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, 1998
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 15, 1998, there were 11,894,061 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 15,
1998) was approximately $125,631,019. 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.
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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 Schedules and Reports on Form
8-K
Signatures
Exhibit Index
<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), one site in the United Kingdom
(Cwmbran, Wales) and a new facility in Foetz, Luxembourg. 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 2,000 customers an integrated range of
services including authoring, pre-mastering and mastering, disc replication,
holography, 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 for the
purpose of acquiring the CD manufacturing operations of Nimbus Records Limited.
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
Subsequent Event
On June 16, 1998, the Company entered into an Agreement and Plan of Merger with
Carlton Communications Plc ("Carlton"), pursuant to which a subsidiary of
Carlton would acquire all of the Company's outstanding common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million. Consummation of the merger transaction is subject to normal regulatory
filings and approval of the Company's stockholders. Certain stockholders,
including management of the Company, control an aggregate of 44% of the
Company's common stock, and have agreed to tender their shares when requested.
Following the close of the transaction, the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.
Divx Agreement
On April 8, 1998, the Company entered into a replication and services agreement
(the "Divx Agreement") with Digital Video Express, LP, pursuant to which Nimbus
will perform certain replication and serialization services with regard to an
extension of DVD technology which results in an encrypted, individually
serialized product (a "Divx disc") which is proprietary to Digital Video
Express. Nimbus became the first of only a few suppliers selected to produce
discs in this format. Potentially, the five-year agreement may require
production of over 150 million Divx discs in increasing amounts over the term
depending on the growth and acceptance of the Divx technology in the consumer
marketplace.
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DVD Production
In April 1998, the Company announced that it had committed to expand its DVD
production capacity to accommodate an anticipated increase in demand for DVDs.
New equipment, which will be installed in Nimbus' United States operations, will
support all DVD formats, including DVD-9 as well as Divx. The expansion will
increase Nimbus' annual DVD production capacity by 12 million discs over the
existing U.S. capacity of 12 million DVD discs, which includes DVD-9 capability
installed in the fall of 1997. In addition, in April 1998, the Company installed
its first DVD line in the Cwmbran, Wales facility which management believes will
position Nimbus to be an early participant in the European DVD market. All of
the major Hollywood movie studios have committed to the DVD and Divx formats,
and release schedules are expected to be expanded and accelerated throughout
1998. DVD-ROM product is also expected to be produced this year as add-on
DVD-ROM drives are marketed and new PCs are fitted with DVD-ROM drives.
Microsoft Authorized Replicator Status
In July 1997, Microsoft Corporation ("Microsoft") designated the Company's U.S.
operations as Authorized Replicators. In January 1998, the Company's Cwmbran and
Luxembourg plants received similar designations. The Company is one of a limited
number of compact disc replicators to receive such designation. As an Authorized
Replicator, Nimbus is approved to supply complete OEM products including CD-ROM
disc manufacturing, print collateral materials, packaging assembly and related
order fulfillment services for all Microsoft licensed Original Equipment
Manufacturers (OEMs) and Delivery Service Partners (DSPs) in each respective
territory. Receiving this status is a key component in the Company's strategy of
building a national and international OEM customer base for CD-ROM products.
Termination of Agreement with the Successor to R.R. Donnelley & Sons Company
In April 1994, the Company entered into a strategic alliance (the "Strategic
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, Donnelley assigned substantially all of its rights and obligations
under the Strategic Agreement and transferred shares of Nimbus Common Stock
which Donnelley had purchased under the Strategic Agreement to Stream
International, Inc. ("Stream"), Donnelley's majority-owned subsidiary. Effective
April 1, 1997, the Strategic Agreement was amended and restated and set forth
Stream's commitment to purchase 27.5 million discs during fiscal 1998 and 20.6
million discs during the first nine months of fiscal 1999. The Strategic
Agreement was scheduled to terminate on December 31, 1998. In December 1997,
Stream assigned substantially all of its rights and obligations under the
Strategic Agreement to Modus Media International, Inc. ("MMI"). Effective March
31, 1998, the Company and MMI determined that it was in their mutual best
interests to terminate the Strategic Agreement.
Commencement of European Production
On November 24, 1997, the Company's European subsidiary, EuroNimbus S.A.
("EuroNimbus") commenced commercial production of CDs at its new 40,000 square
foot full service compact disc replication plant in Foetz, Luxembourg.
EuroNimbus is 70% owned by Nimbus Manufacturing (UK) Limited and 30% owned by
Saarbrucker Zeitung Verlag and Druckerei, GmbH, a newspaper and printing company
headquartered in Saarbrucken, Germany. The initial capitalization of EuroNimbus
was $15.7 million, which was funded by a combination of government grants and
loans, new bank borrowings and capital contributions. The Company contributed
approximately $4.2 million to the joint venture. The plant is a full service
facility, initially capable of manufacturing 20 million CDs annually, and all of
the equipment is DVD capable. The Luxembourg location is near major markets for
CDs and DVDs in Germany, France, Belgium and the Netherlands, and is supported
by a strategically-located and experienced team of sales and customer service
personnel. The new facility will be complementary to the Cwmbran plant and will
allow Nimbus to better support the requirements of its multinational customers.
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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 through the application of the DVD format.
CD-Audio Market. The established market for pre-recorded music represented the
first major application of CD technology. In the eight years ended 1997,
worldwide sales of full length pre-recorded music (CD-Audio, LPs, audio
cassettes) grew from approximately 2.7 billion to 3.8 billion units, a compound
annual growth rate of 5.0%. Over the same period, full length CD-Audio sales
increased 167% from approximately 900 million to 2.4 billion units and
short-play CD singles contributed approximately 414 million additional units in
1997, up from 90 million units eight 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 342 million CD-Audio
players were in use in 1997, representing household penetration (including
multiple ownership by individual households) of approximately 133%. By the year
2000, the Company estimates that 457 million CD-Audio players will be in use,
representing household penetration (including multiple ownership by individual
households) of more than 173%.
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 51% of
the 1997 world output of CD-Audio, primarily to meet the needs of their
affiliated record labels. The independent record labels accounted for
approximately 26% of 1997 CD-Audio unit sales. These companies are generally
served 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, excluding the Company, produced approximately 15%
of worldwide CD-Audio output in 1997. In 1997, the Company believes it was the
sixth largest, worldwide, independent CD-Audio manufacturer.
CD-ROM/DVD-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 the 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.
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 all
major PC manufacturers are shipping PCs with built-in DVD-ROM drives. 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.
Game and multimedia developers are expected to lead the development of DVD-ROM
products.
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Worldwide CD-ROM demand was estimated to be 30 million units in 1992 and grew to
1,062 million units in 1997, a compound annual growth rate of 104%, and the
Company expects total ROM units to grow to approximately 1.4 billion units by
2001. 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 also 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 either CD-ROM
or DVD-ROM drives. In the United States and Europe, the markets served by the
Company, the Company expects the installed base of ROM drives to grow from 38
million in 1995 to 213 million by 2001.
The Music Company Manufacturers collectively produced 25% of the 1997 worldwide
output of CD-ROM units. The five largest independent CD manufacturers, including
the Company, collectively produced approximately 29% of the 1997 worldwide
output of CD-ROM units. The remaining 1997 CD-ROM worldwide output was produced
by approximately 243 small to medium size CD manufacturing operations. Nimbus is
the third largest CD-ROM manufacturer in North America and the sixth largest in
Europe.
DVD-Video Market. The new DVD format is capable of holding a full length motion
picture (135 minutes) on a CD-sized disc 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
1.2 million DVD discs per month.
Initially, the primary applications for the DVD format will be traditional
motion pictures and video applications. 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 also allows 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 $350 to $600 and more than 1,000 motion picture titles are
expected to be available by July 1998. DVD is expected to compete most directly
with the market for videocassette sales (sell-through) which in 1997 was
estimated to total over 1.1 billion units across the three major world regions
of the U.S., Europe and Japan.
In the same three world markets, sources estimate that 28.8 million DVD discs
were manufactured in 1997, the first year of commercial availability of DVD
products. The United States and European markets in which the Company competes
accounted for approximately 54% of this volume. Approximately 113.8 million DVD
discs are expected to be produced in the three major markets in 1998. DVD
manufacturing was dominated in 1997 by manufacturing organizations affiliated
with major home video studios: Warner, Columbia/Tri-Star and MCA/Universal.
Collectively, the DVD manufacturers affiliated with these three organizations
produced approximately 71.7% of the 1997 world output of DVD units. The Company
has targeted the major studios without manufacturing capacity: Disney, 20th
Century Fox, Paramount and MGM, along with a group of independent studios. The
Company believes that it was the largest independent manufacturer of DVDs in the
United States during 1997.
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 optical discs. The Company's strategy for achieving these
objectives includes the following:
Maximizing DVD and Divx Opportunities. The Company is well positioned to
participate in the emerging DVD market. Nimbus representatives have been active
participants in industry forums involved in the review and development of format
standards and manufacturing protocols and the Company served as a paid
consultant for the development of the Divx disc technology. The Company is
combining a direct sales effort targeting both major and independent motion
picture production companies with its existing CD-ROM sales force calling on
developers of multimedia and games applications.
The Company has established marketing and support staff to take advantage of its
technical expertise in DVD and Divx. The Company is capable of manufacturing
DVD-5, DVD-10, DVD-9 and Divx formats with reliability and quality. The Company
believes that it is one of only two manufacturers currently capable of offering
a Divx disc. Nimbus manufactured 2.2 million DVD discs in fiscal 1998 and
expects substantial growth of the product line both in the United States and
Europe. In order to better serve the DVD market, the Company intends to focus on
developing a major distribution capability.
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 has targeted the
OEM market and has hired staff to actively develop relationships with these
important companies. Management believes that the OEM market represents 30% of
the total demand for CD-ROM product. Nimbus' designation as a Microsoft
Authorized Replicator positions the Company to become a direct, primary supplier
to OEMs. In addition, the Company will take advantage of its technological
expertise to produce DVD-ROM product for content owners and developers as well
as supplying DVD-ROM product to OEMs in support of the rollout of DVD-ROM
drives.
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 1998, 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 184,000 discs in fiscal
1998.
Marketing Holographic CDs. In an effort to respond to customer piracy concerns,
the Company established a joint venture ("3dcd") with Applied Holographics, PLC
("Applied Holographics") in both the United States and the United Kingdom to
market patented technology to imprint holograms onto CDs. In addition, the use
of the hologram as a marketing mechanism has proven successful. This technology
is marketed under the name 3-D io d(TM) and allows for a holographic image to be
applied either on the inner band of the disc using the Security Band Process or
on the face of the disc using the Edge-to-Edge Process. During fiscal 1998, 3dcd
licensed the right to use the Security Band application of this technology to
Microsoft on an exclusive basis for one year and a semi-exclusive basis for a
second year. 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 using 3-D io d(TM) technology by such
manufacturers. All royalty revenues are split equally between the Company and
Applied Holographics.
Customers
The Company maintains a diverse base of over 2,000 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. Sales under the terms of the Strategic Agreement with MMI
accounted for 10.3% of fiscal 1998 net sales. No other customer represented more
than 10% of consolidated sales for fiscal 1998.
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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 business from United Kingdom-based major record labels
which accounted for approximately 1.6% of the Company's fiscal 1998 CD-Audio
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 are serviced by sales and customer service representatives
based at the Company's Cwmbran manufacturing facility as well as a sales
representative in London.
In addition to being supported by the United Kingdom based sales team, European
customers are also serviced by a sales team organized geographically, with sales
offices in France and Germany, and customer service representatives based in
Luxembourg.
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,
Hawthorne, New Jersey and Gardena and Sunnyvale, California. Additionally, the
Company employs a dedicated salesperson to service the North American OEM
market. 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 and DVD-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. Continental Europe is served by a sales team organized
geographically, with sales offices in France and Germany. In addition, the
Company employs a salesperson dedicated to servicing the OEM market in the
United Kingdom and continental Europe. A sales and marketing executive directs
the sales team which is supported by a marketing assistant.
DVD-Video. In the United States, the Company employs a dedicated salesperson to
service the movie studios. In addition, the CD sales forces seek DVD business
among their client base. The DVD sales effort is supported by a product manager
and customer service staff based at the Charlottesville facility.
Competition
The Company believes that the principal competitive factors in the CD-Audio and
CD-ROM markets are service, price, quality and reliability for the 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"), Americ Disc, and Denon Electronics Inc. In 1997, the
Company believes it was the sixth 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"), DocData
and Dandisc/CD Plant. In 1997, 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 1997, 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, MPO, KAO, Sonopress and Polygram. In 1997, 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, Panasonic, JVC, Sony
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. At the end of fiscal 1998, the
Company was the only manufacturer for Divx discs. While Nimbus expects to play a
major role in this market, the Company is aware that a limited number of other
manufacturers will also be designated to replicate Divx discs.
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 and DVD. The Company believes that current and projected transmission
speeds and infrastructure limitations of on-line delivery systems will prevent
them from replacing CD-ROM or DVD 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 has a
capacity of 650 megabytes. In addition, future advances in optical disc
technology such as higher speed drives and greater data compression could
improve CD-ROM's and DVD's advantages over potential competitive technologies.
The Disc Manufacturing Process
The disc 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 discs consists of three distinct processes:
pre-mastering, mastering and electroplating. Through these processes, metal
stampers are created which contain 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 or DVD-ROM preproduction begins with the customer data supplied in any
number of approved input media. Content is evaluated for viruses and other
integrity checks are performed. For CD-ROM, 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. For DVD-ROM, the data is formatted using a high
performance pre-mastering computer system into the new universal disc format for
optical discs, which allows the data to be compatible across many operating
systems. The formatted content is then transferred to digital storage media for
mastering.
DVD-Video pre-mastering follows a more complex process. The video and audio
components that comprise movie programs must be compressed to allow for feasible
digital data encoding and storage. The encoded components are multiplexed
together and then the project is authored to provide titling and sub-titling of
the program, which allows for navigation in set-top players. The content is then
formatted to a structure suitable for player logic and other operating systems.
Finally, the formatted content is transferred to digital storage media for
mastering.
The mastering process forms the master image of the CD or DVD 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
characteristic data 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 able to master all 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 discs. 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, optical 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. 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 reduced labor
requirements, higher operating efficiencies and reduced capital expenditures to
fund a line extension. In addition, it provides automatic in-line inspection for
faster response to quality issues, thus improving productivity.
The replication of DVDs and Divx discs utilizes 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
or Divx 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 discs are readily available from numerous sources of
supply at competitive prices. The principal raw materials used by the Company to
manufacture discs are optical 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 1998, 1997
and 1996 is included elsewhere in this report on Form 10-K (see Note 16 to Notes
to Consolidated Financial Statements.
Employees
As of March 31, 1998, the Company had 816 full-time employees, of which
approximately 518 were hourly employees and 298 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 180,000 discs per day utilizing 14 press
lines. In addition, the facility has three DVD manufacturing lines with a
capacity of approximately 900,000 discs per month. The Company also owns an
additional 237 acres of surrounding farmland. The Company leases two sites in
Ruckersville. One lease is for 13,000 square feet of warehouse space and expires
in January 1999. The other lease is for 24,400 square feet of warehouse space
and expires in May 2000.
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 the demands of its West Coast CD-ROM and CD-Audio customers. The leases
are co-terminus and expire in April 2000. The Provo facility currently has the
capacity to produce 280,000 discs per day utilizing 18 press lines.
The Company also leases sales office space in Gardena and Sunnyvale, California
and Millburn, New Jersey.
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. In addition, the facility has one DVD
manufacturing line with a capacity of approximately 300,000 discs per month. 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.
EuroNimbus has leased from the Grand Duchy of Luxembourg approximately 2.2
hectares of land in Foetz for a period of thirty years. EuroNimbus completed
construction of a 40,000 square foot manufacturing facility on the site in 1997.
The facility has a capacity to produce 60,000 discs per day utilizing 4 press
lines. EuroNimbus holds a five year option to lease an additional 2.3 hectares
of land abutting the current site.
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
From time to time, the Company is involved in litigation that it considers to be
in the normal course of business. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal 1998 to a vote of
the Company's security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market and Price 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 in the Notes to Consolidated Financial Statements (Note 20), page F-7
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). The Company has not paid
any dividends on its common stock.
Number of Stockholders
As of June 15, 1998, there were 288 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
Company
---------------------------------------------
Fiscal Year Ended March 31
---------------------------------------------
(In thousands, except per 1994 1995 1996 1997 1998
share data)
- ------------------------------------------------------------------------
Operating Results:
Net sales $69,934 $85,827 $118,245 $129,470$132,340
Gross profit 19,527 27,606 34,436 37,509 38,303
Restructuring charge 6,014 (664)
Operating income 8,107 15,412 21,447 16,032 21,333
Income before 4,836 8,524 10,459 9,175 13,812
extraordinary item
Extraordinary item (1) (890) (324) (2,952)
Net income 3,946 8,200 7,507 9,175 13,812
Earnings per share - $0.44 $0.65
basic
Earnings per share - $0.40 $0.60
diluted
Weighted average shares
outstanding:
Basic 20,862 21,173
Diluted 23,007 22,964
Pro Forma Operating Data
(2):
Net income $8,196 $12,040
Earnings per share - $0.40 $0.58
basic
Earnings per share - $0.36 $0.53
diluted
Weighted average shares
outstanding:
Basic 20,656 20,744
Diluted 22,743 22,799
Financial Position:
Total assets $59,532 $79,995 $90,753 $108,272$131,303
Total debt 18,043 63,909 26,131 25,999 25,893
Stockholders' equity 19,339 (8,120) 43,066 52,422 66,294
(deficit)
Working capital (1,415) 5,716 16,187 10,170 8,488
Other Data:
Discs sold (units):
DVD 6 2,201
CD-Audio 54,378 58,766 61,748 64,254 68,064
CD-ROM 4,865 28,982 63,930 92,137 114,725
- ------------------------------------------------------------------------
Total discs 59,243 87,748 125,678 156,397 184,990
</TABLE>
(1) 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 $4,183 ($2,952 net of tax) on the debt extinguishment.
(2) The pro forma net income gives effect to the Recapitalization, the Offering
and the Private Placement (each as defined in Notes 13 and 14 to the Company's
Consolidated Financial Statements). See Note 18 of Notes to Consolidated
Financial Statements.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Total discs sold increased 18.3% to 185.0 million units in fiscal
1998 from 156.4 million units in fiscal 1997. The increase resulted from a 24.5%
increase in CD-ROM unit sales to 114.7 million discs in fiscal 1998 from 92.1
million discs in fiscal 1997, combined with a CD-Audio unit volume increase of
5.9% to 68.1 million discs in fiscal 1998 from 64.3 million discs in fiscal
1997. In addition, DVD unit sales, which began in fiscal 1998, amounted to 2.2
million units. In the United States, total discs sold increased 10.7% to 111.4
million units in fiscal 1998 from 100.6 million units in fiscal 1997. United
States CD-ROM unit sales increased 10.6% to 76.9 million units in fiscal 1998
from 69.5 million units in fiscal 1997, while CD-Audio volume increased 4.8% to
32.5 million discs in fiscal 1998 from 31.0 million discs in fiscal 1997.
European total unit sales increased 31.7% to 73.5 million units in fiscal 1998
from 55.8 million units in fiscal 1997. CD-ROM unit sales in Europe increased
67.7% to 37.9 million units in fiscal 1998 from 22.6 million units in fiscal
1997, while CD-Audio unit sales increased 7.2% to 35.6 million discs in fiscal
1998 from 33.2 million discs in fiscal 1997. European unit sales include 0.6
million CD-Audio units and 0.8 million CD-ROM units from the Company's
Luxembourg facility, which commenced disc production in December 1997.
Net sales increased 2.2% to $132.3 million in fiscal 1998 from $129.5 million in
fiscal 1997. Compact disc and related revenues, excluding DVD, increased 1.0% to
$125.5 million in fiscal 1998 from $124.2 million in fiscal 1997. DVD revenues
in fiscal 1998 were $6.6 million, while turnkey and other related service
revenues of Nimbus Software Services, Inc. ("NSS"), which closed its Sunnyvale
facility in the first quarter of fiscal 1998, contributed $6.9 million in fiscal
1997. Approximately $18.0 million of the sales increase is due to the increase
in disc volume offset by a decrease in the average disc selling price from $0.79
in fiscal 1997 to $0.68 in fiscal 1998, or a 13.9% decrease. The price decline
reflects an oversupply of production capacity in Europe, as well as the
continued shift in sales mix to CD-ROM from CD-Audio, which typically has a
higher per unit packaging configuration. In addition, the Company realized lower
disc prices under a vendor supply agreement. The price declines noted above were
partially mitigated by exchange rate differences between the United States and
the United Kingdom during the twelve month period ended March 31, 1998.
Gross Profit. Gross profit increased 2.1% to $38.3 million in fiscal 1998 from
$37.5 million in fiscal 1997. Gross margin decreased slightly to 28.9% in fiscal
1998 from 29.0% in fiscal 1997. The increase in gross profit was attributable to
improved sales volume and mix, reduced raw material costs and a decrease in the
overall level of factory overhead expenses due to the closure of the Company's
Sunnyvale facility, partially offset by a decline in the average selling price
noted above. The Company's gross profit margin was unfavorably impacted by an
increase in depreciation expense resulting from capital expansion and
acquisition projects in fiscal 1997 and 1998, increased packaging material and
labor costs due to higher sales levels of non-automated packaging
configurations, increased factory overhead charges for additional warehousing
facilities at both the Charlottesville and Provo locations, and additional
freight incurred in expediting shipments to meet shorter turn times. Finally,
the Company's gross margin included depreciation and factory overhead charges at
the Luxembourg facility as the plant commenced disc production in December. If
the results of the Luxembourg facility were excluded, the Company's gross profit
margin would have been 29.7%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13.5% to $17.6 million in fiscal 1998 from
$15.5 million in fiscal 1997. The increase in selling, general and
administrative expenses in fiscal 1998 includes $2.0 million of costs incurred
in the process of establishing the EuroNimbus operations in Luxembourg. In
addition, the Company incurred higher sales and marketing costs resulting from
the Company's efforts to expand its CD-ROM business, penetrate the original
equipment manufacturers' market, establish a presence on the European continent,
and enter the DVD home entertainment market. As a percentage of net sales,
selling, general and administrative expenses increased to 13.3% in fiscal 1998
from 11.9% in fiscal 1997.
Restructuring Charge. During fiscal 1998, the Company reversed $664 of the
remaining restructuring reserve for the closure of its Sunnyvale facility upon
the completion of the restructuring plan at less than the originally estimated
cost. The reversal resulted primarily from the Company's release from its lease
obligation at the closed Sunnyvale facility.
Operating Income. Operating income increased 33.1% to $21.3 million in fiscal
1998 from $16.0 million in fiscal 1997. The increase in operating income
primarily reflects the higher unit volume described above, and the restructuring
charge incurred for the closure of Sunnyvale in fiscal year 1997. Operating
income as a percentage of net sales was 16.1% and 12.4% for fiscal years 1998
and 1997, respectively.
Interest Expense. Interest expense amounted to $2.7 million in fiscal 1998 and
in fiscal 1997. Interest expense in fiscal 1998 remained constant as a result of
the increase in the Company's effective interest rate in fiscal 1998, which was
offset by a lower level of borrowing.
Income Taxes. Income tax expense increased to $7.3 million in fiscal 1998 from
$4.6 million in fiscal 1997. The increase in income taxes was attributable to
the increase in income before taxes. The Company's effective tax rate increased
to 34.5% in fiscal 1998 from 33.3% in fiscal 1997. The increase in the Company's
effective tax rate reflects the higher percentage of net income attributable to
United States operations, which has a higher statutory tax rate than the United
Kingdom.
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 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 was 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 reflected 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 NSS declined 20.7% from
$8.7 million in fiscal 1996 to $6.9 million in fiscal 1997 due, in part, from
the loss of a significant customer and the general decline in the floppy
diskette business as it was 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 11(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, gross profit as a percent of net sales
for fiscal 1996 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
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 expense in fiscal 1997 included 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 its Sunnyvale facility
as part of a program to reduce overhead costs and improve operating
efficiencies. This charge included 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 in fiscal 1996. Exclusive of the restructuring charge incurred
for the closure of NSS, operating income increased 2.8% to $22.0 million. The
increase in operating income primarily reflected 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
the proceeds of 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 rate than the United
States.
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 $25.5 million in fiscal 1998. Working
capital was $8.5 million at March 31, 1998 compared to $10.2 million at March
31, 1997. For fiscal 1998, accounts receivable increased $3.5 million due to
higher sales volumes in the fourth quarter of fiscal 1998 compared to the same
period of fiscal 1997. Inventories and prepaid expenses increased $0.3 million
each in fiscal 1998. Accounts payable and accrued expenses increased $5.9
million in fiscal 1998, primarily due to an increase in accrued royalty
payments, while income taxes payable increased $0.3 million due to the higher
level of pretax earnings.
Capital expenditures were $29.0 million for fiscal 1998 and were related to the
establishment of a disc manufacturing facility in Luxembourg, the expansion of
disc manufacturing capacity in the United States, the installation of DVD
manufacturing capability at the Cwmbran facility, the replacement and expansion
of ancillary production equipment at the Cwmbran facility, additional DVD
bonding equipment in Charlottesville, and the continued upgrading of the
Company's worldwide management information system.
During fiscal 1999, the Company anticipates the need for approximately $22.1
million in cash for capital expenditures. Capital projects for fiscal 1999
include the continued expansion of DVD production capacity in Charlottesville,
the replacement of disc production equipment in the United Kingdom, the
expansion of mastering capacity and additional packaging equipment in the United
States, the expansion of warehouse facilities and mastering capacity in
Luxembourg, and the completion of 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 its borrowing
arrangements.
The Company's EuroNimbus subsidiary has entered into several new credit
agreements to provide for ongoing capital expenditure and working capital needs.
The BIL Agreement provides for a term loan of LUF 225 million and a short term
facility of LUF 50 million. A portion of the term loan can be utilized for the
issuing of bank guarantees. The SNCI Agreement provides for a term loan of LUF
55 million to be used for capital expenditure financing. The ECSC Agreement
provides for a term loan of LUF 70 million for capital expenditure financing.
At March 31, 1998, outstanding borrowings under the Nimbus Manufacturing credit
agreement were $18.0 million and the remaining availability under the revolving
credit facility was $25.0 million. Outstanding borrowings under the various
EuroNimbus credit agreements were $7.8 million and the remaining availability
under the BIL and SNCI Agreements was approximately $1.8 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 $3.7 million and not higher than 9.5% on approximately $14.3 million
of its term debt outstanding at March 31, 1998.
Recent Accounting Pronouncements
Effective with the first quarter of fiscal 1999, the Company will adopt
Statement No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards of reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements, either in a
statement of operations or in a separate statement. Additionally, SFAS 130
requires the display of the accumulated balance of other comprehensive income as
a separate caption in the equity section of the balance sheet as well as the
disclosure of material components of accumulated other comprehensive income
either on the face of the balance sheet, in a statement of changes in equity or
in notes to the financial statements.
The Company will also adopt Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131" ) in fiscal 1999. SFAS 131
establishes standards for the way that public companies report information about
operating segments in both interim and annual financial statements, including
related disclosures about products and services, geographic areas and major
customers. The Company does not believe that adoption of SFAS 131 will have a
significant effect on the Company's operating segments reported and related
disclosures.
Contingencies
The Internal Revenue Service ("IRS") has completed an examination of the
Company's federal income tax returns for fiscal 1993, 1994 and 1995, resulting
in 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. On May 7, 1998, the Company
received a letter from the Appeals Division of the IRS which details the
position of that division on the adjustments contained in the statutory Notice
of Deficiency. The letter requests a settlement proposal from the Company on the
most significant adjustments, including 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 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 liquidity, results of
operations, or consolidated financial position of the Company.
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. In addition, 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.
Year 2000
Certain of the Company's information systems will require remediation or
replacement over the next eighteen months in order to render these systems Year
2000 compliant. The Year 2000 problem is the result of computer hardware and
software systems that use only two digits to represent the year, rather than
four. As a result, these systems may not calculate dates beyond 1999, which may
cause errors in information or systems failures. With respect to its internal
systems, the Company is taking appropriate steps to identify and remediate the
Year 2000 issues and does not expect the cost of these efforts to be material.
However, the Year 2000 readiness of the Company's customers and suppliers may
vary.
Subsequent Event
On June 16, 1998, the Company entered into an Agreement and Plan of Merger with
Carlton Communications Plc ("Carlton"), pursuant to which a subsidiary of
Carlton would acquire all of the Company's outstanding common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million. Consummation of the merger transaction is subject to normal regulatory
filings and approval of the Company's stockholders. Certain stockholders,
including management of the Company, control an aggregate of 44% of the
Company's common stock, and have agreed to tender their shares when requested.
Following the close of the transaction, the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.
Forward Looking Statements
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 within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve a
number of 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Items 14(a)(1) and (a)(2)
hereof are incorporated herein by reference and are filed as part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company
The following persons were elected as directors at the 1997 Annual Meeting of
Stockholders and will serve until their successors are duly elected and
qualified:
<TABLE>
<S> <C> <C>
Name Age Director Since
---- --- --------------
Lyndon J. Faulkner 37 1992
Charles Ayres 38 1995
Darryl G. Behrman 47 1995
Grant G. Behrman 44 1995
Robert M. Davidson 55 1994
David E. De Leeuw 54 1995
Anthony V. Dub 48 1996
George E. McCown 63 1995
Glenn S. McKenzie 45 1995
L. Steven Minkel 56 1997
</TABLE>
LYNDON J.FAULKNER. President, Chief Executive Officer and Director since
October 1992 and Chairman of the Board of Directors since March 1995 and
Treasurer since August 1996. Mr. Faulkner was employed in various capacities
by Nimbus Records Limited (the "Predecessor")from 1985 until October 1992, most
recently as Manufacturing Director. Mr. Faulkner was initially responsible for
the design and development of the manufacturing process utilized by the
Predecessor. Mr. Faulkner was educated in electrical and electronic engineering
in the United Kingdom. Mr. Faulkner is a director of Tad Coffen Performance
Saddles Inc., a privately owned company.
CHARLES AYRES. Director of the Company since March 1995. Mr. Ayres is a general
partner of MDC Management Company III, L.P., which is the general partner of
McCown De Leeuw & Co. III, L.P. and McCown De Leeuw & Co.(Europe) III, L.P., a
general partner of MDC Management Company IIIA, L.P., which is the general
partner of McCown De Leeuw & Co. (Asia) III, L.P. and a member of Gamma Fund,
LLC. Mr. Ayres has been affiliated with McCown De Leeuw & Co., Inc., an
affiliate of McCown De Leeuw & Co. III, L.P., since 1991. Prior to that he was
a founding general partner of HMA Investments, Inc., a private investment firm
focused on middle-market management buyouts. He currently is a director of
certain privately held companies, including Aurora Foods Inc. and The Brown
Schools.
DARRYL G. BEHRMAN. Director of the Company since March 1995. Mr. Behrman is a
general partner of Behrman Brothers, L.P., the general partner of Behrman
Capital L.P. and Behrman Capital "B" L.P. The Behrman Capital entities are
private investment firms focused on management buyouts of emerging growth
companies. Prior to founding Behrman Capital in 1992, Mr. Behrman was a partner
at Wertheim Schroder& Co. Incorporated where he specialized in middle market
mergers and acquisitions, recapitalizations and management buyouts. Prior to
that he worked for Citicorp's Merchant Banking Group where he served as Vice
President and head of the Corporate Advisory Group in London. Mr. Behrman is a
Director of several privately held companies including Condor Systems, Inc.,
Professional Dental Associates, Inc. and Total Physician Services, Inc. He is
Chairman of the Board of Esoterix, Inc., a privately held company. Darryl
Behrman and Grant Behrman are brothers.
GRANT G. BEHRMAN. Director of the Company since March 1995. Mr. Behrman is a
general partner of Behrman Brothers, L.P., the general partner of Behrman
Capital L.P. and Behrman Capital "B" L.P. The Behrman Capital entities are
private investment firms focused on management buyouts of emerging growth
companies. Prior to founding Behrman Capital in 1992, Mr. Behrman was employed
for ten years by Morgan Stanley & Co. Incorporated, most recently as a general
partner in its Venture Capital Group. Mr. Behrman is a Director of Visual
Networks, Inc., which is a publicly traded company, as well as serving as
Director of several privately held companies including Esoterix, Inc. and Condor
Systems, Inc. Darryl Behrman and Grant Behrman are brothers.
ROBERT M. DAVIDSON. Director of the Company since July 1994. Since February
1997, Mr. Davidson has been Chairman and Chief Executive Officer of The Davidson
Group, a privately held investment company. From 1989 to February 1997, Mr.
Davidson was Chairman of the Board of Directors and Chief Executive Officer of
Davidson & Associates, Inc., a publicly-held educational software company that
develops, publishes and manufactures high quality educational software products
for home and school use. In 1996, Mr. Davidson also served as Vice Chairman of
CUC International, Inc., a publicly held membership-based, consumer services
company. Mr. Davidson held senior management positions at The Parsons
Corporation, a large engineering and construction company, from 1978 to 1989.
During his last five years at Parsons, he served as Executive Vice President,
and was responsible for managing a major portion of the firm's operations and
overseeing acquisitions of businesses and new technologies.
DAVID E. DE LEEUW. Director of the Company since March 1995. Mr. De Leeuw is a
managing general partner of MDC Management Company III, L.P., which is the
general partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw & Co.
(Europe) III, L.P., a managing general partner of MDC Management Company IIIA,
L.P., which is the general partner of McCown De Leeuw & Co. (Asia) III, L.P. and
a member of Gamma Fund, LLC. Mr. De Leeuw was the co-founder in 1984 of McCown
De Leeuw & Co., Inc., an affiliate of McCown De Leeuw & Co. III, L.P. He
currently serves as Vice Chairman of Vans, Inc. and a director of American
Residential Investment Trust, Inc., both publicly held companies. He also
currently serves as a director of Aurora Foods Inc., AmeriComm Holdings, Inc.,
Outsourcing Solutions Inc. and Home Asset Management Corp., all privately held
companies.
ANTHONY V. DUB. Director of the Company since May 1996. Mr. Dub is an Advisor
of Credit Suisse First Boston, an international investment banking firm with
headquarters in New York City. Mr. Dub joined Credit Suisse First Boston in
1971 and served as a Managing Director from 1981 until 1997. He currently
serves as a director of Lomak Petroleum, Inc., a publicly held company.
GEORGE E. MCCOWN. Director of the Company since March 1995. Mr. McCown is a
managing general partner of MDC Management Company III, L.P., which is the
general partner of McCown De Leeuw & Co. III, L.P., and McCown De Leeuw & Co.
(Europe) III, L.P., a managing general partner of MDC Management Company IIIA,
L.P., which is the general partner of McCown De Leeuw & Co. (Asia) III, L.P. and
a member of Gamma Fund, LLC. Mr. McCown was the co-founder in 1984 of McCown De
Leeuw & Co., Inc., an affiliate of McCown De Leeuw & Co. III, L.P. He serves as
Chairman of the Board of Building Materials Holding Corp., and as Vice Chairman
of Vans, Inc., both publicly held companies as well as Chairman of Pelican
Companies, Inc., a privately held company. Mr. McCown also serves as a director
of Fibermark, Inc., a publicly held company, as well as serving as a director of
International Data Response Corp., Fitness Holdings, Inc., The Brown Schools,
RSP Manufacturing Corp., Home Asset Management Corp. and Fitness Europe, all
privately held companies.
GLENN S. MCKENZIE. Director of the Company since March 1995. Mr. McKenzie has
been President of Alpha Investments, Inc., a management consulting firm, since
October 1991. He currently serves as a director of Fibermark, Inc., a publicly
held company, and DEC International, Inc., a privately held company.
L. STEVEN MINKEL Director of the Company since August 1997. Mr. Minkel has been
Executive Vice President, Chief Financial Officer and Secretary since November
1992. Before joining the Company, from February 1986 to October 1992, he was
Vice President and Chief Financial Officer of Duchossois Industries, Inc., a
privately owned manufacturing conglomerate. Mr. Minkel served as a director of
the Company from November 1992 through March 1995.
<PAGE>
Board Meetings
The Board of Directors met five times during fiscal 1998. All of such meetings
were special meetings. Except for David E. De Leeuw and George E. McCown, all
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and standing Committees on which they served. Each of David E. De
Leeuw and George E. McCown attended, respectively, three out of five meetings of
the Board and the standing committees on which they served.
Committees
The Board of Directors has an Executive Committee comprised of the Chief
Executive Officer, the Chief Financial Officer and two non-employee directors,
an Audit Committee comprised of three non-employee directors and a Compensation
Committee comprised of four directors, two of whom the Company has deemed to be
independent.
The Executive Committee held monthly meetings during fiscal 1998. The Executive
Committee is authorized, within parameters and limitations set out by the
Company's Board of Directors, to meet and act on behalf of the Board during
interim periods between regular meetings of the Board. During fiscal 1998, the
members of the Executive Committee included Messrs. Faulkner, Minkel, Ayres and
G. Behrman.
The Audit Committee held one meeting during fiscal 1998. Its principal functions
are to recommend the firm of independent accountants to serve the Company each
fiscal year to the Board of Directors and to review the plan and results of the
prior year's audit by the independent accountants as well as the scope, results,
and adequacy of the Company's internal accounting controls and procedures. In
addition, the Audit Committee reviews the independence of the accountants and
reviews their fees for audit and non-audit services rendered to the Company.
During fiscal 1998, the members of the Audit Committee included Messrs.
Davidson, Dub and McKenzie.
The Compensation Committee held two meetings during fiscal 1998. Its principal
functions are to approve remuneration of the officers of the Company, review
certain benefit programs, and approve and administer remuneration plans,
including the stock incentive plans of the Company. During fiscal 1998, the
members of the Compensation Committee included Messrs. Ayres, D. Behrman,
Davidson and Dub.
<PAGE>
Executive Officers of the Company
The following table lists the executive officers of the Company and its
affiliates. All executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors of the Company.
<TABLE>
<S> <C> <C>
Position Business Experience
Name and Age with the Company During Past Five Years
- --------------------------------------------------------------------------------
Lyndon J. Faulkner (37) President, *
Chief Executive Officer,
Treasurer and
Chairman of the Board of
Directors
L. Steven Minkel (56) Executive Vice President, *
Chief Financial Officer
and Secretary
Howard G. Nash (49) European Managing Mr. Nash has served as
Director, Nimbus European Managing
Manufacturing (UK) Limited Director of Nimbus
Manufacturing (UK) Limited
since January 1994. Prior
to that time, he was
employed in various
management capacities,
including Finance
Director, by Nimbus
Manufacturing (UK) Limited
and the Predecessor.
Robert J. Headrick (41) President, Nimbus Mr. Headrick has served
Information Systems, as President of Nimbus
Inc., Information Systems,
Executive Vice President, Inc. since March 1993
Nimbus Manufacturing Inc. and as Executive Vice
President of Nimbus
Manufacturing Inc. since
March 1994.
Robert J. Lynch (37) Vice President, Nimbus Mr. Lynch has served as
Manufacturing Inc. Vice President of Nimbus
Manufacturing Inc. since
March 1994. Prior to
that time, he was
employed in various
management capacities,
including Operations
Manager, by Nimbus
Manufacturing Inc. and
the Predecessor.
Gary E. Krutul (42) Controller and Chief Mr. Krutul has served as
Accounting Officer, Controller and Chief
Assistant Secretary and Accounting Officer since
Assistant Treasurer June 1995 and Assistant
Secretary and Assistant
Treasurer since August
1996. From September
1991 to February 1995,
Mr. Krutul served as
Financial Manager for
Bally's Total Fitness,
Inc.
- ---------------------------
* See "Director Biographies"
</TABLE>
<PAGE>
Family Relationships
Directors Grant and Darryl Behrman are brothers. Otherwise, there is no family
relationship between any director, executive officer, or person nominated or
chosen by the Company to become a director or executive officer.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock and to provide copies of the reports to the Company. To
the Company's knowledge, based solely on a review of the copies of reports
furnished to the Company, and written representations that no other reports were
required to be filed, during the fiscal year ended March 31, 1998, the Company's
directors, executive officers, and stockholders beneficially owning more than
ten percent of the Company's Common Stock complied with their respective Section
16(a) reporting requirements.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Beginning November 1995, the Company began paying an annual fee of $10,000 to
directors of the Company who are not compensated as officers of the Company or
employed by an affiliate of the Company, including McCown De Leeuw & Co., Inc.
(the "MDC Entities") and Behrman Capital L.P. ("Behrman Capital"). The Company
also reimburses each director for out-of-pocket expenses incurred in attending
meetings of the Board of Directors and its committees.
In addition, in October 1995, the Board of Directors, with the approval of the
stockholders, adopted the Nimbus CD International, Inc. 1995 Stock Option Plan
for Non-Employee Directors (the "Directors' Plan"). The Directors' Plan is
designed to attract and retain the services of experienced and highly qualified
outside directors and to create a proprietary interest for such directors in the
Company's continued success. Under the Directors' Plan, grants of stock options
will be made to each member of the Board, who is (a) not an employee of the
Company, (b) not an employee of an affiliate of the Company, and (c) otherwise
not eligible for selection to participate in any plan of the Company or its
affiliates that entitles such member to acquire securities or derivative
securities of the Company. An aggregate of 50,000 shares of Common Stock have
been reserved for issuance under the Directors' Plan. Notwithstanding the
foregoing, adjustments may be made by the Company's Board of Directors in the
number and class of shares available under the Directors' Plan and the number,
class and price of shares subject to outstanding option grants, in each such
case, to reflect changes in the Company's corporate structure or capitalization,
such as through a merger or stock split.
Options awarded under the Directors' Plan expire ten years from the date of
grant (unless the period is shortened by the non-employee independent director's
retirement, death, disability or a change of control as defined in the
Directors' Plan). Options awarded subsequent to October 31, 1995 will permit the
non-employee independent director, for a period of up to ten years from the date
of grant (unless the period is shortened by the non-employee independent
director's retirement, death, disability or a change in control as defined in
the Directors' Plan), to purchase 2,500 shares of Common Stock from the Company
at the fair market value of such shares on the date such option is granted.
Each non-employee independent director will receive such an option whenever he
or she is elected, re-elected or appointed to the Company's Board of Directors
and otherwise satisfies the requirements for participation in the Directors'
Plan. Generally, an option shall only be exercisable with respect to one-third
of the shares subject to the option on the first anniversary of the date of
grant (and not prior thereto) and then with respect to an additional one-third
of such shares beginning on each of the second and third anniversaries of the
date of grant; provided, however, the option shall be fully exercisable upon (i)
the attainment of age 70 by the optionee or (ii) the death or disability (as
defined in the Directors' Plan) of the optionee. Notwithstanding the foregoing,
in no event may an option under the Directors' Plan be exercised prior to the
expiration of six months from the date of grant. Except in certain limited
circumstances, an option may be exercised only if the optionee at the time of
exercise is, and at all times following the grant of the option remains, a
non-employee director of the Company.
On October 30, 1995, Robert M. Davidson was awarded options to purchase 10,000
shares of the Company's Common Stock at an exercise price equal to $7.00. Such
options vest ratably over a three year period with the first options vesting on
October 30, 1996. On May 20, 1996, upon his appointment to the Company's Board
of Directors, Anthony V. Dub was awarded options to purchase 2,500 shares of the
Company's Common Stock at an exercise price of $11.25 per share. Such options
shall vest ratably over three years beginning May 20, 1997. On August 6, 1996,
upon their re-election to the Board, each of Messrs. Davidson and Dub were
granted options to purchase 2,500 additional shares of the Company's Common
Stock under the Directors' Plan at an exercise price of $12.63. Such options
shall vest ratably over three years beginning August 6, 1997. On August 5, 1997,
upon their re-election to the Board, each of Messrs. Davidson and Dub were
granted options to purchase 2,500 additional shares of the Company's Common
Stock under the Directors' Plan at an exercise price of $12.37. Such options
will vest ratably over three years beginning August 5, 1998.
The Directors' Plan will terminate upon the earlier to occur of (i) the adoption
of a resolution of the Company's Board of Directors terminating the Directors'
Plan, (ii) the date all shares of Common Stock subject to the Directors' Plan
are purchased according to the provisions of the Directors' Plan or (iii) ten
years from the date of adoption of the Directors' Plan by the Company's Board of
Directors.
Executive Compensation
The following sections disclose detailed information about cash and equity-based
executive compensation paid by the Company to certain of its executive
employees. The information is comprised of a stock performance graph, a Report
of the Compensation Committee of the Company's Board of Directors, a Summary
Compensation Table and additional tables which provide further details on stock
options issued by the Company.
Cumulative Total Stockholder Return
The following performance graph compares the cumulative total return, assuming
the reinvestment of dividends, for the period from October 26, 1995 through
March 31, 1998, from an investment of $100 in (i) the Company's Common Stock,
(ii) the Nasdaq National Market Composite Index, and (iii) the Russell 2000
Index which is assembled by Frank Russell Company. This data was furnished by
Media General Financial Services, Inc. The Company has chosen the Russell 2000
Index for comparison because the Company does not believe that it can reasonably
identify a peer group or a published industry or line-of-business index that
contains companies in a similar line of business and because the Russell 2000
Index includes companies with capitalizations similar to that of the Company. No
dividends have been declared or paid on the Company's Common Stock.
Total Return Data Ending March 31
Nimbus CD International, Russell 2000 Index, NASDAQ Composite
<TABLE>
<S> <C> <C> <C> <C>
10/26/95 3/31/96 3/31/97 3/31/98
-------------------------------------------
Nimbus CD International
Cumulative Data Points 10/26/95 = 100.00 101.61 125.81 131.45
100
Russell 2000 Index
Cumulative Data Points 10/26/95 = 100.00 112.52 118.26 167.92
100
NASDAQ Composite
Cumulative Data Points 10/26/95 = 100.00 105.81 118.37 178.89
100
</TABLE>
The Nasdaq National Market Composite Index tracks the aggregate price
performance of equity securities of companies traded on the Nasdaq National
Market. The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "NMBS".
The performance of any individual company's common stock is influenced not only
by its own performance and future prospects, but also by a number of external
factors over which the company and its management have indirect or no control,
including general economic conditions, expectations for the company's future
performance and conditions affecting or expected to affect the company's
industry. In addition, stock performance can be affected by factors such as
trading volume, analytical research coverage by the investment community, and
the propensity of stockholders to hold the stock for investment purposes. The
relative weight of these factors also changes over time. Consequently, stock
performance, including measurement against indices, may not be representative of
a company's financial performance for given periods of time.
Report of the Compensation Committee of the Board of Directors
During fiscal 1998, decisions on compensation for the Company's executive
officers were made by the Compensation Committee of the Board of Directors which
is composed of four directors who are not employed by the Company. At the
direction of the Board of Directors, the Compensation Committee is responsible
for determining salary and bonus plans for certain officers designated by the
Board, from time to time, and is responsible for approving all stock option
awards granted under the Amended and Restated Nimbus CD International, Inc. 1995
Stock Option and Stock Award Plan (as the same may be amended or modified, the
"Nimbus Plan"). For fiscal 1998, the Board directed the Compensation Committee
to review and approve salary and bonus awards for the Company's Chief Executive
Officer and Chief Financial Officer, the European Managing Director of Nimbus
Manufacturing (UK) Limited, the Vice President- Manufacturing of Nimbus
Manufacturing Inc., the Executive Vice President of Nimbus Manufacturing Inc.
and President of Nimbus Information Systems, Inc. and the Executive Vice
President- North American Operations of Nimbus Manufacturing Inc.
The Compensation Committee's primary goal is to develop the Company's
compensation program so that it is related to creating shareholder value. The
Committee seeks to offer the Company's executive officers competitive
compensation opportunities based on their individual performance, the Company's
financial performance and their personal contribution to that performance.
Furthermore, the executive compensation program is designed to attract and
retain executive talent that contributes to the Company's long term success,
reward achievement of the Company's short-term and long-term strategic goals,
link executive officer compensation and shareholder interests through
equity-based plans, and recognize and reward individual contributions to Company
performance.
During fiscal 1998, the Compensation Committee determined salary levels for
executive officers by considering a number of factors, including: (i) individual
performance, (ii) functions performed by the executive officer, (iii) scope of
the executive officer's on-going duties, (iv) general changes in the
compensation peer group in which the Company competes for executive talent and
(v) the Company's financial performance in general. No single factor was
predominant in determining the salary level of any officer. Moreover, the
Committee did not weigh any single factor against another in a manner that made
it possible to assign a numerical value to the weight of any factor in
determining the percentage increase in salary of the executive officers.
At a meeting of the Committee held on April 1, 1997, the Committee approved a
salary increase of 10% for Howard Nash, European Managing Director, Nimbus
Manufacturing (UK) Limited. Mr. Faulkner provided the Committee with an
evaluation of Mr. Nash's performance and participated in the discussion with
regard to the amount of salary increase. Salary increases were not considered by
the Committee for Messrs. Faulkner, Minkel, Headrick, Lynch and Trudel during
fiscal 1998.
In order to increase incentives for exceptional performance, a portion of each
executive officer's compensation is paid in the form of contingent cash bonuses
which are paid annually. The bonus amounts for executive officers are dependent
in part on the Company's financial performance, as well as individualized
criteria such as achievement of specific goals for the Company and/or its
subsidiaries and satisfactory completion of special projects supervised by the
Chief Executive Officer. The Company's financial performance objectives must be
achieved before individual objectives are evaluated. For fiscal 1998, no bonuses
were paid to Messrs. Faulkner, Minkel, Trudel or Headrick because the financial
performance objectives established for those officers were not achieved. Mr.
Nash was awarded a $11,541 bonus based on 90% performance against stated
objectives. On May 15, 1998, the Committee approved a cash bonus of $25,000 for
Messrs. Faulkner and Minkel based on factors extraordinary to these performance
measurements.
Stock options serve to further align the interests of management and the
Company's stockholders by providing executive officers with an opportunity to
benefit from stock price appreciation that can be expected to accompany improved
financial performance. Options also enhance the Company's ability to attract and
retain executives. The number of option shares granted and the other terms of
such options, such as the vesting period, are determined by the Committee, based
on recommendations of management in light of, among other factors, each
executive officer's level of responsibility, prior performance and other
compensation. However, the plan does not provide any quantitative method for
weighting these factors, and a decision to grant an award is based primarily
upon an evaluation of past as well as future anticipated performance and
responsibilities of each executive officer.
On April 1, 1997, the Compensation Committee awarded non-qualified stock options
to purchase 197,500 shares of Common Stock at a purchase price of $9.13 to 42
managers of the Company. Such options will vest ratably over five years with the
first one-fifth vesting on March 31, 1998. Of these options, Messrs. Faulkner,
Minkel, Nash and Trudel each received options to purchase 15,000 shares of the
Company's Common Stock. Mr. Headrick received options to purchase 10,000 shares
of the Company's Common Stock.
On December 9, 1997, the Committee awarded non-qualified stock options to
purchase 12,000 shares of Common Stock at a purchase price of $10.13 to six
managers. After giving effect to the above grants, there are 352,204 shares of
Common Stock available to be awarded under the Nimbus Plan.
For fiscal 1999, the Compensation Committee will be responsible for salary
levels and bonuses for all persons employed by the Company who are deemed by the
Board to be within the Securities and Exchange Commission's definition of
"executive officer". Specifically, the Board has designated the Company's Chief
Executive Officer and Chief Financial Officer, the European Managing Director of
Nimbus Manufacturing (UK) Limited, the Executive Vice President of Nimbus
Manufacturing Inc. and President of Nimbus Information Systems, Inc. and the
Executive Vice President - North American Operations of Nimbus Manufacturing
Inc.
To the extent appropriate, the Company intends to take the necessary steps to
conform its compensation practices to comply with the $1 million compensation
deduction cap under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Respectfully submitted:
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Charles Ayers
Darryl G. Behrman
Robert M. Davidson
Anthony V. Dub
<PAGE>
Summary Compensation Table
The following summary compensation table presents information about the
compensation paid by the Company during its three most recent fiscal years to
those individuals who were (i) the Company's Chief Executive Officer (the "CEO")
at the end of the last completed fiscal year, regardless of compensation level
and (ii) the four other most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers").
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION
ALL
FISCAL OTHER OTHER
NAME AND YEAR ANNUAL OPTIONS COMPEN-
PRINCIPAL ENDED SALARY BONUS COMPENSATION GRANTED SATION
POSITION MARCH 31 ($) ($) ($)(2) (#) (3)
($)
- --------------------------------------------------------------------------------
Lyndon J. Faulkner 1998 242,550 25,000 0 15,000 12,230
President, Chief 1997 242,550 0 0 35,000 11,422
Executive Officer, 1996 231,000 73,600 0 475,326 12,486
Treasurer and
Chairman of the Board
of Directors
L. Steven Minkel 1998 200,000 25,000 0 15,000 9,549
Executive Vice 1997 191,260 0 0 32,000 9,992
President, Chief 1996 177,876 73,600 0 316,821 9,070
Financial Officer and
Secretary
David J. Trudel (4) 1998 181,000 0 0 15,000 3,680
Executive Vice 1997 145,792 0 28,443 20,000 1,370
President, Nimbus
Manufacturing Inc.
Robert J. Headrick 1998 180,180 0 0 10,000 7,143
President, Nimbus 1997 180,180 0 0 5,000 7,265
Information Systems, 1996 173,828 23,400 0 105,670 7,211
Inc., Executive Vice
President, Nimbus
Manufacturing Inc.
Howard G. Nash 1998 128,427 11,541 0 15,000 28,070
European Managing 1997 105,650 32,000 0 20,000 22,489
Director, Nimbus 1996 92,918 31,746 0 131,993 19,528
Manufacturing (UK)
Limited
</TABLE>
- -------------
(1) While each of the five Named Executive Officers received perquisites or
other personal benefits in the years shown, in accordance with Securities
and Exchange Commission regulations, the value of these benefits are not
indicated since they did not exceed the lesser of $50,000 or 10% of the
individual's salary and bonus in any year.
(2) The amount set forth in the Summary Compensation Table under the heading
"Other Annual Compensation" includes (i) $21,243 for reimbursements made
by the Company to Mr. Trudel or on behalf of Mr. Trudel for relocation
costs and (ii) $7,200 as an automobile allowance on behalf of Mr. Trudel.
<PAGE>
(3) Amounts set forth in the Summary Compensation Table under the heading "All
Other Compensation" include (i) contributions made by the Company to the
Company's 401(k) plan or, in the case of Messrs. Faulkner and Nash, to the
Company's U.K. Pension Scheme for the benefit of the Named Executive
Officer and (ii) the Company's payment of life insurance premiums on
behalf of the Named Executive Officer. In fiscal 1998, the Company paid
$885, $2,254, $1,141 and $743 in life insurance premiums on behalf of
Messrs. Faulkner, Minkel, Trudel and Headrick, respectively. In fiscal
1997, the Company paid $330, $2,250, $487 and $330 in life insurance
premiums on behalf of Messrs. Faulkner, Minkel, Trudel and Headrick,
respectively. In fiscal 1996, the Company paid $330, $1,440 and $330 in
life insurance premiums on behalf of Messrs. Faulkner, Minkel and
Headrick, respectively.
(4) Mr. Trudel ceased to be employed by the Company in February 1998.
Employment Agreements
The Company has entered into employment agreements with Messrs. Faulkner,
Minkel, Headrick and Nash. The employment agreement with Mr. Faulkner provides
for a base salary of not less than $200,000 and provides for an initial term
ended March 31, 1994 and for continuation thereafter for additional one year
periods until terminated in accordance with the agreement. The agreement also
provides for an annual bonus subject to the achievement of annual performance
criteria (such bonus for fiscal 1998 was $0). The agreement may be terminated by
the Company with or without cause, provided that if it is terminated without
cause the Company will be obligated to pay the greater of one year's salary plus
the previous year's bonus or all salary and benefits specified in the agreement
from the date of termination to the end of the then current contract term.
The employment agreement with Mr. Minkel provides for a base salary of not less
than $150,000 and provides for an initial term ended November 8, 1994 and for
continuation thereafter for additional one year periods until terminated in
accordance with the agreement. The agreement also provides for an annual bonus
subject to the achievement of annual performance criteria (such bonus for fiscal
1998 was $0). The agreement may be terminated by the Company with or without
cause, provided that if it is terminated without cause the Company will be
obligated to pay the greater of one year's salary plus the previous year's bonus
or all salary and benefits specified in the agreement from the date of
termination to the end of the then current contract term.
The employment agreement with Mr. Headrick provides for a base salary of not
less than $140,000 and provides for an initial term ended March 7, 1994.
Thereafter, the agreement continues for additional six month periods until
terminated in accordance with the agreement. The agreement also provides for an
annual bonus, subject to achievement of annual performance criteria (such bonus
for fiscal 1998 was $0). The agreement may be terminated by the Company with or
without cause, provided that if it is terminated without cause the Company is
obligated to pay Mr. Headrick the greater of six months' salary or all salary
and benefits specified in the agreement from the date of termination to the end
of the then current term.
Mr. Nash is employed under a standard contract for employment of directors in
the United Kingdom which provides, among other things, certain statutory
entitlements and a base salary of (pound)38,250 which is reviewed annually. The
agreement does not have a fixed term and, except in the case of serious employee
misconduct or gross negligence, requires the parties to the agreement to provide
12 months prior written notice of a desire to terminate. The Company may make a
payment in lieu of notice.
Compensation Committee Interlocks and Insider Participation
From October 1992 until June 1993, the executive compensation program of the
Company was administered by the Board of Directors. During such period Mr.
Faulkner, President, and Mr. Minkel, Executive Vice President, participated in
the deliberations of the Board of Directors concerning executive officer
compensation. On June 3, 1993, the Board of Directors established a Compensation
Committee to administer the Company's executive compensation program. The
Compensation Committee is currently comprised of four non-employee directors.
Stock Options
The Company has adopted the Amended and Restated Nimbus CD International, Inc.
1995 Stock Option and Stock Award Plan (the "Nimbus Plan"). The Nimbus Plan is
intended to further the long-term stability and financial success of the Company
by attracting and retaining key employees through the use of stock incentives,
including stock options. The Company does not award stock appreciation rights
under the Nimbus Plan. The Company has reserved a total of 2,715,449 shares
(adjusted to give effect to the Company's 3.76049 stock split effective October
16, 1995) of common stock for issuance under the Nimbus Plan.
The following table sets forth additional information concerning individual
grants of stock options made under the Nimbus Plan during the last completed
fiscal year to each of the Named Executive Officers:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Option Grants In Last Fiscal Year
POTENTIAL
REALIZED VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
INDIVIDUAL GRANTS PRICE
APPRECIATION
FOR OPTION
TERM (1)
- ------------------------------------------------------------ ---------------
% OF
TOTAL
OPTIONS
GRANTED EXERCISE
OPTIONS TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (2) IN FISCAL ($/SH) DATE ($) ($)
(#) YEAR
- ------------------------------------------------------------ ---------------
Lyndon J. Faulkner 15,000 7.1% $9.13 3/31/07 $86,142 $218,298
L. Steven Minkel 15,000 7.1% $9.13 3/31/07 $86,142 $218,298
David J. Trudel 15,000 7.1% $9.13 3/31/07 $86,142 $218,298
Robert J. Headrick 10,000 4.7% $9.13 3/31/07 $57,428 $145,532
Howard G. Nash 15,000 7.1% $9.13 3/31/07 $86,142 $218,298
</TABLE>
(1) The potential realized values in the table assume that the market price of
the Company's Common Stock appreciates in value from the date of grant to
the end of the option term at the annualized rates of five percent and ten
percent, respectively. The actual value, if any, an executive may realize
will depend on the excess, if any, of the stock price over the exercise
price on the date the option is exercised. There is no assurance that the
value realized by an executive will be at or near the value estimated in
the table.
(2) Options were granted April 1, 1997. The options will vest ratably over a
five year period with one fifth of the options becoming exercisable on
March 31, 1998 and one fifth vesting each March 31 thereafter until the
options are fully vested on March 31, 2002.
<PAGE>
The following table sets forth information concerning each exercise of
stock options during fiscal 1998 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options, provided on an aggregated basis:
<TABLE>
<S> <C> <C> <C> <C>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Unexercised Option Values
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY(2)
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES
ACQUIRED VALUE(1) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
(#) ($)
- --------------------------------------------------------------------------------
Lyndon J. Faulkner 0 $0.00 484,789/264,196 $4,089,504/$1,785,385
L. Steven Minkel 0 $0.00 160,296/185,287 $1,111,096/$1,194,152
David J. Trudel 0 $0.00 11,000/24,000 $3,173/$12,690
Robert J. Headrick 0 $0.00 55,658/62,406 $405,140/$402,616
Howard G. Nash 0 $0.00 113,259/88,192 $870,931/$504,882
</TABLE>
(1) The dollar values referred to in columns (C) and (E) are calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise price of the options at exercise
or fiscal year-end, respectively.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 15, 1998, as to shares of
Common Stock owned by (i) each person who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) each
director of the Company, (iii) each executive officer named in the Summary
Compensation Table, and (iv) all directors and officers as a group, together
with their respective percentages.
<TABLE>
<S> <C> <C>
AMOUNT AND NATURE % OF CLASS
NAME OF PERSON OR OF BENEFICIAL (IF MORE
NUMBER OF PERSONS IN GROUP OWNERSHIP (1) THAN 1%) (2)
-------------------------- ------------- ------------
McCown De Leeuw & Co. III, L.P.(3) 5,528,901 25.8
McCown De Leeuw & Co. Offshore (Europe) 5,528,901 25.8
III, L.P. (3)
McCown De Leeuw & Co. (Asia) III, L.P. (3) 5,528,901 25.8
Gamma Fund LLC (3) 5,528,901 25.8
Behrman Capital L.P. (4) 3,670,066 17.1
Behrman Capital "B" L.P. (4) 3,670,066 17.1
Strategic Entrepreneur Fund, L.P. (4) 3,670,066 17.1
Charles Ayres (3) 5,575,744 26.0
Darryl G. Behrman (4) 3,670,066 17.1
Grant G. Behrman (4) 3,670,066 17.1
Robert M. Davidson (5) 9,165 *
David E. De Leeuw (3)(6) 5,615,076 26.1
Anthony V. Dub (7) 19,165 *
Lyndon J. Faulkner (8) 484,789 2.2
George E. McCown (3)(9) 5,579,954 26.0
Glenn S. McKenzie (10) 1,000 *
L. Steven Minkel (11) 335,651 1.6
Robert J. Headrick (12) 55,658 *
Howard G. Nash (13) 113,259 *
David J. Trudel (14) 11,000 *
All directors and executive officers as a 10,509,325 46.9
group (15 persons)(16)
- ----------------
</TABLE>
* Less than one percent of the issued and outstanding shares of Common Stock.
(1) The amount and percentage of securities beneficially owned by an
individual are determined in accordance with the definition of beneficial
ownership set forth in the regulations of the Securities and Exchange
Commission and, accordingly, may include securities owned by or for, among
others, the spouse and/or minor children of the individual and any other
relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or investment
power or has the right to acquire within 60 days after June 15, 1998.
Beneficial ownership may be disclaimed as to certain of the securities.
Unless otherwise indicated, the persons and entities named have sole
voting and dispositive power over their shares.
(2) Individual percentages have been rounded. Shares subject to outstanding
stock options or warrants which the individual has the right to acquire
within 60 days after June 15, 1998, are deemed to be outstanding for the
purpose of computing the percentage of outstanding securities of the class
owned by such individual, or any group including such individual, but are
not deemed outstanding for the purpose of computing the percentage of the
class owned by any other individual.
(3) Includes 4,478,412 shares owned by McCown De Leeuw & Co. III, L.P., an
investment partnership whose general partner is MDC Management Company
III, L.P. ("MDC III"), 774,046 shares held by McCown De Leeuw & Co.
(Europe) III, L.P., an investment partnership whose general partner is MDC
Management Company IIIE, L.P. ("MDC IIIE"), 82,931 shares held by McCown
De Leeuw & Co. (Asia) III, L.P., an investment partnership whose general
partner is MDC Management Company IIIA, L.P. ("MDC IIIA"), and 193,512
shares owned by Gamma Fund LLC, a California limited liability company
("Gamma"). The voting members of Gamma are George E. McCown, David E. De
Leeuw, David E. King, Robert B. Hellman, Jr., Charles Ayres and Steven
Zuckerman, who are also the only general partners of MDC III, MDC IIIE and
MDC IIIA. Voting and dispositive decisions regarding the Common Stock
owned by MDC III, MDC IIIE and MDC IIIA are made by Messrs. McCown and De
Leeuw, as Managing General Partners of each of such partnerships, who
together have more than the required two-thirds-in-interest vote of the
Managing General Partners necessary to effect such decision on behalf of
any such entity. Voting and dispositive decisions regarding the Common
Stock owned by Gamma are made by a vote or consent of a majority in number
of the members of Gamma. No general partner is able to individually direct
the voting or disposition of Common Stock beneficially owned by MDC III,
MDC IIIE and MDC IIIA. Messrs. McCown, De Leeuw, King, Hellman, Ayres and
Zuckerman, disclaim beneficial ownership of any shares of Common Stock
owned by MDC III, MDC IIIE, MDC IIIA and Gamma except to the extent of
their proportionate partnership interests or membership interests (in the
case of Gamma). The address of each of MDC III, MDC IIIE, MDC IIIA and
Gamma is c/o McCown De Leeuw & Co., 3000 Sand Hill Road, Building 3, Suite
290, Menlo Park, California 94025.
(4) Includes 3,306,037 shares owned by Behrman Capital L.P., an investment
partnership whose general partner is Behrman Brothers, L.P., and 298,278
shares owned by Behrman Capital "B" L.P., an investment partnership whose
general partner is Behrman Brothers, L.P., and 65,751 shares owned by
Strategic Entrepreneur Fund, L.P., an investment partnership whose general
partners are Darryl G. Behrman and Grant G. Behrman. Darryl Behrman and
Grant Behrman are the only general partners of each of Behrman Brothers,
L.P. and Strategic Entrepreneur Fund, L.P., and, as such, each may make
voting and dispositive decisions regarding the Common Stock. Messrs.
Darryl Behrman and Grant Behrman have no direct ownership of any shares of
Common Stock and disclaim beneficial ownership of any shares of Common
Stock except to the extent of their proportionate partnership interests.
The address of Behrman Capital is c/o Behrman Capital L.P., 126 East 56th
Street, New York, New York 10022.
(5) Includes 9,165 shares subject to stock options.
(6) Includes 4,000 shares held for the benefit of Mr. De Leeuw in the MDC
Management Company, Inc. Retirement Savings and Investment Plan of which
Mr. De Leeuw is a trustee. Also includes 1,000 shares held in trust for
the benefit of Brian De Leeuw, Mr. De Leeuw's son, of which Treva De
Leeuw, Mr. De Leeuw's wife, serves as trustee. Mr. De Leeuw disclaims
beneficial ownership of the shares held in trust for the benefit of Brian
De Leeuw.
(7) Includes 4,165 shares subject to stock options.
(8) All shares are subject to stock options.
(9) Includes 4,000 shares held for the benefit of Mr. McCown in the MDC
Management Company, Inc. Retirement Savings and Investment Plan of which
Mr. McCown is a trustee.
(10) Mr. McKenzie is a consultant to McCown De Leeuw & Co.
(11) Includes 160,296 shares subject to stock options. Also includes 500 shares
owned by each of Lewis C. Minkel and Carter P. Minkel, Mr. Minkel's adult
sons, of which Mr. Minkel expressly disclaims beneficial ownership.
(12) All shares are subject to stock options
(13) All shares are subject to stock options.
(14) All shares are subject to stock options.
(15) Includes 933,632 shares issuable upon the exercise of stock options and
9,198,967 shares beneficially owned by the MDC Entities and Behrman
Capital.
On June 16, 1998, the Company entered into an Agreement and Plan of Merger with
Carlton Communications Plc ("Carlton"), pursuant to which a subsidiary of
Carlton would acquire all of the Company's outstanding common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million. Consummation of the merger transaction is subject to normal regulatory
filings and approval of the Company's stockholders. Certain stockholders,
including management of the Company, control an aggregate of 44% of the
Company's common stock, and have agreed to tender their shares with requested.
Following the close of the transaction, the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
1995 Recapitalization. On March 31, 1995, certain affiliates of the MDC Entities
and Behrman Capital replaced affiliates of DLJ Merchant Banking, Inc. ("DLJMB
Investors") as the Company's majority stockholders through a series of
transactions (the "Recapitalization"). The MDC Entities and Behrman Capital
acquired 10,698,970 shares of the Company's Common Stock for an aggregate
purchase price of $27 million and another investor acquired 118,876 shares of
Common Stock for $300,000. The Company refinanced its then-outstanding debt and
borrowed an additional $41.1 million. The Company also received $1.7 million
from Chase Manhattan Investment Holdings, Inc. ("Chase Manhattan") for the
issuance of warrants to purchase 693,453 shares of its Common Stock for $0.01
per share. The warrants became exercisable upon the occurrence of the Company's
initial public offering and Chase Manhattan exercised its right to purchase
175,000 shares of Common Stock. Chase Manhattan exercised their remaining
518,453 warrants, which converted into 518,002 shares of Common Stock in a
cashless transaction, on September 2, 1997.
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 the DLJMB Investors and 2,834,436 shares of Common Stock from certain members
of management and other stockholders (including 2,174,015 shares received by
management upon exercise of stock options which became fully vested in the
Recapitalization) for an aggregate cost of $65.3 million, including related fees
and expenses.
Initial Public Offering. On October 16, 1995, the Company declared a 3.76049 for
one stock split which was distributed to stockholders on October 18, 1995.
Thereafter, on October 30, 1995, the Company completed an initial public
offering of securities with the sale of 6,350,000 shares of Common Stock at a
price per share (net of underwriting discounts and commissions) of $6.55. Of the
6,350,000 shares of Common Stock offered for sale, 5,080,000 shares were
purchased and offered for sale to the public by underwriters in the United
States (the "U.S. Offering"), with the remaining 1,270,000 shares being
purchased and offered for sale to the public by foreign underwriters (the
"International Offering", together with the U.S. Offering, the "Offerings").
Contemporaneously with the Offerings, Behrman Capital, a principal stockholder
of the Company, purchased 500,000 shares of Common Stock of the Company at $6.55
per share in a private placement transaction.
Stockholders Agreement. On March 31, 1995, the Company and holders of Common
Stock (collectively, the "Holders") entered into a Stockholders Agreement (the
"Stockholders Agreement"). The Stockholders Agreement contains, among other
things, restrictions on the transfer of shares of Common Stock and certain
registration rights with respect thereto and matters related to the Board of
Directors of the Company. Upon completion of the Offerings, all of the
provisions of the Stockholders Agreement terminated except for provisions
relating to certain registration rights. These provisions state that after March
31, 2000, Behrman Capital and the DLJMB Investors, and after March 31, 2002,
Chase Manhattan, shall each have a one time right to demand that the Company
register for sale under the Securities Act of 1933 (the "Securities Act") all or
a portion of the shares of Common Stock of such Holder as then owned by it. Any
such registration is subject to certain time and size limitations. In addition,
the Holders are also entitled to require the Company to use its best efforts to
include shares owned by them in a registered offering of equity securities of
the Company, subject to marketing restrictions determined by the managing
underwriter.
Registration Rights Agreement. Upon consummation of the Offerings, the Company
and the MDC Entities entered into a registration rights agreement pursuant to
which the Company will grant certain registration rights to the MDC Entities and
certain of their transferees and assignees with respect to shares of Common
Stock owned or acquired by the MDC Entities following the Offerings (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the MDC Entities will have the right to require the Company to file up to five
registration statements under the Securities Act, which may be increased by an
additional three registrations if effected on Form S-3, covering the MDC
Entities' shares and the shares of Common Stock of certain transferees and
assignees of the MDC Entities. The Company has agreed to pay all costs and
expenses relating to the exercise of the MDC Entities' registration rights,
except for underwriting commissions relating to shares sold by the MDC Entities.
The Company will indemnify the MDC Entities for certain liabilities, including
liabilities under the Securities Act, in connection with any such registration.
Under the Registration Rights Agreement, the MDC Entities will have the right to
transfer their respective rights to a transferee or assignee of their shares of
the Common Stock in a transfer other than pursuant to a public offering.
By letter agreement dated October 31, 1995, the MDC Entities and Behrman Capital
agreed that upon request of Behrman Brothers, L.P., the general partner of
Behrman Capital L.P., the MDC Entities will agree to exercise one of the demand
registration rights conferred on the MDC Entities pursuant to the Registration
Rights Agreement. This agreement will enable Behrman Capital to exercise
incidental registration rights with respect to their shares of Common Stock
which were granted pursuant to the Stockholders Agreement.
Pursuant to Rule 144 promulgated under the Securities Act, the MDC Entities and
Behrman Capital may, without registration under the Securities Act, sell, within
any three-month period, a number of shares less than or equal to the greater of
1% of the then outstanding shares of Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding such
sale, subject, in some cases, to the two year holding period described in Rule
144. Shares owned by the MDC Entities and Behrman Capital will be eligible for
sale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act without regard to the volume limitations contained in Rule 144.
Transactions with the Investors. In connection with the Recapitalization, the
Company paid MDC Management Company III, L.P., an affiliate of the MDC Entities,
and Behrman Brothers Management Corporation, an affiliate of Behrman Capital,
transaction fees of $2,425,000 and $1,575,000, respectively, plus reimbursement
for out-of-pocket expenses incurred in connection with services rendered in
connection with the Recapitalization.
Transactions with Management Stockholders. In connection with the
Recapitalization, the Company (i) purchased 296,549 shares of Common Stock
received pursuant to the exercise of stock options from Messrs. Faulkner,
Minkel, Headrick, Nash and Lynch on March 31, 1995 for $2,814,250 and (ii)
purchased 117,628 additional shares of Common Stock from Mr. Minkel for
$296,847. The shares were reacquired at their then fair value of $2.52 per
share, the price paid by the MDC Entities, Behrman Capital and other
stockholders in the Recapitalization.
Transactions with Other Parties. The Company's United Kingdom subsidiary employs
the services of Whitehead Electrical Company, Ltd., an electrical contracting
company of which Lyndon Faulkner's brother is the Managing Director. The
services are supplied on competitive terms. The Company paid Whitehead
Electrical Company, Ltd. $141,904 during the fiscal year ended March 31, 1998.
In April 1994, the Company entered into the Donnelley CD-ROM Agreement with R.R.
Donnelley & Sons Company ("Donnelley"), whereby the Company established a
multiline compact disc manufacturing facility in Provo, Utah, requiring capital
expenditures of approximately $13 million by the Company. 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 to
Stream (as assigned, the "Stream CD-ROM Agreement"). Effective April 1, 1997,
the Company entered into a new agreement with Stream which terminated the Stream
CD-ROM Agreement and set forth Stream's commitment to purchase 27.5 million
discs during fiscal 1998 and 20.6 million discs for the first nine months of
fiscal 1999. The agreement was scheduled to terminate on December 31, 1998. In
December 1997, Stream assigned substantially all of its rights and obligations
under the Stream Agreement to Modus Media International, Inc. ("MMI"). Effective
March 31, 1998, the Company and MMI determined that, in furtherance of their
mutual best interests, they would terminate the Agreement.
The Company provides CD manufacturing services to Cedant Software, formerly
known as CUC International, Inc., a software company. Robert M. Davidson, a
director of the Company, served as Vice Chairman of the Board of CUC
International, Inc. until his resignation on May 27, 1997. These services
supplied to CUC International, Inc. are on competitive terms. Sales to Cedant
Software were $4.5 million for fiscal 1998.
<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 included in this report on
Form 10-K. See index to Consolidated Financial Statements on page
F-1 hereof.
i. Report of Coopers & Lybrand L.L.P., Independent Accountants.
ii. Consolidated Balance Sheets as of March 31, 1998 and 1997.
iii. Consolidated Statements of Income for the three years ended
March 31, 1998, 1997 and 1996.
iv. Consolidated Statement of Stockholder's Equity for the three
years ended March 31, 1998, 1997 and 1996.
v. Consolidated Statements of Cash Flows for the three years
ended March 31, 1998, 1997 and 1996.
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, 1998.
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 25, 1998
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 25, 1998.
/s/ Lyndon J. Faulkner
Chairman of the Board of Directors, President,
and Chief Executive Officer (Principal Executive
Officer)
/s/ L. Steven Minkel
Executive Vice President and Chief Financial
Officer (Principal Financial Officer) and a
Director
/s/ Gary E. Krutul
Controller (Principal Accounting Officer)
Charles Ayres, Director*
Darryl G. Behrman, Director*
Grant G. Behrman, Director*
Robert M. Davidson, Director*
David E. De Leeuw, Director*
Anthony V. Dub, 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 (incorporated by reference to Exhibit 4.3 to Registrant's 1997
Annual Report on Form 10-K).
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 (incorporated by reference to Exhibit 4.4 to Registrant's
1997 Annual Report on Form 10-K).
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 (incorporated by reference to Exhibit 4.5 to Registrant's
1997 Annual Report on Form 10-K).
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 (incorporated by reference to Exhibit 4.6 to Registrant's
1997 Annual Report on Form 10-K).
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 (incorporated by reference to Exhibit 4.7 to Registrant's
1997 Annual Report on Form 10-K).
4.8 Sixth 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.
4.9 Credit Facility Agreement among EuroNimbus S.A., Nimbus Manufacturing
(UK) Limited, Saarbrucker Zeitung Verlag und Druckerei GmbH and Banque
Internationale a Luxembourg S.A.
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 (incorporated
by reference to Exhibit 10.8 to Registrant's 1997 Annual Report on Form
10-K).
10.9 Amended and Restated 1995 Nimbus CD International, Inc. Stock Option and
Stock Award Plan (incorporated by reference to Exhibit 10.9 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 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).
10.12 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).
10.13 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).
10.14 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).
10.15 Shareholders' Agreement dated as of January 29, 1997 by and among
EuroNimbus S.A., Nimbus Manufacturing (UK) Limited and Saarbrucker
Zeitung Verlag und Druckerei GmbH (incorporated by reference to Exhibit
10.17 to Registrant's 1997 Annual Report on Form 10-K).
11.1 Computation of Net Income Per Share of Common Stock.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
24.1 Powers of attorney from officers and directors of the Company signed by
an attorney-in-fact.
Financial Data Schedule for the Periods Ended:
27.1 March 31, 1998
27.2 December 31, 1997
27.3 September 30, 1997
27.4 March 31, 1997
27.5 December 31, 1996
27.6 September 30, 1996
27.7 June 30, 1996
<PAGE>
EXHIBIT 11.1
NIMBUS CD INTERNATIONAL, INC.
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
For the Years Ended
March 31, 1998, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
-------- --------- ---------
Net income used in calculating basic and diluted earnings per common share:
Net income - 1996 is pro forma for the $13,812 $9,175 $12,040
Offering (A) ======== ========= =========
Basic earnings per common share:
Weighted average common shares 21,173 20,862 20,744
outstanding
======== ========= =========
Basic earnings per common share $0.65 $0.44 $0.58
======== ========= =========
Diluted earnings per common share:
Weighted average common shares 21,173 20,862 20,744
outstanding
Net additional common shares issueable
upon exercise of dilutive warrants and
stock options, determined by the
treasury stock method using the 1,791 2,145 2,055
average market price for options and
warrants outstanding during the periods
-------- --------- ---------
Weighted average number of shares used
in calculating diluted earnings per 22,964 23,007 22,799
common share ======== ========= =========
Diluted earnings per common share $0.60 $0.40 $0.53
======== ========= =========
</TABLE>
(A) See Note 18 of Notes to Consolidated Financial Statements.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Corporation State/Country of
Incorporation
Nimbus International Sales Corp. Barbados
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
EuroNimbus GmbH Germany
EuroNimbus s.a.r.l. France
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Nimbus CD International, Inc. on Form S-8 (File No. 333-37623) of our reports
dated May 22, 1998, on our audits of the consolidated financial statements and
financial statement schedules of Nimbus CD International, Inc. as of March 31,
1998 and 1997, and for the years ended March 31, 1998, 1997 and 1996, which
reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
June 25, 1998
<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, 1988, 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
June 19, 1998.
\s\ Charles Ayres
CHARLES AYRES
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, 1998 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
April 27, 1998.
\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, 1998, 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
April 27, 1998.
\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, 1998, 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
April 22, 1998.
\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, 1998, 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
26, 1998.
\s\ David E. De Leeuw
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, 1998, 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
June 19, 1998.
\s\ Anthony V. Dub
ANTHONY V. DUB
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, 1998, 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
April 24, 1998.
\s\ George E. McCown
GEORGE E. MCCOWN
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, 1998, 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
April 24, 1998.
\s\ Glenn McKenzie
GLENN MCKENZIE
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Financial Statements: Page
Report of Independent Accountants...........................F-2
Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and 1997..F-3
Consolidated Statements of Income for the three years
ended March 31, 1998, 1997 and 1996....................F-4
Consolidated Statement of Stockholders' Equity for the
three years ended March 31, 1998, 1997 and 1996........F-5
Consolidated Statements of Cash Flows for the three years
ended March 31, 1998, 1997 and 1996....................F-6
Notes to Consolidated Financial Statements.................F-7
Financial Statement Schedules:
Report of Independent Accountants...........................F-20
Schedule I - Condensed Financial Information of Registrant..F-21
Schedule II - Valuation and Qualifying Accounts.............F-23
<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, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.
Richmond, Virginia
May 22, 1998
COOPERS & LYBRAND L.L.P.
F2
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<S> <C> <C>
ASSETS 1998 1997
Current assets:
Cash and cash equivalents $ $
8,239 7,790
Accounts and notes receivable-trade, less
allowances for doubtful accounts of $2,251 and 30,046 26,393
$1,812
Inventories 2,500 2,217
Prepaid expenses 1,624 1,329
Deferred income taxes 3,396 3,415
--------- --------
Total current assets 45,805 41,144
--------- --------
Property, plant and equipment, net 79,907 63,431
Other assets and intangibles, net 5,591 3,697
========= ========
$131,303 $108,272
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt 6,605 5,159
Accounts payable 9,259 5,617
Accrued expenses and other liabilities 14,439 13,533
Income taxes payable 7,014 6,665
--------- --------
Total current liabilities 37,317 30,974
--------- --------
Long-term debt 19,288 20,840
Deferred income taxes 4,883 3,561
Minority interest and other liabilities 3,521 475
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 shares issued; 21,388,581 390 390
and 20,870,579 shares outstanding
Paid-in capital 65,430 66,775
Retained earnings 45,781 31,969
Cumulative foreign currency translation adjustments 438 378
--------- --------
112,039 99,512
Treasury stock, at cost, 17,624,205 and 18,142,207 (45,745) (47,090)
shares --------- --------
Total stockholders' equity 66,294 52,422
========= ========
$131,303 $108,272
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended March 31, 1998, 1997 and 1996 (In
thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Net sales $132,340 $129,470 $118,245
Cost of goods sold 94,037 91,961 83,809
--------- ---------- ---------
Gross profit 38,303 37,509 34,436
Selling, general and administrative 17,634 15,463 12,989
expenses
Restructuring charge (664) 6,014 -
--------- ---------- ---------
Operating income 21,333 16,032 21,447
Other income (expense):
Interest expense (2,672) (2,666) (5,305)
Equity in earnings of affiliate 1,297
Minority interest 688
Other, net 455 395 (41)
--------- ---------- ---------
Income before income taxes and
extraordinary item 21,101 13,761 16,101
Provision for income taxes 7,289 4,586 5,642
--------- ---------- ---------
Income before extraordinary item 13,812 9,175 10,459
Extraordinary item - extinguishment of
debt (net of income tax benefit of - - (2,952)
$1,213)
--------- ---------- ---------
Net income $13,812 $9,175 $7,507
========= ========== =========
Earnings per share - 1996 is pro forma for the Offering (Note 18):
Net income - 1996 is pro forma for the $13,812 $9,175 $12,040
Offering ========= ========== =========
Basic $0.65 $0.44 $0.58
========= ========== =========
Diluted $0.60 $0.40 $0.53
========= ========== =========
Weighted average shares outstanding:
Basic 21,173 20,862 20,744
========= ========== =========
Diluted 22,964 23,007 22,799
========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative
Number of Shares Foreign
------------------- Currency
Common Treasury Common Paid-in Transltn Retained Treasury
Stock Stock Stock Capital AdjustmntEarnings Stock
Balances, April 38,973,17 (25,168,21) $390 $41,275 $ 220 $15,287 $(65,292)
1, 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 21
adjustments
-----------------------------------------------------------
Balances,March 38,973,17(18,143,211) 390 66,734 241 22,794 (47,093)
31, 1996
Exercise of stock
options 39,613 1,004 41 3
Net income 9,175
Foreign currency
translation
adjustments 137
-----------------------------------------------------------
Balances,March 39,012,78(18,142,207) 390 66,775 378 31,969 (47,090)
31, 1997
Exercise of 518,002 (1,345) 1,345
warrants
Net income 13,812
Foreign currency
translation 60
adjustments
-----------------------------------------------------------
Balances,March 31, 39,012,78(17,624,205) $390 $65,430 $438 $45,781 $(45,745)
31, 1998 ========= ========== ===== ======= ====== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net income $13,812 $9,175 $7,507
Adjustments to reconcile net income to
net cash provided by operating
activities:
Restructuring charge (664) 6,014
Depreciation and amortization 11,130 9,595 7,938
Minority interest (688)
Deferred income taxes 1,331 (2,500) 2,922
Equity in undistributed income of (1,297)
affiliates
Net (gain) loss on sale of equipment (52) (98) 361
and other assets
Gains on settlement of royalty (1,744)
obligation
Extraordinary item 2,047
Other, net (196) (24) (56)
Change in operating assets and
liabilities, net of acquisition:
Accounts and notes receivable (3,483) 355 (5,694)
Inventories (257) 37 31
Prepaid expenses (290) (502) 891
Accounts payable 3,460 (983) (1,872)
Accrued expenses 2,463 3,670 (1,132)
Income taxes payable 272 2,922 666
---------- ---------- --------
Net cash provided by operating 25,541 27,661 11,865
activities ---------- ---------- --------
Cash flows from investing activities:
Purchases of property, plant and (27,981) (20,507) (10,087)
equipment
Proceeds from governmental grants 2,215
Proceeds from sale of equipment and 450 358 64
other assets
Expenditures for computer software (1,051) (1,512) (929)
Other investing activities (65) (435) (548)
Acquisition of business, net of cash (253) (4,850)
acquired
---------- ---------- --------
Net cash used in investing activities (26,432) (22,349) (16,350)
---------- ---------- --------
Cash flows from financing activities:
Proceeds of debt 2,632 2,357
Repayment of debt (6,496) (1,510) (37,000)
Revolving credit borrowings, net 3,323 (1,991)
Capital contribution by minority 1,561 315
interest
Payment of financing fees (159) (1,140)
Proceeds from exercise of stock options 44
Issuance of common stock 44,886
Payment of costs related to initial (1,230)
public offering
---------- ---------- --------
Net cash provided (required) by 1,020 (1,310) 5,882
financing activities
---------- ---------- --------
Effect of exchange rate changes on cash 320 195 (122)
---------- ---------- --------
Net increase in cash 449 4,197 1,275
Cash and cash equivalents, beginning of 7,790 3,593 2,318
year
========== ========== ========
Cash and cash equivalents, end of year $8,239 $7,790 $3,593
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<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. (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 home video and computer software markets.
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% 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 may differ from those
estimates.
b) Currency translation: The assets and liabilities of all non-U.S.
subsidiaries that operate in a local currency environment are translated from
their respective functional currencies to U.S. dollars at the fiscal year-end
exchange rates. Revenue and expense accounts are translated at average
monthly rates for the periods presented. Translation adjustments are
accumulated in 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
for the purpose of currency exchange rate risk management. 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 is 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 which range from 5 years for
equipment to 40 years for buildings, using the straight-line method. 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.
F-7
<PAGE>
h) Other Assets and Intangibles: Purchased software and related
implementation costs are capitalized in other assets and amortized over its
estimated useful life.
i) Impairment of Long-Lived Assets: The Company reviews for the possible
impairment of long-lived tangible and intangible assets 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. The Company believes that there was no impairment of its
tangible and intangible noncurrent assets at March 31, 1998.
j) Reclassifications: Certain amounts in the prior years' financial
statements have been reclassified to conform with the fiscal 1998
presentation. The impact of these changes is not material and did not affect
net income.
3. Accounting Standards Changes:
Beginning in fiscal 1997, the Company adopted the disclosure only provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting
for Stock-Based Compensation". SFAS No. 123 allows companies to continue to
recognize compensation expense 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 12 for such
disclosure.
In December 1997, the Company implemented SFAS No. 128 "Earnings Per Share"
resulting in the restatement of earnings per share for all prior periods.
SFAS 128 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"
reflects the potential dilution of stock options or other securities that
would result in the issuance or exercise of additional shares of common
stock. Outstanding stock options and warrants in prior years represent the
difference between basic and diluted weighted average shares outstanding.
Effective with the first quarter of fiscal 1999, the Company will adopt
Statement No. 130 "Reporting Comprehensive Income". SFAS 130 establishes
standards of reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements, either in a statement
of operations or in a separate statement. Additionally, SFAS 130 requires the
display of the accumulated balance of other comprehensive income as a
separate caption in the equity section of the balance sheet as well as the
disclosure of material components of accumulated other comprehensive income
either on the face of the balance sheet, in a statement of changes in equity
or in notes to the financial statements. The Company does not believe that
adoption of SFAS 130 will have a material effect on the Company's financial
position.
The Company will also adopt Statement No. 131 "Disclosures about Segments of
an Enterprise and Related Information" in fiscal 1999. SFAS 131 establishes
standards for the way that public companies report information and about
operating segments in both interim and annual financial statements, including
related disclosures about products and services, geographic areas, and major
customers. The Company does not believe that adoption of SFAS 131 will have a
significant effect on the Company's operating segments reported and related
disclosures.
In fiscal 1999, the Company will adopt the American Institute of Certified
Public Accountants Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-Up Activities". This SOP provides guidance on the financial
reporting of start-up costs and requires that entities expense costs of
start-up activities as they are incurred. The Company was generally in
conformance with this standard and does not believe that adoption of SOP 98-5
will have a material effect on the Company's financial position or results of
operations.
F-8
<PAGE>
4. Inventories:
Inventories at year end consisted of the following:
<TABLE>
<S> <C> <C>
1998 1997
-------- --------
Raw materials $2,088 $1,518
Work-in-process 330 236
Finished goods 82 463
-------- --------
$2,500 $2,217
======== ========
</TABLE>
5. Property, Plant and Equipment:
Property, plant and equipment at year end consisted of the following:
<TABLE>
<S> <C> <C>
1998 1997
-------- ---------
Land,buildings and $25,989 $20,865
improvements
Machinery and equipment 84,016 62,925
Construction in progress 5,112 5,976
-------- ---------
115,117 89,766
Less accumulated depreciation (35,210) (26,335)
-------- ---------
Net property, plant and $79,907 $63,431
equipment ======== =========
</TABLE>
6. Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities at year end consisted of the
following:
<TABLE>
<S> <C> <C>
1998 1997
-------- ---------
Royalty obligations $9,319 $6,722
Taxes payable, other than 1,041 1,306
income taxes
Employee compensation and 2,177 1,406
benefits
Restructuring charge reserve 2,807
Other items 1,902 1,292
---------- --------
$14,439 $13,533
========== ========
</TABLE>
7. Expansion and Acquisition:
On January 29, 1997, the Company completed the formation of EuroNimbus S.A.
("EuroNimbus"), a 70% owned joint venture with Saarbrucker Verlag and
Druckerei, GmbH, for the purpose of building a disc replication plant in
Luxembourg. Construction of the plant was completed and the facility was
commissioned in December 1997.
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:
F-9
<PAGE>
<TABLE>
<S> <C>
Amount
--------
Fair value of assets acquired $3,360
Excess cost over fair value of net tangible 3,136
assets acquired
Liabilities assumed (1,093)
--------
$5,403
Cash acquired (300)
--------
Cash paid for acquisition, net $5,103
========
</TABLE>
8. Restructuring Charge:
The results of operations for fiscal 1997 included a charge of $6.0 million
for costs associated with the closure of NSS, as part of a program to reduce
overhead costs and improve operating efficiencies. The restructuring charge
included 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.
During fiscal 1998, the Company reversed $664 of its restructuring reserve as
a result of the completion of the restructuring plan at less than the
originally estimated cost. A summary of the restructuring activity is
presented below.
<TABLE>
<S> <C>
Amount
--------
1997 provision $6,014
1997 activity:
Non-cash write-off of intangible assets (3,207)
--------
Balance at March 31, 1997 2,807
1998 activity:
Non-cash write-off of property and equipment (1,261)
Reduction in workforce and other cash outflows (882)
========
Restructuring reserve reversal $664
========
</TABLE>
F-10
<PAGE>
9. Debt:
Long-term debt at year end consisted of the following:
<TABLE>
<S> <C> <C>
1998 1997
----------- ------------
Variable rate term loan (effective interest
rate of 8.8% at March 31, 1998, and 8.4% at
March 31, 1997), payable in quarterly $18,049 $24,249
installments of varying amounts with the
final maturity in September 2000
Variable rate term loan (effective interest
rate of 4.4% at March 31, 1998), payable in
LUF in equal semi-annual installments 5,165
commencing June 1999 with the final maturity
in December 2001
Variable rate revolving loans (effective
interest rate of 7.3% at March 31, 1997) 1,750
Fixed rate term loan (effective interest
rate of 5.5% at March 31, 1998), payable in
LUF in equal quarterly installments commencing 858
December 2000, with the final maturity in
September 2008
Fixed rate term loan (effective interest rate
of 5.0% at March 31, 1998), payable in LUF in 1,821
May 2002
----------- ------------
Total 25,893 25,999
Less current maturities 6,605 5,159
----------- ------------
$19,288 $20,840
=========== ============
</TABLE>
The Company's credit agreement with NationsBank, N.A. ("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 provides for the prepayment of principal based on the Company's
cash flow (as defined) or upon the occurrence of certain specified events.
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.
Substantially all of the Company's tangible and intangible assets, excluding
those of EuroNimbus, 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, 1998, none of the
Company's retained earnings were available for the payment of such dividends.
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 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.
F-11
<PAGE>
The interest rate caps ensure that the Company will not pay interest at rates
higher than 7.0% on $3,700 and not higher than 9.5% on $14,349 of its term
debt outstanding at March 31, 1998. These interest rate agreements did not
have any material effect on the Company's interest expense for fiscal 1998 or
1997.
The estimated fair value of the Company's interest rate swap agreements which
hedge outstanding borrowings was zero at March 31, 1998 and an asset of $16
at March 31, 1997.
The Company's EuroNimbus subsidiary has entered into several new credit
agreements to provide for ongoing capital expenditure and working capital
needs. The BIL Agreement provides for a term loan of LUF 225 million and a
short term facility of LUF 50 million. A portion of the term loan can be
utilized for the issuance of bank guarantees.
The short term facility can be utilized in the form of an overdraft facility
and is made available for a one year period with an option to renew on a
yearly basis.
Interest on the term loan is payable in arrears at the end of optionally
selected interest periods of either three or six months and a fixed rate
option is available. Interest on the short term facility is payable in
arrears at the end of optionally selected interest periods.
Substantially all of EuroNimbus' tangible and intangible assets are pledged
as collateral for borrowings under the BIL Agreement. The BIL Agreement
subjects EuroNimbus to certain restrictions and covenants, including
limitations on ownership changes, pari passu ranking and maintenance of one
financial ratio.
EuroNimbus' SNCI Agreement provides for a term loan of LUF 55 million to be
used for capital expenditure financing. Interest on the term loan is fixed
for a minimum period of five years. Interest is payable quarterly in arrears.
The SNCI Agreement commits EuroNimbus to extend to the lender the same
guarantees as to its most favored banking creditor.
EuroNimbus' ECSC Agreement provides for a term loan of LUF 70 million. The
term loan cannot be repaid in advance. Interest on the term loan is fixed for
the entire term and is payable in arrears on an annual basis. An interest
rebate is available upon meeting an agreed upon schedule of job creation. The
ECSC Agreement commits EuroNimbus to extend to the lender the same guarantees
as to its most favored banking creditor.
The scheduled annual principal payments, after fiscal 1999 are $9,351 in
2000, $5,626 in 2001, $1,900 in 2002, $2,000 in 2003, and $411 thereafter.
Interest paid on the outstanding debt during fiscal 1998, 1997 and 1996 was
$1,859, $2,284 and $4,721, respectively. The weighted average interest rate
on outstanding borrowings at March 31, 1998 was 7.6%. No interest was
capitalized during fiscal 1998, 1997 or 1996. The recorded value of the
Company's long-term debt at March 31, 1998 and 1997 approximates its fair
value.
F-12
<PAGE>
10. Income Taxes:
The components of income before income taxes and extraordinary item were as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
------- -------- -------
Domestic $8,578 $1,850 $8,162
Foreign 12,523 11,911 7,939
======= ======== =======
Income before income taxes and $21,101 $13,761 $16,101
extraordinary item ======= ======== =======
The provision for income taxes
consisted of the following:
Current
Federal $2,270 $2,742 $1,057
State 356 355 156
Foreign 3,322 3,972 2,492
------- -------- -------
Total current 5,948 7,069 3,705
------- -------- -------
Deferred
Federal 915 (2,069) 1,733
State 117 (253) 296
Foreign 309 (161) (92)
------- -------- -------
Total deferred 1,341 (2,483) 1,937
------- -------- -------
Total income tax expense $7,289 $4,586 $5,642
======= ======== =======
</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>
1998 1997 1996
------- ------- -------
Federal statutory tax rate 34.0% 34.0% 34.0%
Increase (decrease)in taxes resulting
from:
State taxes, net of federal tax effect 1.5 0.5 1.9
U.S. tax attributable to deemed
repatriation of foreign subsidiary 0.7
earnings (net of foreign tax credit)
Difference between U.S. federal
statutory rate and foreign effective (3.0) (1.7) (1.9)
rates
Other 2.0 0.5 0.3
------- ------- -------
Effective tax rate 34.5% 33.3% 35.0%
======= ======= =======
</TABLE>
Cash payments for income taxes were $5,717, $4,345 and $1,275 for fiscal
years 1998, 1997 and 1996, respectively.
F-13
<PAGE>
The components of the net deferred tax assets and liabilities as of March 31,
1998 were as follows:
<TABLE>
<S> <C> <C> <C>
Domestic Foreign Total
------- ------- -------
Deferred tax assets:
Accrued royalties $ 2,045 $ 641 $ 2,686
Other accrued liabilities 275 205 480
Foreign tax credits 700 700
Net operating loss carryforward 1,636 1,636
------- ------- -------
Deferred tax asset 4,656 846 5,502
------- ------- -------
Deferred tax liabilities:
Property, plant and equipment (5,679) (1,310) (6,989)
------- ------- -------
Deferred tax liability (5,679) (1,310) (6,989)
------- ------- -------
Net deferred tax liability $(1,023) $ (464) $(1,487)
======= ======= =======
</TABLE>
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>
At March 31, 1998, the Company had net operating loss carryforwards for U.S.
tax return purposes of approximately $4,363 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.
Additionally, the Company had foreign tax credits of $700 for U.S. tax return
purposes which expire in the year 2001.
No provision for income taxes has been made for $17.0 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") has completed an examination of the
Company's federal income tax returns for the fiscal years 1993, 1994, and
1995, resulting in 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. On May
7, 1998, the Company received a letter from the Appeals Division of the IRS
which details the position of that division on the adjustments contained in
the statutory Notice of Deficiency. The letter requests a settlement proposal
from the Company on the most significant adjustments, including 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
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.
F-14
<PAGE>
11. 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 $.015 to
$.045 per disc sold. Royalty expense incurred under these agreements amounted
to $11,302, $11,343 and $9,037 for fiscal years 1998, 1997 and 1996,
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. The Company believes that its accrued
expense adequately provides 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
$1,823, $3,202 and $1,678 for fiscal years 1998, 1997 and 1996, respectively.
At March 31, 1998, future obligations under operating lease agreements were
as follows:
<TABLE>
<S> <C>
Fiscal Year Ending March 31, Amount
----------
1999 $2,252
2000 2,163
2001 975
2002 271
2003 214
Thereafter 214
==========
$6,089
==========
</TABLE>
c) Capital expenditures: At March 31, 1998, commitments for capital
expenditures amounted to approximately $2,421.
d) Litigation and related matters: From time to time, the Company is involved
in litigation that it considers to be in the normal course of business. 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.
12. 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 reserved for issuance. Awards and their terms are authorized by the
Compensation Committee of the Company's Board of Directors.
In 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 has been reserved for issuance thereunder. Awards of options to
independent directors amounted to 5,000, 7,500 and 10,000 shares in fiscal
years 1998, 1997 and 1996, respectively.
F-15
<PAGE>
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 1998 and 1997, the Company
awarded non-qualified options to purchase 213,260 and 205,500 shares,
respectively, of non-voting common stock that will vest ratably within five
years from the dates of the grants.
At March 31, 1998, 27,500 common shares were available for future grant under
the Directors Plan and 352,204 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 1998, 1997 and 1996:
<TABLE>
<S> <C> <C>
Number of Weighted Average
Stock Options Exercise Price
-------------- ----------------
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
Granted 218,260 9.15
Canceled (96,386) 3.22
============== ===============
Outstanding, March 31, 1998 2,345,128 $3.90
============== ===============
</TABLE>
Shares under option at March 31, 1998 were at the following exercise prices:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding Options Currently
Exercisable
-------------------------------- ------------------------
Wtd. Avg.
Ex.Price No. of Wtd. Avg. contractual No. of Wtd. Avg.
Range Options Exercise Life Options Exercise
Price (years) Price
$0.53-$7.00 1,932,428 $2.10 5.45 1,165,933 $1.82
$7.01-$16.50 412,700 $12.32 8.63 118,800 $13.45
============ ============
2,345,128 1,284,733
============ ============
</TABLE>
F-16
<PAGE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option 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> <C>
1998 1997 1996
---------------------------------------
Net income as reported $13,812 $9,175 $12,040
Net income pro forma 13,241 8,719 11,803
Basic earnings per share - $0.65 $0.44 $0.58
as reported
Basic earnings per share - $0.63 $0.42 $0.57
pro forma
Diluted earnings per share - $0.60 $0.40 $0.53
as reported
Diluted earnings per share - $0.59 $0.39 $0.54
pro forma
</TABLE>
The weighted average fair value of options granted in 1998, 1997 and 1996 was
$5.88, $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> <C>
1998 1997 1996
---------------------------------------
Risk-free interest rate 6.8% 6.4% 6.4%
Expected life in years 5-6 5-6 5-6
Expected volatility 61.6% 71.8% 70.0%
Expected dividend yield 0.0% 0.0% 0.0%
</TABLE>
13. 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.
14. 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.
F-17
<PAGE>
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.
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
$576, $459 and $343 for fiscal years 1998, 1997 and 1996, 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
$510, $439 and $413 for fiscal years 1998, 1997 and 1996, respectively.
16. Geographic Segment Information:
A summary of the Company's operations by geographic area for fiscal years
1998, 1997 and 1996 is as follows:
<TABLE>
<S> <C> <C> <C>
Net Operating
Sales Income Assets
1998
North America $77,812 $8,762 $75,474
Europe 54,961 12,571 55,829
Interarea Sales (433)
======= ====== =======
$132,340 $21,333 $131,303
1997
North America $80,236 $2,965 $68,056
Europe 50,095 13,067 40,216
Interarea Sales (861)
======= ====== =======
$129,470 $16,032 $108,272
1996
North America $71,654 $10,793 $57,925
Europe 46,919 10,698 32,828
Interarea Sales (328) (44)
======= ======= =======
$118,245 $21,447 $90,753
</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 utilizes foreign exchange contracts to reduce its exposure to
potentially adverse changes in foreign currency exchange rates. The Company
does not engage in speculation. As of March 31, 1998, the notional amounts of
such agreements to sell foreign currencies were $2,165. There was no
significant gain or loss on these instruments as of March 31, 1998.
The Company's customer base is primarily American and British recording and
software companies. One customer operating under a vendor supply agreement
accounted for 10% of fiscal 1998 sales, 15% of fiscal 1997 sales and 17% of
fiscal 1996 sales. No other customer represented more than 10% of
consolidated sales for fiscal years 1998, 1997 or 1996. The Company performs
credit evaluations of its customers and maintains reserves for credit losses.
The provision for doubtful accounts amounted to $1,200, $1,031 and $1,268 for
fiscal 1998, 1997 and 1996, respectively.
18. Pro Forma Earnings per Share:
The pro forma net income for fiscal 1996 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, as adjusted for the following
assumptions as if each had occurred on April 1, 1995: (i) the assumed
exercise of warrants and stock options outstanding during the 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 issuance by
the Company of 6,350,000 shares of common stock in the Offering and 500,000
F-18
<PAGE>
shares in the Private Placement; (iii) the application by the Company of the
net proceeds of the Offering to repay $41.7 million of outstanding debt; and
(iv) 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 the fiscal year ended March 31, 1996.
Historical earnings per share data for fiscal 1996 have been omitted as the
historical capitalization of the Company prior to the Recapitalization and
the Offerings is not indicative of its capital structure following such
events.
19. Subsequent Event
On June 16, 1998, the Company entered into an Agreement and Plan of Merger
with Carlton Communications Plc ("Carlton"), pursuant to which a subsidiary
of Carlton would acquire all of the Company's outstanding common stock
through a tender offer at $11.50 per share, or a total consideration of
approximately $264 million. Consummation of the merger transaction is subject
to normal regulatory filings and approval of the Company's stockholders.
Certain stockholders, including management of the Company, control an
aggregate of 44% of the Company's common stock, and have agreed to tender
their shares when requested. Following the close of the transaction, the
Company will operate as a division of Carlton's Technicolor Packaged Media
Group.
20. Quarterly Financial Data (Unaudited):
Summarized quarterly financial data for fiscal years 1998 and 1997 follows:
<TABLE>
<S> <C> <C> <C> <C>
(In thousands,
except per share Three Months Ended
data)
-----------------------------------------------------------
1998 June 30 Sept. 30 Dec. 31 March 31
Discs sold 36,782 45,498 59,744 42,966
Net sales $28,222 $32,496 $41,525 $30,097
Gross profit 6,918 10,161 12,807 8,417
Operating income 1,636 6,218 9,616 3,863
Net income 705 3,664 6,888 2,555
Earnings per share:
Basic $0.03 $0.18 $0.32 $0.12
Diluted $0.03 $0.16 $0.30 $0.11
Stock price:
High $11-1/2 $14 $11-5/8 $12-1/2
Low 8-3/8 9-7/8 8-1/4 9-7/8
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:
Basic $0.10 $0.17 $0.26 $(0.09)
Diluted $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
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Directors
Nimbus CD International, Inc.:
Our report on the consolidated financial statements of Nimbus CD International,
Inc. and subsidiaries is included on page F-2 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedules listed in Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
May 22, 1998
F-20
<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,
1998 1997
---------- ---------
ASSETS
Cash $3 $3
Prepaid expenses 18 12
Other assets 5,670 5,667
Investment in subsidiaries, at equity 61,021 47,149
========== =========
Total assets $66,712 $52,831
========== =========
LIABILITIES
Accounts payable 10 18
Accrued expenses 408 391
---------- ---------
Total liabilities 418 409
---------- ---------
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 shares issued; 21,388,581 390 390
and 20,870,579 shares outstanding
Paid-in capital 65,430 66,775
Retained earnings 45,781 31,969
Cumulative foreign currency translation adjustments 438 378
---------- ---------
112,039 99,512
Treasury stock, at cost 17,624,205 and 18,142,207 (45,745) (47,090)
shares
---------- ---------
Total stockholders' equity 66,294 52,422
========== =========
Total liabilities and stockholders' equity $66,712 $52,831
========== =========
</TABLE>
The information regarding long-term debt and credit agreements of subsidiaries
contained in Note 9 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 certain of its subsidiaries, up to $18
million.
F-21
<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, 1998, 1997 and 1996
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
======== ========= ========
Equity in earnings of subsidiaries, net of $13,812 $9,175 $7,507
applicable income tax ======== ========= ========
CONDENSED STATEMENTS OF CASH FLOWS
For the fiscal years ended March 31, 1998, 1997 and 1996
1998 1997 1996
-------- --------- --------
Cash flows from operating activities:
Net income $13,812 $9,175 $7,507
Less undistributed earnings of subsidiaries (13,812) (9,175) (7,507)
Change in:
Prepaid expenses (6) 137 (129)
Accounts payable (8) (5) (619)
Accrued expenses 17 (157) (43)
Other assets (3) (78) 20
-------- --------- --------
Net cash provided by (used in) operating (103) (771)
activities -------- --------- --------
Cash flows from investing activities:
Advances from (to) subsidiaries, net 40 156 (4,267)
Purchase of property and equipment (40) (96) (14)
-------- --------- --------
Net cash used in investing activities: 60 (4,281)
-------- --------- --------
Cash flows from financing activities:
Issuance of common stock 44,886
Proceeds from exercise of stock options 44
Payment of costs related to initial public (1,230)
offering
Proceeds (repayments) of loans from (38,603)
subsidiaries, net -------- --------- --------
Net cash provided by financing activities 44 5,053
-------- --------- --------
Increase in cash 1 1
Cash, beginning of year 3 2 1
-------- --------- --------
Cash, end of year $3 $3 $2
======== ========= ========
</TABLE>
F-22
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
SCHEDULE II
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Acquisition Deductions Balance
Description Beginning Costs of Write-Offs Adjust- at End
of and Business 1 ments of Year
Year Expenses 2
- -----------------------------------------------------------------------------
Allowance for
doubtful accounts:
Fiscal year ended
March 31, 1998 $1,812 $1,200 $638 $(123) $2,251
Fiscal year ended
March 31, 1997 $2,014 $1,031 $1,286 $53 $1,812
Fiscal year ended
March 31, 1996 $1,989 $1,268 $50 $1,246 $(47) $2,014
</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.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 8,239
<SECURITIES> 0
<RECEIVABLES> 32,297
<ALLOWANCES> 2,251
<INVENTORY> 2,500
<CURRENT-ASSETS> 45,805
<PP&E> 115,117
<DEPRECIATION> 35,210
<TOTAL-ASSETS> 131,303
<CURRENT-LIABILITIES> 37,317
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 65,904
<TOTAL-LIABILITY-AND-EQUITY> 131,303
<SALES> 132,340
<TOTAL-REVENUES> 132,340
<CGS> 94,037
<TOTAL-COSTS> 94,037
<OTHER-EXPENSES> 16,970
<LOSS-PROVISION> 1,200
<INTEREST-EXPENSE> 2,672
<INCOME-PRETAX> 21,101
<INCOME-TAX> 7,289
<INCOME-CONTINUING> 13,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,812
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.2
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Dec-31-1997
<CASH> 5,072
<SECURITIES> 0
<RECEIVABLES> 36,951
<ALLOWANCES> 2,386
<INVENTORY> 2,559
<CURRENT-ASSETS> 50,773
<PP&E> 110,044
<DEPRECIATION> 32,773
<TOTAL-ASSETS> 131,865
<CURRENT-LIABILITIES> 41,413
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 63,078
<TOTAL-LIABILITY-AND-EQUITY> 131,865
<SALES> 102,243
<TOTAL-REVENUES> 102,243
<CGS> 71,882
<TOTAL-COSTS> 71,882
<OTHER-EXPENSES> 12,891
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 2,162
<INCOME-PRETAX> 17,385
<INCOME-TAX> 6,128
<INCOME-CONTINUING> 11,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,257
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.3
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Sep-30-1997
<CASH> 8,728
<SECURITIES> 0
<RECEIVABLES> 34,378
<ALLOWANCES> 2,772
<INVENTORY> 1,922
<CURRENT-ASSETS> 47,527
<PP&E> 100,834
<DEPRECIATION> 30,744
<TOTAL-ASSETS> 121,741
<CURRENT-LIABILITIES> 38,643
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 56,338
<TOTAL-LIABILITY-AND-EQUITY> 121,741
<SALES> 60,718
<TOTAL-REVENUES> 60,718
<CGS> 43,639
<TOTAL-COSTS> 43,639
<OTHER-EXPENSES> 9,225
<LOSS-PROVISION> 229
<INTEREST-EXPENSE> 1,389
<INCOME-PRETAX> 6,942
<INCOME-TAX> 2,573
<INCOME-CONTINUING> 4,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,369
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.4
</LEGEND>
<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> 0.44
<EPS-DILUTED> 0.40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.5
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Dec-31-1996
<CASH> 3,743
<SECURITIES> 0
<RECEIVABLES> 34,423
<ALLOWANCES> 2,153
<INVENTORY> 2,939
<CURRENT-ASSETS> 43,637
<PP&E> 86,682
<DEPRECIATION> 23,676
<TOTAL-ASSETS> 113,265
<CURRENT-LIABILITIES> 29,170
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 54,175
<TOTAL-LIABILITY-AND-EQUITY> 113,265
<SALES> 100,942
<TOTAL-REVENUES> 100,942
<CGS> 70,704
<TOTAL-COSTS> 70,704
<OTHER-EXPENSES> 11,381
<LOSS-PROVISION> 672
<INTEREST-EXPENSE> 1,972
<INCOME-PRETAX> 17,178
<INCOME-TAX> 6,112
<INCOME-CONTINUING> 11,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,066
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.6
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Sep-30-1996
<CASH> 1,990
<SECURITIES> 0
<RECEIVABLES> 28,944
<ALLOWANCES> 2,244
<INVENTORY> 3,254
<CURRENT-ASSETS> 36,362
<PP&E> 80,710
<DEPRECIATION> 20,454
<TOTAL-ASSETS> 103,021
<CURRENT-LIABILITIES> 26,035
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 48,299
<TOTAL-LIABILITY-AND-EQUITY> 103,021
<SALES> 60,590
<TOTAL-REVENUES> 60,590
<CGS> 43,237
<TOTAL-COSTS> 43,237
<OTHER-EXPENSES> 7,579
<LOSS-PROVISION> 429
<INTEREST-EXPENSE> 1,271
<INCOME-PRETAX> 8,693
<INCOME-TAX> 3,137
<INCOME-CONTINUING> 5,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,556
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.7
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Jun-30-1996
<CASH> 6,923
<SECURITIES> 0
<RECEIVABLES> 28,029
<ALLOWANCES> 2,299
<INVENTORY> 2,539
<CURRENT-ASSETS> 37,831
<PP&E> 76,638
<DEPRECIATION> 18,399
<TOTAL-ASSETS> 98,660
<CURRENT-LIABILITIES> 24,338
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 44,796
<TOTAL-LIABILITY-AND-EQUITY> 98,660
<SALES> 29,229
<TOTAL-REVENUES> 29,229
<CGS> 21,277
<TOTAL-COSTS> 21,277
<OTHER-EXPENSES> 4,219
<LOSS-PROVISION> 365
<INTEREST-EXPENSE> 600
<INCOME-PRETAX> 3,213
<INCOME-TAX> 1,204
<INCOME-CONTINUING> 2,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
SIXTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Sixth
Amendment") dated as of November 17, 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, as further amended by that Fifth
Amendment to Amended and Restated Credit Agreement dated as of February 5, 1997,
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 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 "Agent's Funding and Payment Office" in Section
1.1 of the Credit Agreement is hereby amended and modified to read as
follows:
"Agent's Funding and Payment Office" means (i) at any time
when there is more than one Lender providing Loans to the Borrowers,
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)
or (ii) at any time when there is only one Lender providing Loans to
the Borrowers, (A) with regard to Dollar Loans, the office of Agent,
located at 300 East Main Street, VA2-965-03-03, Charlottesville,
Virginia 22902 and (B) with regard to Sterling Loans, the office of
the Agent located at 35 New Broad Street, New Broad Street House,
London, England EC2-M1NH.
2. The definition of "Business Day" in Section 1.1 of the Credit
Agreement is hereby amended and modified to read as follows:
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New
York or the State of Virginia or is a day on which banking
institutions located in such state are authorized or required by law
or other governmental action to close, and (ii) with respect to all
notices, determinations, fundings, issuances and payments in
connection with the Adjusted Eurodollar Rate, the Adjusted Domestic
Sterling Rate, the Floating Eurodollar Rate, the Sterling Base Rate,
any Loans made with reference to such rates or any Revolving Credit
Guarantees, any day that is a Business Day described in clause (i)
above and that is also (a) a day for trading by and between banks in
Dollar or Sterling, as the case may be, deposits in the London
interbank market and (b) a day on which banking institutions are
open for business in London.
3. The definition of "Consolidated Capital Expenditures" in Section
1.1 of the Credit Agreement is hereby 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, which
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 be included
in the determination of Consolidated Capital Expenditures hereunder.
4. The definition of "Floating Eurodollar Rate" is added in Section
1.1 of the Credit Agreement to read as follows:
"Floating Eurodollar Rate" means, for any day, the "Wall
Street Journal LIBOR Rate." The Wall Street Journal LIBOR Rate is a
daily fluctuating rate of interest equal to the one month London
Interbank Offered Rate as published in the "Money Rates" section of
the Wall Street Journal for the immediately preceding Business Day
as adjusted from time to time in Agent's sole discretion for then
applicable reserve requirements, deposit insurance assessment rates
and other regulatory costs. Interest will accrue on any non-Business
Day at the rate in effect on the immediately preceding Business Day.
5. The definition of "Floating Eurodollar Rate Loans" is added to
Section 1.1 of the Credit Agreement to read as follows:
"Floating Eurodollar Rate Loans" means Loans made to U.S.
Borrower bearing interest at rates determined by reference to the
Floating Eurodollar Rate.
6. The definition of "Interest Payment Date" in Section 1.1 of the
Credit Agreement is amended and modified to read as follows:
"Interest Payment Date" means (i) with respect to any Base
Rate Loan, each March 31, June 30, September 30 and December 31 of
each year, commencing on December 31, 1995, (ii) with respect to
Eurodollar Rate Loans or Domestic Sterling Rate Loans, the last day
of each Interest Period applicable to such Loan; provided that in
the case of each Interest Period of longer than three months,
"Interest Payment Date" shall also include the date that is three
months after the commencement of such interest Period and (iii) with
respect to Floating Eurodollar Rate Loans, the last day of each
calendar month.
7. The definition of "Subsidiary" in Section 1.1 of the Credit
Agreement is amended and modified to read as follows:
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association, joint venture or other
business entity of which more than 50% of the total voting power of
shares of stock or other ownership interest entitled (without regard
to the occurrence of any contingency) to vote in the election of the
Person or Persons (whether directors, managers, trustees or other
Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at the
time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a
combination thereof; provided, however, that for purposes hereof,
EuroNimbus S.A. shall not be deemed to be a Subsidiary of Company or
any of its Subsidiaries.
8. The definition of "Adjusted Domestic Sterling Rate" is added to
Section 1.1 of the Credit Agreement to read as follows:
"Adjusted Domestic Sterling Rate" means, for any Interest Rate
Determination Date, the rate at which Sterling denominated deposits
in an amount comparable to the amount of the relevant Loan and for a
period equal to the relevant Interest Period is offered to the
Lender in the London interbank market at or about 11:00 a.m. (London
time) on the Interest Rate Determination Date, adjusted for the
following formula:
AB+C(B-D)+E(B-F)
100-(A+E)
Where:
A = The percentage of Agent's eligible liabilities for the
time being required to be held on an interest free
deposit with the Bank of England (or other governmental
authorities or agencies) in accordance with its cash
ratio requirements.
B = The percentage rate per annum at which three month
Sterling fixed deposits are offered to Agent in the
London interbank market at 11:00 A.M. (London time)
C = The average percentage of eligible liabilities which
(as a result of the requirements of the Bank of England)
Agent is required to maintain as secured deposits with
members of the London Discount Market Association
("LDMA") and/or with money brokers and/or with
gilt-edged market makers.
D = the rate at which the members of LDMA bid for deposits
with maturities comparable to the relevant Interest
Period or of three months, whichever is shorter.
E = The percentage of eligible liabilities required to be
placed on special deposit with the Bank of England.
F = The percentage rate of interest per annum obtainable
by Agent on the deposits referred to in "E" above.
9. The definition of "Domestic Sterling Rate Loans" is added to
Section 1.1 of the Credit Agreement to read as follows:
"Domestic Sterling Rate Loans" means Loans made to U.K.
Borrower bearing interest at rates determined by reference to the
Adjusted Domestic Sterling Rate.
10. Section 1 of the letter amendment to the Credit Agreement dated
as of December 8, 1995 is hereby deleted such that the terms "Adjusted
Eurosterling Rate" and "Eurosterling Rate Loans" no longer replace the
terms "Adjusted Domestic Sterling Rate" and "Domestic Sterling Rate
Loans," respectively, and all references to the Adjusted Eurosterling Rate
and Eurosterling Rate Loans in the Credit Agreement, the other Loan
Documents and related documents delivered in connection with the Credit
Agreement shall be deemed to refer to Adjusted Domestic Sterling Rate and
Domestic Sterling Rate Loans, respectively.
11. The first paragraph of Section 2.1B of the Credit Agreement is
hereby amended and modified to read as follows:
B. Borrowing Mechanics. Term Loans or Revolving Loans
(including any such Loans made as Eurodollar Rate Loans, or Domestic
Sterling Rate Loans with a particular Interest Period) made on any
Funding Date (other than Revolving Loans made pursuant to a request
by Swing Line Lender pursuant to subsection 2.1A(iii) for the
purpose of repaying any Refunded Swing Line Loans or Revolving Loans
made pursuant to subsection 3.3B for the purpose of reimbursing any
Issuing Lender for the amount of a drawing or payment under a Letter
of Credit or a Revolving Credit Guarantee issued by it) shall be in
an aggregate minimum amount of $1,000,000 and integral multiples of
$250,000 in excess of that amount in the case of Dollar Loans and
shall be in an aggregate minimum amount of Pounds Sterling 500,000
and integral multiples of Pounds Sterling 100,000 in excess of that
amount in the case of Sterling Loans; provided, however, that
Floating Eurodollar Rate Loans, when available, may be made in a
minimum amount of $1 and in integral multiples thereof. Swing Line
Loans made on any Funding Date shall be in an aggregate minimum
amount of $250,000 and integral multiples of $50,000 in excess of
that amount. Whenever Company desires that Lenders make Term Loans
or Revolving Loans it shall deliver to Agent on behalf of the
applicable Borrower a Notice of Borrowing no later than 12:00 Noon
(New York time) or 10:00 a.m.(London time), as applicable, (i) for
Base Rate Loans, at least one Business Day in advance of the
proposed Funding Date, (ii) for Eurodollar Rate Loans, at least
three Business Days in advance of the proposed Funding Date, (iii)
for Domestic Sterling Rate Loans on the day of the proposed
borrowing or (iv) if at any time there shall be only one Lender
making Loans to the Borrowers hereunder, then the Company may
request Floating Eurodollar Rate Loans (i) by delivery of a Notice
of Borrowing no later than 12:00 Noon (New York time) on the day of
the proposed borrowing or (ii) as otherwise agreed to by the
Company and the Agent. Whenever Company desires that Swing Line
Lender make a Swing Line Loan, it shall deliver to Agent on behalf
of U.S. Borrower a Notice of Borrowing no later than 12:00 Noon (New
York time) on the proposed Funding Date. The Notice of Borrowing
shall specify (i) the proposed Funding Date (which shall be a
Business Day), (ii) the amount and type of Loans requested, (iii)
the Borrower to incur such Loans, (iv) whether such Loans are to be
Dollar Loans or Sterling Loans, (v) in the case of Swing Line Loans
that such Loans shall be Base Rate Loans, and (vi) in the case of
any Loans requested to be made as Eurodollar Rate Loans, or Domestic
Sterling Rate Loans, the initial Interest Period requested therefor.
Term Loans or Revolving Loans may be continued as or converted into
Base Rate Loans, Eurodollar Rate Loans, Domestic Sterling Rate Loans
or, if applicable, Floating Eurodollar Rate Loans in the manner
provided in subsection 2.2D. In lieu of delivering the
above-described Notice of Borrowing, Company may give Agent
telephonic notice by the required time or any proposed borrowing
under this subsection 2.1B; provided that such notice shall be
promptly confirmed in writing by delivery of a Notice of Borrowing
to Agent on or before the applicable Funding Date.
12. Section 2.2A of the Credit Agreement is hereby amended and
modified to read as follows:
A. Rate of Interest. Subject to the provisions of subsections
2.6 and 2.7, each Term Loan and each Revolving Loan shall bear
interest on the unpaid principal amount thereof from the date made
through maturity (whether by acceleration or otherwise) at a rate
determined by reference to (i) in the case of Dollar Loans, the
Dollar Base Rate, the Adjusted Eurodollar Rate, or if applicable,
the Floating Eurodollar Rate, as the case may be, and (ii) in the
case of Sterling Loans, the Adjusted Domestic Sterling Rate. Subject
to the provisions of subsection 2.7, each Swing Line Loan shall bear
interest on the unpaid principal amount thereof from the date made
through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Dollar Base Rate. The applicable
basis for determining the rate of interest with respect to any Loan
shall be selected by Company on behalf of the applicable Borrower
initially at the time a Notice of Borrowing is given with respect to
such Loan pursuant to subsection 2.1B. The basis for determining the
interest rate with respect to any Term Loan or any Revolving Loan
may be changed from time to time pursuant to subsection 2.2D. If on
any day any Term Loan or any Revolving Loan denominated in Dollars
is outstanding with respect to which notice has not been delivered
to Agent in accordance with the terms of this Agreement specifying
the applicable basis for determining the rate of interest, then for
that day that Loan shall bear interest determined by reference to
the Dollar Base Rate or, if applicable, the Floating Eurodollar
Rate.
1. Term Loans and Revolving Loans. Subject to the
provisions of subsections 2.2E and 2.7, the Term Loans and the
Revolving Loans shall bear interest through maturity as
follows:
(i) if a Base Rate Loan made to U.S.
Borrower, then at the Dollar Base Rate plus .50% per
annum; or
(ii) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate, plus 1.50% per annum; or
(iii) if a Floating Eurodollar Rate Loan, then at
the sum of the Floating Eurodollar Rate, plus 1.50% per
annum; or
(iv) if a Domestic Sterling Rate Loan, then at the
sum of the Adjusted Domestic Sterling Rate, plus 1.50%
per annum.
2. Swing Line Loans. Subject to the provisions of
subsections 2.2E and 2.7, the Swing Line Loans shall bear
interest through maturity at the Dollar Base Rate, plus .50%
per annum.
13. Section 2.2C of the Credit Agreement is hereby amended and
modified to read as follows:
C. Interest Payments. Subject to the provisions of subsection
2.2E, interest on each Loan shall be payable in arrears on and to
each Interest Payment Date applicable to that Loan, upon any
prepayment of that Loan (to the extent accrued on the amount being
prepaid) and at maturity (including final maturity); provided that,
in the event that any Swing Line Loans or any Revolving Loans that
are Base Rate Loans, or if applicable, Floating Eurodollar Rate
Loans are prepaid pursuant to subsection 2.4B(i), interest accrued
on such Swing Line Loans or Revolving Loans through the date of such
prepayment shall be payable on the next succeeding Interest Payment
Date applicable to Base Rate Loans, or if applicable, Floating
Eurodollar Rate Loans (or, if earlier, at final maturity).
14. The first two paragraphs of Section 2.2D of the Credit Agreement
are hereby amended and modified to read as follows:
D. Conversion or Continuation. Subject to the provisions of
subsection 2.6, Company shall have the option (i) to convert at any
time all or any part of its outstanding Term Loans or Revolving
Loans made to U.S. Borrower in amounts equal to $1,000,000 and
integral multiples of $250,000 in excess of that amount from Loans
bearing interest at a rate determined by reference to one basis to
Loans bearing interest at a rate determined by reference to an
alternative basis or (ii) upon the expiration of any Interest Period
applicable to a Eurodollar Rate Loan or Domestic Sterling Rate Loan,
to continue all or any portion of such Loan equal to $1,000,000 and
integral multiples of $250,000 in excess of that amount (in the case
of Dollar Loans) or ^500,000 and integral multiples of ^100,000 in
excess of that amount (in the case of Sterling Loans) as a
Eurodollar Rate Loan or Domestic Sterling Rate Loan; provided,
however, that a Eurodollar Rate Loan or Domestic Sterling Rate Loan
may only be converted into a Base Rate Loan, or if applicable, a
Floating Eurodollar Rate Loan on the expiration date of an Interest
Period applicable thereto. Dollar Loans may not be converted into
Sterling Loans and Sterling Loans may not be converted into Dollar
Loans.
Company shall deliver a Notice of Conversion/Continuation to
Agent on behalf of the applicable Borrower no later than 12:00 Noon
(New York time) at least one Business Day in advance of the proposed
conversion date in the case of a conversion to a Base Rate Loan, and
at least three Business Days in advance of the proposed
conversion/continuation date in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan. A Notice of
Conversion/Continuation with respect to Floating Eurodollar Rate
Loans, if applicable, or Domestic Sterling Rate Loans may be
delivered on the same day of the proposed conversion so long as such
notice is provided prior to 12:00 Noon (New York time) with respect
to Floating Eurodollar Loans or 10:00 a.m. (London time) with
respect to Domestic Sterling Rate Loans. A Notice of
Conversion/Continuation shall specify (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii)
the amount and type of the Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of
a conversion to, or a continuation of, a Eurodollar Rate Loan or
Domestic Sterling Rate Loan, the requested Interest Period, and (v)
that no Potential Event of Default or Event of Default has occurred
and is continuing. In lieu of delivering the above-described Notice
of Conversion/Continuation, Company may give Agent on behalf of the
applicable Borrower telephonic notice by the required time of any
proposed conversion/continuation under this subsection 2.2D;
provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to Agent on or
before the proposed conversion/continuation date.
15. Section 2.2F(i) of the Credit Agreement is hereby amended and
modified to read as follows:
F. Computation of Interest.
(i) Interest on the Loans. Interest on Dollar Loans
shall be computed on the basis of a 360-day year and for the
actual number of days elapsed in the period during which it
accrues. Interest on Sterling Loans shall be computed on the
basis of a 365-day year and for the actual number of days
elapsed in the period during which it accrues. In computing
interest on any Loan, the date of the making of such Loan or
the first day of an Interest Period applicable to such Loan
or, with respect to a Base Rate Loan, or if applicable, a
Floating Eurodollar Rate Loan being converted from a
Eurodollar Rate Loan or Domestic Sterling Rate Loan, the date
of conversion of such Eurodollar Rate Loan or Domestic
Sterling Rate Loan to such Base Rate Loan or Floating
Eurodollar Rate Loan as the case may be, shall be included,
and the date of payment of such Loan or the expiration date of
an Interest Period applicable to such Loan or, with respect to
a Base Rate Loan, or if applicable, a Floating Eurodollar Rate
Loan, being converted to a Eurodollar Rate Loan or Domestic
Sterling Rate Loan, the date of conversion of such Base Rate
Loan, or if applicable, such Floating Eurodollar Rate Loan to
such Eurodollar Rate Loan or Domestic Sterling Rate Loan,
shall be excluded; provided that if a Loan is repaid on the
same day on which it is made, one day's interest shall be paid
on that Loan.
16. Section 2.4B(i) of the Credit Agreement is hereby amended and
modified to read as follows:
(i) Voluntary Prepayments. U.S. Borrower may, upon
written or telephonic notice to Agent on or prior to 12:00
Noon (New York time) on the date of prepayment, which notice,
if telephonic, shall be promptly confirmed in writing, at any
time and from time to time prepay, without premium or penalty,
any Swing Line Loan on any Business Day in whole or in part in
an aggregate minimum amount of $250,000 and integral multiples
of $50,000 in excess of that amount. So long as no Swing Line
Loans are then outstanding, any Borrower may, upon not less
than one Business Day's prior written or telephonic notice, in
the case of Base Rate Loans, or if applicable, upon written or
telephonic notice on the same Business Day with respect to
Floating Eurodollar Rate Loans or Domestic Sterling Rate
Loans, and three Business Days' prior written or telephonic
notice, in the case of Eurodollar Rate Loans, in each case
confirmed in writing to Agent (which notice Agent will
promptly transmit by telefacsimile or telephone to each
Lender), at any time and from time to time prepay, without
premium or penalty, the Term Loans or Revolving Loans on any
Business Day in whole or in part in an aggregate minimum
amount of $1,000,000 and integral multiples of $250,000 in
excess of that amount (in the case of Dollar Loans) or in an
aggregate minimum amount of ^500,000 and integral multiples of
^100,000 in excess of that amount (in the case of Sterling
Loans); provided, however, that Floating Eurodollar Rate Loans
may be prepaid in a minimum amount of $1, and in integral
multiples thereof, provided, further, that in the event any
Borrower shall prepay a Eurodollar Rate Loan or Domestic
Sterling Rate Loan other than on the expiration of the
Interest Period applicable thereto, such Borrower shall, at
the time of such prepayment, also pay the amount payable under
Section 2.6D hereof. Notice of prepayment having been given as
aforesaid, the Loans shall become due and payable on the
prepayment date specified in such notice and in the aggregate
principal amount specified therein. Any voluntary prepayments
pursuant to this subsection 2.4B(i) shall be applied as
specified in subsection 2.4C.
17. Section 2.4C(v) of the Credit Agreement is hereby amended and
modified to read as follows:
(v) Application of Prepayments of Dollar
Loans to Base Rate Loans, Floating Eurodollar Rate Loans,
Domestic Sterling Rate Loans and Eurodollar Rate Loans. Any
prepayment of Loans shall be applied first to Base Rate Loans,
or if applicable, Floating Eurodollar Rate Loans, to the full
extent thereof before application to Eurodollar Rate Loans or
Domestic Sterling Rate Loans, in each case in a manner which
minimizes the amount of any payments required to be made by
the applicable Borrower pursuant to subsection 2.6D.
18. Section 3.2(i) of the Credit Agreement is hereby amended and
modified to read as follows:
(i) with respect to each Letter of Credit or Revolving
Credit Guarantee, (a) a fronting fee equal to 1/4 of 1% per
annum of the daily maximum amount available to be drawn under
such Letter of Credit or Revolving Credit Guarantee and (b) a
Letter of Credit/Revolving Credit Guarantee fee equal to 1.50%
per annum of the daily maximum amount available to be drawn
under such Letter of Credit or Revolving Credit Guarantee, in
each case payable in arrears on and to each March 31, June 30,
September 30 and December 31 of each year, commencing on
December 31, 1995, and computed on the basis of a 360-day year
for the actual number of days elapsed; and
19. Sections 6.1(ii) and 6.1(iii) are hereby amended and modified to
read as follows:
(ii) Quarterly Financials: as soon as available and in
any event within 45 days after the end of each fiscal quarter
of each Fiscal Year, (a) the consolidated and consolidating
balance sheets of Company and its Subsidiaries (including
EuroNimbus S.A. for purposes hereof) as at the end of such
fiscal quarter and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries (including EuroNimbus S.A. for
purposes hereof) for such fiscal quarter and for the period
from the beginning of the then current Fiscal Year to the end
of such fiscal quarter, setting forth in each case in
comparative form the corresponding figures for the
corresponding periods of the previous fiscal year and the
corresponding figures from the consolidated plan and financial
forecast for the current Fiscal Year delivered pursuant to
subsection 6.1(xiii), all in reasonable detail and certified
by the chief financial officer of Company that they fairly
present, in all material respects, the financial condition of
Company and its Subsidiaries (including EuroNimbus S.A. for
purposes hereof) as at the dates indicated and the results of
their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal
year-end adjustments, (b) the consolidated balance sheets of
EuroNimbus S.A. and its Subsidiaries as of the end of such
fiscal quarter and the related consolidated statements of
income, stockholders' equity and cash flows of EuroNimbus S.A.
and its Subsidiaries for such fiscal quarter and for the
period from the beginning of the then current Fiscal Year to
the end of such fiscal quarter expressed in U.S. Dollars and
formatted according to GAAP and (c) a narrative report
describing the operations of Company and its Subsidiaries
(including EuroNimbus S.A.) in the form prepared for
presentation to senior management for such fiscal quarter and
for the period from the beginning of the then current Fiscal
Year to the end of such fiscal quarter;
(iii) Year-End Financials: as soon as available and in
any event within 120 days after the end of each Fiscal Year,
(a) the consolidated and consolidating balance sheets of
Company and its Subsidiaries (including EuroNimbus S.A. for
purposes hereof) as at the end of such Fiscal Year and the
related consolidated and consolidating statements of income,
stockholders' equity and cash flows of Company and its
Subsidiaries (including EuroNimbus S.A.) for such Fiscal Year,
setting forth in each case in comparative form the
corresponding figures for the previous fiscal year and the
corresponding figures from the consolidated plan and financial
forecast delivered pursuant to subsection 6.1(xiii) for the
Fiscal Year covered by such financial statements, all in
reasonable detail and certified by the chief financial officer
of Company that they fairly present, in all material respects,
the financial condition of Company and its Subsidiaries
(including EuroNimbus S.A.) as at the dates indicated and the
results of their operations and their cash flows for the
periods indicated, (b) the consolidated balance sheets of
EuroNimbus S.A. and its Subsidiaries as of the end of such
Fiscal Year and the related consolidated statements of income,
stockholders' equity and cash flows of EuroNimbus S.A. and its
Subsidiaries for such Fiscal Year expressed in U.S. Dollars
and formatted in accordance with GAAP, (c) a narrative report
describing the operations of Company and its Subsidiaries in
the form prepared for presentation to senior management for
such Fiscal Year and (d) in the case of such consolidated
financial statements, a report thereon of independent
certified public accountants of recognized national standing
selected by Company and reasonably satisfactory to Agent,
which report shall be unqualified as to going concern and
scope of audit, and shall state that such consolidated
financial statements fairly present, in all material respects,
the consolidated financial position of Company and its
Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods
indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in
such financial statements) and that the examination by such
accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards;
20. 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 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 owed 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).
21. A new Section 8.15 is hereby added to the Credit Agreement to
read as follows:
8.15 EuroNimbus S.A.
Company or any of its Subsidiaries shall incur any repayment
obligation under any circumstances with respect to any loans, grants
or other extensions of credit extended to, or in favor of,
EuroNimbus S.A. by (i) the Government of the Grand Duchy of
Luxembourg or any agency or instrumentality thereof, (ii) Societe
Nationale de Credit et d'Investissement, or (iii) any other third
party lender or creditor of EuroNimbus S.A.
B. The parties hereto agree that so long as there shall be only one Lender
providing Loans to the Borrowers under the Credit Agreement, the Company shall
be relieved of its obligation to pay the annual agency fee to the Agent in the
amount of $50,000.
C. The Borrowers will execute such additional documents as are reasonably
requested by the Lenders to reflect the terms and conditions of this Sixth
Amendment.
D. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
E. This Sixth 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 Sixth Amendment to produce or
account for more than one such counterpart.
F. This Sixth 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 Sixth 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
Banque Internationale A Luxembourg
Conformed Copy
Credit Facility Agreement
1. Term Loan, LUF 225,000,000
2. Short Term Facility, LUF 50,000,000
EuroNimbus S.A.
Nimbus Manufacturing (UK) Ltd.
Saarbrucker Zeitung, Verlag und Druckerei GMBH
Banque Internationale A Luxembourg S.A.
Credit Facility Agreement
This Credit Facility Agreement is made the 12th day of May 1997
BETWEEN: EURONIMBUS Societe Anonyme, having its registered office in 29A
boulevard Grande Duchesse Charlotte L-1331 Luxembourg (hereinafter referred to
as the "Borrower")
AND: BANQUE INTERNATIONALE A LUXEMBOURG S.A. having its registered office
69, route d'Esch L-1470 Luxembourg (hereinafter referred to as the "Bank")
WHEREAS the Borrower has requested and the Bank has agreed to make available a
credit facility, comprising a Term Loan of LUF 225,000,000 and a Short Term
Facility of LUF 50,000,000, the two parties involved agree to make this Credit
Facility Agreement subject to the following terms and conditions, it being
understood that the proceeds of this Credit Facility Agreement will be used for
the partial financing of the first phase of the Borrower's investment program in
Foetz and the financing of the working capital needs as per the Executive
Summary.
IT IS HEREBY AGREED AS FOLLOWS
Definitions and interpretation
In this Credit Facility Agreement the following meanings have been given to the
terms therein mentioned.
Advance: means a partial or full utilisation of the Term Loan and the Short
Term Facility made or to be made by the Bank to the Borrower under the Credit
Facility Agreement.
Bank: Banque Internationale a Luxembourg S.A., 69 route d'Esch L-1470
Luxembourg.
Borrower: EuroNimbus S.A., 29A boulevard Grande Duchesse Charlotte L-1331
Luxembourg.
Business Day: means for the purpose of payment(s), and for the fixing of the
LUXIBOR rate, a day on which banks are open for business in Luxembourg and
Brussels.
Credit Facility Agreement: means the documentation by which the Bank grants a
Term Loan and a Short Term Facility to the Borrower.
Event of Default: means any circumstances described as such in article 6.
Executive Summary: means the business plan (April 1997 - March 2002) elaborated
by the Shareholders in connection with the investment program to be executed in
Foetz as per document dated December 19th, 1996.
LUXIBOR: means the rate for the relevant interest period as conclusively
determined by the Bank at 12.00 a.m. Luxembourg time 2 Business Days prior to
the beginning of the relevant interest period.
Margin: (1) for the Term Loan means 0.75 percent per annum; (2) for the fixed
rate option means 0.75 percent per annum plus a premium of 0.125 percent per
annum; (3) for the Short Term Facility means 0.50 percent per annum.
Short Term Facility: means the aggregate principal amount for the time being
outstanding and/or remaining available to be used for working capital purposes.
Shareholders: means (1) Nimbus Manufacturing (UK) Limited, Llantarnam Park,
Cwmbran, Gwent NP44 3AB, United Kingdom, an indirect wholly-owned subsidiary of
Nimbus CD International, Inc., P.O. Box 7427, Charlottesville, Virginia 22906,
USA; 2) Saarbrucker Zeitung, Verlag und Druckerei Gmbh Saarbrucken
Gutenbergstrasse 11-23, 66117 Saarbrucken, B.R.D.
Shareholders Agreement: means the agreement between the Shareholders, dated
29.01.1997.
Term Loan: means the aggregate principal amount for the time being outstanding
under the Credit Facility Agreement for the partial financing of the first phase
of the Borrower's investment program in Foetz.
1. The Term Loan. The Bank grants to the Borrower under this Credit Facility
Agreement a Term Loan of an amount of LUF 225,000,000- (Luxembourg francs two
hundred and twenty five million).
1.1. Utilisation. The Term Loan will be in line with the progress of the
investment program. It shall at all times be duly proportionate to the paid in
share capital of the Borrower, the SNCI loan and the amount of the government
grants, in accordance with the Executive Summary. The Borrower has to address a
certificate to the Bank that the necessary amount of the utilisation is needed
within the framework of the progress of the investment program. Part of the Term
Loan can be utilised for the issuing of bank guarantees in the framework of the
investment program.
1.2. Draw Down. The Term Loan is to be drawn in several Advances after the
signature of the Credit Facility Agreement by giving a prior notice of two
Business Days to the Bank, by indicating the amount, the interest period, the
beneficiary(ies) of the payment(s), by submitting the certificate as per article
1.1 and by observing the conditions as per article 5.
1.3 Interest
1.3.1. Interest period. Interest periods of 3 or 6 months can be defined by
giving a prior written notice of two Business Days before the end of the
preceding interest period. If less than two Business Days before the end of an
interest period, the Borrower fails to give such notice, the duration of the
succeeding interest period will be the same as the preceding one. A fixed rate
option can be determined after the execution of the whole investment program
being the 31.12.1997 by giving a prior notice of two Business Days to the Bank.
Until the full utilisation of the Term Loan, as per paragraph here above,
interest periods of 1, 2 and 3 months are available under the hereabove
mentioned conditions.
1.3.2. Interest rate. The interests to be paid from time to time on each Advance
and for the respective interest period shall be the LUXIBOR rate plus the Margin
(1) or (2) as the case may be. In case an amount due and payable hereunder is
not paid when due, the amount in default shall be subject to default interest
equal to the interest rate as fixed plus a default margin of 200 basis points.
1.3.3. Interest calculation. Interest calculation will be done on the basis of
the effective days elapsed divided by 360.
1.3.4. Interest payment. The payment of interests will be done in arrears at the
end of each interest period. If any such interest payment date is not a Business
Day, the interest payment date will fall on the next Business Day.
1.4. Repayment of principal. The outstanding amount of the Term Loan at the end
of the investment period, being the 31.12.1997, shall be consolidated.
Thereafter the principal amount will be repaid in 6 equal semi-annual
installments starting on 30.6.1999.
2. Short Term Facility. The Bank grants to the Borrower under this Credit
Facility Agreement a Short Term Facility up to a maximum amount of LUF
50,000,000 - (Luxembourg francs fifty million).
2.1. Draw Down.
2.1.1. The Short Term Facility can be drawn in one or several Advances after the
signing of the Credit Facility Agreement up to the maximum amount as stipulated
under article 2, by giving a prior notice of two Business Days to the Bank, by
indicating the amount to be drawn and the interest period.
2.1.2. The Short Term Facility can also be utilised in the form of an overdraft
facility up to a maximum amount as per article 2.
2.2. Interest
2.2.1. Interest period. Interest periods of 1, 3, 6 and 12 months can be defined
by giving a prior written notice of two Business Days before the end of the
preceding interest period, for the draw downs as per 2.1.1. If less than two
Business Days before the end of an interest period, the Borrower fails to give
such notice, the duration of the next interest period will be the same as the
preceding one.
2.2.2. Interest rate. The interests to be paid from time to time on each Advance
and for the respective interest period shall be the LUXIBOR rate plus the Margin
(3). In case an amount due and payable hereunder is not paid when due, the
amount in default shall be subject to default interest equal to the interest
rate as fixed plus a default margin of 200 basis points.
2.2.3. Interest calculation. Interest calculation will be done on the basis of
the effective days elapsed divided by 360.
2.2.4. Interest payment. The payment of interests will be done in arrears at the
end of each interest period for the draw downs as per 2.1.1. If any such
interest payment date is not a Business Day, the interest payment date will fall
on the next Business Day. For the draw downs under 2.1.2 the interest will be
paid at the end of each calendar quarter.
2.3 Maturity. The Short Term Facility is made available for one year starting at
the date of the Credit Facility Agreement. It can be renewed thereafter on a
yearly basis upon mutual consent and confirmed by writing.
3. Securities.
3.1. Mortgage on the superficial right "droit de superficie" covering the entire
surface and industrial location of the Borrower on a real estate located in
FOETZ, as per contract to be signed between the Luxembourg Authorities and the
Borrower in a reasonable time after the date of the Credit Facility Agreement,
for a principal amount of LUF 275,000,000 (Luxembourg francs two hundred and
seventy five million), being the amount of the Term Loan and the maximum of the
Short Term Facility. Furthermore, the Borrower will grant a notarial deed
"Mandat a l'effet d'hypthequer" entitling the Bank to proceed to the
establishment of the mortgage.
3.2. Pledge on the "fonds de commerce" of the Borrower for the same total amount
as per article 3.1..
4. Covenants
4.1. As long as any amount is outstanding under the Credit Facility Agreement,
the Shareholders agree not to change the proportion of their shareholding as per
the signing date of the Credit Facility Agreement, which proportion amounts to
70% for Nimbus Manufacturing (UK) Limited and to 30% for Saarbrucker Zeitung,
Verlag und Druckerei Gmbh. In case of change of the foregoing shareholders
structure, the following procedure is applicable: (a) information of the Bank of
the change in the shareholders structure; (b) approval of the Bank for
maintaining the Credit Facility Agreement under the new shareholders structure.
The right of the Bank shall be subject to the provisions of Art.
6.1. of Luxembourg Civil code.
4.2. The Borrower will respect during the life of the Credit Facility Agreement
a ratio of equity/net financial debts of at least 1 to 2.5 until 31.12.1998 and
thereafter 1 to 2 as per appendix 1.
4.3. The Borrower will insure that all obligations due under the present Credit
Facility Agreement will rank pari passu with all other present and future
indebtedness, loans or other obligations issued, created or assumed by the
Borrower. Furthermore, the Borrower shall not create, assume or permit any
change of whatever nature on its present and future assets without granting the
same to the Bank.
4.4. The Borrower shall not create without the previous agreement of the Bank or
permit to subsist any encumbrance on its present and future assets for its
present and future obligations for debts, loans or guarantee purposes without
granting the same to the Bank and at the same rank until full reimbursement of
the Term Loan.
5. Conditions precedent. The Bank shall have received at or before the first
draw downs:
5.1. Confirmation that all the securities as per article 3 exist and are legally
in full force.
5.2. No event of default as per article 6 has occurred.
5.3. A duly confirmed copy of all necessary governmental, ministerial and local
authorities permits and authorisations in order to allow the investment on the
designated location in Foetz.
5.4. The Shareholders Agreement.
6. Event of default. Upon the occurrence of the following events:
6.1. The Borrower shall fail to pay any sum due under this Credit Facility
Agreement at the time, in the amount and in the manner specified herein and such
default shall continue unremedied for 10 Business Days; or
6.2. The Borrower shall fail to perform or to observe any obligation, covenant
or undertaking under this Credit Facility Agreement and such non-performance
continues unremedied for 20 Business Days; or
6.3. The Borrower or the Shareholders shall enter into voluntary suspension of
payments, bankruptcy, liquidation or dissolution, or shall become insolvent, or
a receiver or liquidation shall be appointed of all or any material part of the
undertaking or assets of the Borrower or proceedings are commenced by or against
the Borrower under any law or regulation providing for any reorganisation,
arrangement, readjustment of debts, dissolution or liquidation; or
6.4. The Borrower changes or threatens to change its purpose or the nature or
scope of its business or suspends or threatens to suspend a substantial part of
its present business operations as now conducted; or
6.5. The Borrower transfers its production entity financed under the Credit
Facility Agreement out of Luxembourg as well as its registered office.
Then and in any such event, without prior notice other than those provided for
above, and at any time thereafter if any such event shall then be continuing:
(a) no drawing may be requested hereunder;
(b) the Advances not yet drawn down will be canceled;
(c) the Advances or any amount outstanding hereunder together with all interest
accrued thereon and all other amounts payable hereunder are immediately due and
payable; (d) the Borrower shall indemnify the Bank against any loss or expense
(including costs incurred in liquidating or otherwise employing deposits from
third parties taken to fund any amount not paid on its due date) which the Bank
may sustain or incur as a consequence of a default by the Borrower in the
performance of any obligation expressed to be assumed by it in this agreement.
The Borrower will promptly inform the Bank upon the occurrence of any Event of
Default.
7. Undertakings
7.1. The Borrower undertakes that from the date hereof and so long as any amount
payable hereunder is outstanding or any of the commitments are in force, the
Borrower shall:
7.1.1. immediately inform the Bank by written notice of any material legal,
financial or industrial event which might alter the Borrower's capacity to
fulfill its obligations hereunder;
7.1.2. furnish to the Bank as soon as practicable, an in any event not later
than 90 days after the close of each financial year, the audited annual reports
of the Borrower for such year;
7.1.3. supply to the Bank such financial and other information, as can be
reasonably asked by the Bank and concerning more specifically the annual budget
and the quarterly financial situation, consisting of the balance sheet and
profit and loss account;
7.1.4. maintain a sufficient insurance coverage as it is customary for like
activities, it being understood that the Bank will in any case by the
beneficiary of insurance payments in case an event of default or a loss in value
of the securities results from the occurrence of the insured risk. In any case
the Borrower and the Bank will be co-payees, the Bank being the sole recipient
of any funds that are not reinvested in like assets.
7.2. the Shareholders will furnish to the Bank as soon as practical and in any
case not later than 120 days after the close of each financial year, their
audited annual reports for such year.
8. Payments. The borrower shall effect all payments of principal, interest,
fees, expenses or other amounts due under this Credit Facility Agreement free
and clear of any restriction or conditions and/or deduction or withholding of
any present or future taxes unless the Borrower is required by law to deduct or
withhold such taxes from any payment to be made hereunder, in which event the
amount due in respect of any such payment shall be increased to the extent that
is necessary to ensure that after the making of any such deduction or
withholding the Bank receives a sum equal to the sum he would have received had
no such deduction or withholding been required to be made. The Borrower shall
not exercise any rights of retention, set-off or counterclaim with regard to any
claim against the Lender hereunder, any such rights being explicitly waived by
the Borrower.
9. Unity of account, set-off and interrelationship of operations. All accounts
of the Borrower with the Bank, whether denominated in the same currency or in
different currencies, whether of a special or different nature, whether at term
or at call and whether bearing the same or different rates of interest, shall de
facto and de jure merely constitute the elements of a single and indivisible
current account in which the debit or credit position towards the Bank shall be
determined only after conversion of the balances in foreign currencies into
Luxembourg Francs at the exchange rate on the day on which the accounts are made
up.
The debit balance in the single account, after making-up of the account and
conversion, shall be secured by the encumbrance attached to one of the
sub-accounts.
It is agreed that he Bank shall have the right, upon the occurrence of an event
of default, to offset the credit balance in one sub-account against the debit
balance in another sub-account to the extent required to eliminate the deficit
in the latter, irrespective of the nature of the sub-accounts, and carrying out
currency conversions for this purpose if necessary.
All transactions that the Borrower shall carry out with the Bank shall be
interrelated. The Bank shall therefore be entitled not to perform its
obligations if the Borrower fails to fulfill any one of the obligations
incumbent upon him.
10. Change in circumstances. If, as a result of any change in applicable law,
order, regulation, official directive or change in interpretation thereof
(whether or not having the force of law), the cost to the Bank of making or
maintaining the Credit Facility Agreement is increased, then the Borrower shall
pay to the Bank, on receipt of the Bank's written notice specifying the change
and the increased cost incurred by the Lender, the amount of any such increased
cost. In such event the Borrower may repay the whole Loan or part of the Loan on
the following interest date together with the amount of any increased costs,
interest accrued and any other amounts due hereunder.
11. Fees and expenses. The Borrower shall pay to the Bank a fee of USD 10,000 to
be paid on the day of the signature of the Credit Facility Agreement. Legal
expenses and costs in relation with the enforcement of the securities as per
article 3 are to be borne by the Borrower.
12. Notices. All notices and communications to be made hereunder shall be given
in writing and by facsimile message to be confirmed by writing, to the following
address of the concerned party:
The Borrower: EuroNimbus S.A. 29A, boulevard Grande Duchesse Charlotte L-1331
Luxembourg.
The Bank: Banque Internationale a Luxembourg S.A., 69, route d'Esch, L-2953
Luxembourg.
13. Governing Law. This Credit Facility Agreement and the parties' rights and
obligations hereunder are governed by the laws of the Grand-Duchy of Luxembourg.
The Luxembourg courts shall have exclusive jurisdiction over any dispute arising
hereunder. The present Credit Facility Agreement has been executed and signed in
four original documents.
EURONIMBUS S.A.
M. Howard Nash
M. Gunter Kamissek
BANQUE INTERNATIONALE A LUXEMBOURG Societe Anonyme
M. Fernand Reuter
M. Frank N. Wagener
For acceptance of articles 5.4, 6.3 and 7.2.:
NIMBUS MANUFACTURING (UK) LTD.
M. Howard Nash
M. Richard Smart
SAARBRUCKER ZEITUNG VERLAG UND DRUCKEREI Gmbh
M. Gunter Kamissek
M. Uwe Jacobsen
Appendix 1 to the Credit Facility Agreement dated 12th May, 1997
The ratio equity/net financial debts shall be calculated and based on the
following accounting items:
The equity will be the aggregate of:
(a) the issued and paid-in capital
(b) the sum of all legal and statutory reserves as well as the results brought
forward (c) the current results (d) the sum of all equity consolidation
differences (e) the minority interest (f) the sum of all subordinated funded
financial debt and which will become due after one
year
(g) less any acquisition goodwill and intangible assets
(h) less any treasury stock
The net debts shall be the aggregate of:
(a) the sum of all funded financial debt (including financial leases,
commercial paper, medium term notes, etc.)
(b) the sum of all subordinated funded financial debt which will become due
within one year
(c) the sum of all guarantees issued to secure debts of third parties (d) less
any cash balance freely held with credit institutions.
This appendix is an integral part of the Credit Facility Agreement dated as of
12th May, 1997.
