SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 24, 1995
K-tel International, Inc.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation)
0-6664 41-0946588
Commission File Number (IRS Employer Identification No.)
2605 Fernbrook Lane North, Minneapolis, MN 55447-4736
(Address of principal executive offices)
(612) 559-6800
Registrant's Telephone Number
Item 5. Other Events
On July 24, 1995, the Board of Directors of K-tel International, Inc.
(the "Company") approved the sale of its consumer entertainment business to
Simitar, Inc. ("Purchaser"), a corporation controlled by the Company's President
and Chief Executive Officer, Mickey Elfenbein. The Company will retain and
continue to operate its non-entertainment consumer products business, including
the two domestic subsidiaries (the "Remaining Subsidiaries") operating the
retained business. Upon consummation of the transaction, Mr. Elfenbein and
certain of the officers of the Company who will be employed by the Purchaser
will resign their positions with the Company. Philip Kives, the Company's major
shareholder, will continue as Chairman of the Company. For the year ended June
30, 1995, the net sales from the Company's entertainment products business were
approximately 80% of total net sales. The balance of the net sales were from the
Remaining Subsidiaries.
At closing, the Company will sell to Purchaser three domestic
subsidiaries and ten foreign subsidiaries (the "Entertainment Subsidiaries")
through which the Company operates its consumer entertainment business and which
own the master recording rights to over 2,500 music recordings. The purchase
price for the Entertainment Subsidiaries is $25,000,000 payable in immediately
available funds at closing subject to the following adjustments: (1) increased
by the net profit in excess of $200,000 from the production and distribution of
consumer products (other than consumer entertainment products) by the Company
and its Remaining Subsidiaries for the period from July 1, 1994 to the date of
closing (the "Consumer Products Profit Adjustment"), and (2) increased by the
amount by which the agreed value of the net assets of the Company and the
Remaining Subsidiaries on a consolidated basis, after giving effect to the sale
of the Entertainment Subsidiaries but excluding receipt of the purchase price
(the "Remaining Asset Value"), is less than $1,000,000. On the first anniversary
of the closing, the purchase price will be increased by up to $400,000 or
decreased depending on the disposition of certain consumer product inventory of
the Remaining Subsidiaries classified as "slow moving" based on a formula under
the purchase agreement. In addition, at closing all intercompany payables will
be repaid and certain bank indebtedness will be repaid by the primary obligors
of the debt.
As of June 30, 1995, the purchase price for the Entertainment
Subsidiaries would have been $25,000,000 plus an estimated (1) zero for the
Consumer Products Profit Adjustment, and (2) $3,800,000 to bring the Remaining
Asset Value to $1,000,000, or a total estimated purchase price of $28,800,000
before any additional adjustment for slow moving inventory on the first
anniversary of closing. As of June 30, 1995, the Company and the Remaining
Subsidiaries owed approximately $6,100,000 to the Entertainment Subsidiaries and
were responsible for approximately $1,500,000 of bank indebtedness. The Company
has net operating loss carry forwards which the Company believes will be
sufficient to eliminate any federal income tax consequences from the sale of the
Entertainment Subsidiaries, except for alternative minimum taxes. If the
transaction closed on June 30, 1995, the Company's net cash position would have
been increased by an estimated $21,200,000.
At closing, the parties will enter into the following additional
agreements: (1) a trademark agreement pursuant to which Purchaser and its
subsidiaries have certain rights, without any additional payment, to use the
Company's K-tel tradenames and trademarks in the United States and certain
foreign countries for specified periods of time, (2) sublease agreements
pursuant to which the Company will sublease 4,600 square feet of office space
and 30,500 square feet of warehouse space in Minneapolis, Minnesota from one of
the Entertainment Subsidiaries through March 13, 1996, with an option to extend
the sublease for six months, for the Company's consumer products business at a
pass-through of the rent and other obligations, and (3) a record license
agreement pursuant to which the Company will have the non-exclusive right to
utilize the master recordings catalog of the Entertainment Subsidiaries to
produce one album for sale by the Company through infomercials for certain
royalty fees.
Consummation of the transactions contemplated by the purchase agreement
is subject to a number of conditions, including Purchaser obtaining satisfactory
financing for the acquisition and its working capital needs, no material adverse
litigation, no material adverse change in the Entertainment Subsidiaries (other
than the discontinuance of certain operations), approval of the transactions by
the Company's shareholders, receipt of all necessary consents or approvals, and
delivery of a fairness opinion to the Company's Board of Directors. If Purchaser
has not obtained a written financing commitment by September 8, 1995 or if the
transactions do not close on October 16, 1995, the Company may terminate the
purchase agreement unless waived by the Company, extended pursuant to certain
automatic extensions in the purchase agreement or otherwise mutually agreed by
the parties. The Company has retained Van Kasper & Company ("Van Kasper") as its
investment banker. Van Kasper indicated to the Company's Board of Directors when
it considered the transactions at its meeting on July 24, 1995 that Van Kasper
was in a position to render a fairness opinion on the transaction. Mr. Kives
beneficially owns approximately 63% of the Company's outstanding common stock
and intends to vote his shares to approve the transactions at the meeting of the
Company's shareholders to consider the transactions.
There can be no assurance, however, that all of the conditions to the
transactions will be satisfied or that the transactions will be consummated.
Failure to consummate the transactions will result in material expenses to the
Company which will not be reimbursed and, in such event, there may be other
operational or management changes to address recent adverse results in certain
of the Company's subsidiaries.
On the same day as the transactions between the Company and Purchaser
are consummated, Mickey Elfenbein, Purchaser and K-5 Leisure Products, Inc.
("K-5") which is controlled by Philip Kives will consummate certain transactions
pursuant to a stock transfer and loan repayment agreement among them. K-5 will
receive 350,000 shares of the Company's common stock currently owned by Mr.
Elfenbein and a note for approximately $1,100,000 from Purchaser in repayment of
indebtedness owed by Mr. Elfenbein to K-5 and affiliated entities and in
exchange for Purchaser receiving K-5's 53% ownership in Simitar Entertainment,
Inc. ("SEI"), a video entertainment production and distribution company. Mr.
Elfenbein currently owns 43% of SEI and will contribute his interest in SEI to
Purchaser in connection with these other transactions. The sale of the
Entertainment Subsidiaries and the transactions contemplated by the stock
transfer and loan repayment agreement are conditioned on the simultaneous
closings of each other.
The foregoing information does not purport to be complete and is
qualified in its entirety by reference to the Exhibits in this Report.
Item 7. Exhibits.
Exhibit No. Description
2 Agreement for Purchase and Sale dated as of
June 28, 1995 by and between K-tel
International, Inc. and Simitar, Inc.
10.1 Stock Transfer and Repayment Agreement dated
as of June 28, 1995 among K-5 Leisure
Products, Inc., Simitar, Inc. and Mickey
Elfenbein.
99.1 Press Release of K-tel International, Inc.
dated July 24, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 15, 1995 K-TEL INTERNATIONAL, INC.
By s/s Mark J. Dixon
Mark J. Dixon, Vice President-Finance
and Chief Financial Officer/Treasurer
INDEX TO EXHIBITS
Agreement for Purchase and Sale dated as of
June 28, 1995 by and between K-tel International,
Inc. and Simitar, Inc.......................................................2
Stock Transfer and Repayment Agreement,
dated as of June 28, 1995 among K-5 Leisure
Products, Inc., Simitar, Inc. and Mickey Elfenbein.........................10.1
Press Release of K-tel International, Inc.
dated July 24, 1995........................................................99.1