election of directors or managing general
partners; or (ii) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
Agreed Capacity: 2,666,667 CDs per month.
Agreement: The Agreement effective March 1, 1997.
Basic Services: The production of Raw Discs.
CD Requirements: Stream's requirements during the Term for CDs for Stream
customers.
CD ROM: A nonprogrammable, read only memory, CD capable of storing and
outputting data, image, and audio signals conforming to established industry
specifications.
Claim: A claim, demand, action, cause of action, suit, charge or Proceeding for
Damages or equitable relief.
Commencement Date: Opening of business on the date of the Agreement.
Compact Disc (CD): Digitally encoded nonphotographic laser scanned optical
information storage media meeting established industry specifications.
Consent: Any approvals, consents and acknowledgments required by any third
party or governmental authority or instrumentality whether written or oral.
Damages: All losses, liabilities, obligations and damages together with costs
and expenses (including court costs and reasonable attorneys' fees, expenses
related to investigation and expert assistance and amounts paid in settlement).
Designated Capacity: 32,000,000 raw discs on an annualized basis.
Designated Facility: Leased facilities located in Provo, Utah.
DVD: Digital Versatile Disc. A high density, digitally encoded, nonprogram-
mable, read only memory, CD capable of storing and outputting data, image, and
audio signals conforming to established industry specifications for DVD.
First Class Facilities: Means facilities performing the same or similar level of
services of comparable quality as those performed by NMI for Stream.
Force Majeure: Force Majeure as used herein shall mean the following:
(i) acts of God; (ii) strikes, lockouts, industrial or labor disturbances;
(iii) act of the public enemy, wars, blockades, insurrections, riots; (iv)
epidemics; (v) landslides, lightning, earthquakes, fires, storms, floods,
wash-outs, tornadoes, hurricanes, windstorms; (vi) civil disturbances; (vii)
boycotts; (viii) explosions and breakage or accident to machinery or equipment
that is not principally caused by or attributable to the negligence of the
Person experiencing the Force Majeure; (ix) the unavailability of raw materials
used in the manufacture of CDs; and any other causes similar to those above,
which are not within the reasonable control of the Person claiming Force Majeure
and which by the exercise of due diligence such Person is unable to overcome.
Glossary: Glossary attached as Annex A to the Agreement.
Input Materials: The information to be republished in any CD format and the
media containing such information, together with all label film and print
material.
Mastering: The supply of glass mastering services as it relates to the produc-
tion of Compact Discs.
Minimum Monthly: The number of CDs specified in Subsection 1.2.2 of Requirement
this Agreement.
Minimum Quantity: The number of CDs specified in Subsection 1.2.1 of the
Agreement.
Nimbus: Nimbus CD International, Inc., a Delaware corporation.
NMI: Nimbus Manufacturing Inc., a Virginia corporation and wholly-owned sub-
sidiary of Nimbus.
Original Agreement: The Original Agreement by and among Nimbus, NMI and
Donnelley dated as of April 6, 1994 as amended and restated by the First
Amendment and Restatement dated as of April 1, 1995.
Other Facilities: NMI's facilities, other than the Designated Facility,
including the facilities located in Ruckersville, Virginia, Sunnyvale
California, Cwmbran, Wales and Foetz, Luxembourg.
Person: Any individual or corporation, partnership, trust or other entity.
Proceedings: Any suit or any other action, proceeding, investigation or legal,
administrative, arbitration or other method of settling disputes or
disagreements or governmental investigation by or before any federal, state or
local governmental or non-governmental court, department, commission, board,
bureau, agency or instrumentality.
Production Period: The period specified in Subsection 1.2.1 of this Agreement.
Raw Discs: CDs with two color printing.
Stream Customers: Any Person for which Stream provides services which include
production or distribution of information in CD ROM format.
Subsidiary: A corporation of which a Person and/or their respective
Subsidiaries, as the case may be, own directly or indirectly, such number of
shares as have more than 50% of the ordinary voting power for the election of
directors.
Supplemental Services: Other services in addition to Basic Services (including,
without limitation, the services described in Article III hereof).
Term: The period specified in Section 7.1 of this Agreement.
<PAGE>
ANNEX B
CURRENT FORM OF STANDARD TERMS AND CONDITIONS
