-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JdLmaU54RB+9ABQsgf/AoEgXhwtuS8cAXj6Up9/+ssotOdTo/6TK9G3dOWHhj0VK NJ1MeIB+nY2DJOGyQ0iLeQ== 0001047469-97-003920.txt : 19971114 0001047469-97-003920.hdr.sgml : 19971114 ACCESSION NUMBER: 0001047469-97-003920 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23456 FILM NUMBER: 97713599 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 28, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to _______ Commission File No. 0-23456 CAMBRIDGE SOUNDWORKS, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2998824 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 311 Needham Street Newton, Massachusetts 02164 (Address of Principal Executive Offices) (Zip Code) (617) 332-5936 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 10, 1997, there were issued and outstanding 3,804,824 shares of the Company's Common Stock. CAMBRIDGE SOUNDWORKS, INC. INDEX Page Part I. Financial Information Item 1. Financial Statements (Unaudited) Balance Sheets June 29, 1997 and September 28, 1997 3 Statements of Operations Three Months Ended September 29, 1996 and September 28, 1997 4 Statements of Cash Flows Three Months Ended September 29, 1996 and September 28, 1997 5 Notes to Unaudited Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 5 Other Information 11 Item 6 Exhibits and Reports on Form 8-K 11 Signatures 13 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CAMBRIDGE SOUNDWORKS, INC. BALANCE SHEETS (Unaudited)
ASSETS JUNE 29, 1997 SEPTEMBER 28, 1997 ------------- ------------------ CURRENT ASSETS: Cash $ 58,043 $ 65,946 Accounts receivable, net 719,855 4,019,882 Income tax refund receivable 404,434 404,434 Inventories 14,816,618 15,664,771 Prepaid expenses 794,803 1,134,721 ------------- ------------------ Total Current Assets 16,793,753 21,289,754 ------------- ------------------ PROPERTY AND EQUIPMENT, AT COST: Production equipment and tooling 580,192 548,305 Office equipment and furniture 1,367,080 1,403,888 Leasehold improvements 3,938,224 4,233,843 Motor vehicles 250,252 204,389 ------------- ------------------ 6,135,748 6,390,425 Less-Accumulated depreciation and amortization 1,995,287 2,026,534 ------------- ------------------ 4,140,461 4,363,891 ------------- ------------------ OTHER ASSETS 163,990 375,865 ------------- ------------------ Total Assets $ 21,098,204 $ 26,029,510 ------------- ------------------ ------------- ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit $ 1,915,713 $ 4,748,732 Accounts payable 2,148,399 4,659,978 Accrued expenses 914,978 1,058,146 Customer prepayments and other current liabilities 735,279 378,414 ------------- ------------------ Total Current Liabilities 5,714,369 10,845,270 ------------- ------------------ STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized--2,000,000 shares -- -- Common stock, no par value: Authorized--10,000,000 shares Issued and outstanding--3,803,027 at June 29, 1997 and 3,804,824 at September 28, 1997 14,984,557 15,026,139 Retained earnings 399,278 158,101 ------------- ------------------ Total Stockholders' Equity 15,383,835 15,184,240 ------------- ------------------ Total Liabilities and Stockholders' Equity $ 21,098,204 $ 26,029,510 ------------- ------------------ ------------- ------------------
The accompanying notes are an integral part of these financial statements. 3 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED ----------------------------------------- SEPTEMBER 29, 1996 SEPTEMBER 28, 1997 -------------------- ------------------ NET SALES $ 11,130,289 $ 13,175,453 COST OF GOODS SOLD 6,493,392 7,991,654 -------------------- ------------------- Gross profit 4,636,897 5,183,799 -------------------- ------------------ SALES AND MARKETING EXPENSES 3,740,516 4,635,486 GENERAL AND ADMINISTRATIVE EXPENSES 565,754 652,058 ENGINEERING AND DEVELOPMENT EXPENSES 199,868 218,112 -------------------- ------------------ Total expenses 4,506,138 5,505,656 -------------------- ------------------ Income (loss) from operations 130,759 (321,857) INTEREST INCOME (EXPENSE), net (76,692) (80,320) -------------------- ------------------ Income (loss) before provision (benefit) for income taxes 54,067 (402,177) PROVISION (BENEFIT) FOR INCOME TAXES 22,000 (161,000) -------------------- ------------------ Net income (loss) $ 32,067 $ (241,177) -------------------- ------------------ -------------------- ------------------ NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ .01 $ (.06) -------------------- ------------------ -------------------- ------------------ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 2,892,523 3,803,086 -------------------- ------------------ -------------------- ------------------
The accompanying notes are an integral part of these financial statements. 4 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED ------------------------------------------ SEPTEMBER 29, 1996 SEPTEMBER 28, 1997 --------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $32,067 $ (241,177) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 305,208 239,636 Amortization of warrant -- 36,096 Changes in current assets and liabilities: Accounts receivable (1,357,921) (3,300,027) Inventories (723,225) (848,153) Prepaid expenses (101,611) (339,918) Accounts payable 2,462,145 2,511,579 Accrued expenses (54,964) 143,168 Customer prepayments and other current liabilities 794,436 (356,865) --------------------- ------------------- Net cash provided by (used in) operating activities 1,356,135 (2,155,661) --------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (1,358,535) (463,069) Increase in other assets (91,430) (211,875) --------------------- ------------------- Net cash used in investing activities (1,449,965) (674,944) --------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit--bank, net 219,402 2,833,019 Exercise of stock options -- 5,489 --------------------- -------------------- Net cash provided by financing activities 219,402 2,838,508 --------------------- -------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 125,572 7,903 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 87,421 58,043 --------------------- --------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $212,993 $ 65,946 --------------------- --------------------- --------------------- --------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $195,000 $ -- --------------------- ---------------------- --------------------- ---------------------- Interest $78,089 $ 66,201 --------------------- ---------------------- --------------------- ----------------------
The accompanying notes are an integral part of these financial statements. 5 CAMBRIDGE SOUNDWORKS, INC. Notes to Unaudited Financial Statements (1) Basis of Presentation The unaudited financial statements included herein have been prepared by Cambridge SoundWorks, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the three months ended September 28, 1997 are not necessarily indicative of results to be expected for the full fiscal year. On October 30, 1997, the Company entered into an Agreement and Plan Merger with Creative Technology Ltd., a Singapore company and CSW Acquisition Corporation, a Massachusetts corporation and wholly-owned subsidiary of Parent. Pursuant to the Merger Agreement, Parent, through Purchaser, commenced a tender offer for any and all shares of the Company's common stock, no par value per share for a purchase price of $10.68 per share, net to the seller in cash, for a total consideration of approximately $31 million for all currently outstanding shares of the Company's Common Stock. The Merger Agreement provides that as soon as practicable after the purchase of shares of Common Stock pursuant to the tender offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Massachusetts Business Corporation Law, the Purchaser will be merged with and into the Company. See Part II, Item 5 Other information. (2) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
JUNE 29, 1997 SEPTEMBER 28, 1997 ----------------- -------------------- Raw materials and work-in-process $ 3,010,897 $ 2,257,142 Finished goods 11,805,721 13,407,629 ---------------- -------------------- $ 14,816,618 $ 15,664,771 ---------------- --------------------
Inventories consists of materials, labor and manufacturing overhead. (3) Line of Credit On September 30, 1997, an amendment to the Company's demand discretionary line of credit increased the borrowing under the line of credit to $11,000,000 based upon certain percentages of eligible accounts receivable and inventory, as defined. The line of credit is secured by all assets of the Company, with interest payable at the bank's base rate (8.50% at September 28, 1997), plus 1/4%. The amounts outstanding at June 29, 1997 and September 28, 1997 were $1,916,000 and $4,749,000, respectively. (4) Significant Customer During the three months ended September 28, 1997, the Company had one customer that accounted for approximately 36% of net sales. The Company had no sales to this customer during the three months ended September 29, 1996. During the three months ended September 29, 1996, the Company had another customer which accounted for approximately 27% of net sales. The Company had no sales to this customer during the three months ended September 29, 1997. 6 (5) Stock Options During the three months ended September 28, 1997, the Company granted incentive stock options, under the Company's 1993 Stock Option Plan, to certain employees to purchase 6,600 shares of common stock at exercise prices ranging from $4.38 to $5.00 per share. These options vest over a period of two years. At September 28, 1997, 620,000 share have been authorized for grant, 576,853 are issued and outstanding and 3,706 have been exercised. 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the results of operations for the three month periods ended September 29, 1996 and September 28,1997 expressed as percentages of net sales.
THREE MONTHS ENDED -------------------------------- SEPTEMBER 29, SEPTEMBER 28 1996 1997 --------------- --------------- NET SALES 100.0% 100.0% COST OF GOODS SOLD 58.3 60.7 --------------- --------------- Gross profit 41.7 39.3 --------------- --------------- SALES AND MARKETING EXPENSES 33.6 35.2 GENERAL AND ADMINISTRATIVE EXPENSES 5.1 4.9 ENGINEERING AND DEVELOPMENT EXPENSES 1.8 1.7 --------------- --------------- Total expenses 40.5 41.8 --------------- --------------- Income (loss) from operations 1.2 (2.5) INTEREST INCOME (EXPENSE), net (0.7) (0.6) --------------- --------------- Income (loss) before provision (benefit) for income taxes 0.5 (3.1) PROVISION (BENEFIT) FOR INCOME TAXES 0.2 (1.3) --------------- --------------- Net income (loss) 0.3% (1.8)% --------------- --------------- --------------- ---------------
8 Net Sales Net sales increased from approximately $11.1 million for the three months ended September 29, 1996, to $13.2 million for the three months ended September 28, 1997. The increase in net sales was primarily attributable to the 20% overall increase retail sales over the same period in 1996. Same store sales increased 6.4% over last years first quarter. The Company had twenty-seven retail stores open during the three months ended September 28, 1997, compared to twenty-eight retail stores during the three months ended September 29, 1996. Catalog sales for the three months ended September 28, 1997 decreased due, in part, to shifts in sales to the Company's new retail stores and through the Company's wholesale expansion. Wholesale sales, which increased 20% for the three months ended September 29, 1997 compared to the same period last year, was primarily due to sales to Creative Labs, Inc. (Significant Customer). In February 1997, the Company entered into an agreement with Creative Labs, Inc., the world's largest manufacture of soundcards, whereby Creative Technologies Ltd., (Creative Lab's Parent Company) acquired an approximate 20% interest in Cambridge SoundWorks, Inc. and Creative Labs was appointed as the exclusive distributor of the Company's multi-media products. Gross Profit Gross profit as a percentage of net sales decreased from 41.7% during the three months ended September 29, 1996 to 39.3% during the three months ended September 28, 1997. The decrease in gross margin for the three month period was due primarily to the continued increase in retail store sales and wholesale sales which have lower overall margins than the Company's catalog sales. Expenses Sales and marketing expenses increased from $3.7 million during the three months ended September 29, 1996 to $4.6 million for the three months ended September 28, 1997. The hiring of retail store personnel, increased advertising expenses and retail store operating costs accounted for a substantial portion of the increase in sales and marketing expense. General and administrative expenses increased from $566,000 (5.1%) during the three months ended September 29, 1996 to $652,000 (4.9%) for the three months ended September 28, 1997. Interest Expense/Interest Income Interest expense of $77,000 for the three months ended September 29, 1996 and $80,000 for the three months ended September 28, 1997 results from the Company's use of its line of credit. Provision (Benefit) for Income Taxes The Company's effective income tax rate was 40.7% during the three months ended September 29, 1996 compared to 40% for the three months ended September 28, 1997. The Company expects that the benefit will be realized in future periods. 9 LIQUIDITY AND CAPITAL RESOURCES As of September 28, 1997, the Company's working capital was approximately $10,444,000 compared to $11,079,000 as of June 29, 1997. Cash and cash equivalents amounted to $66,000 as of September 28, 1997 compared to $58,000 as of June 29, 1997. On September 30, 1997, an amendment to the Company's demand discretionary line of credit increased the borrowing under the line of credit to $11,000,000 based upon certain percentages of eligible accounts receivable and inventory, as defined. The line of credit is secured by all assets of the Company, with interest payable at the bank's base rate (8.50% at September 28, 1997), plus 1/4%. The amounts outstanding at June 29, 1997 and September 28, 1997 were $1,916,000 and $4,749,000, respectively. The Company has approximately $3,230,000 in excess availability on the line of credit at September 28, 1997. The Company believes that its resources are adequate to fund its operations through the end of fiscal 1998. 10 PART II. OTHER INFORMATION Item 5. Other Information On October 30, 1997, the Company entered into an Agreement and Plan Merger (the "Merger Agreement") with Creative Technology Ltd., a Singapore company ("Parent") and CSW Acquisition Corporation, a Massachusetts corporation and wholly-owned subsidiary of Parent ("Purchaser"). Pursuant to the Merger Agreement, Parent, through Purchaser, commenced a tender offer for any and all shares of the Company's common stock, no par value per share (the "Common Stock"), (other than shares currently owned by Parent or shares held in treasury of the Company) for a purchase price of $10.68 per share, net to the seller in cash, for a total consideration of approximately $31 million for all currently outstanding shares of the Company's Common Stock ( other than shares held by Parent or shares held in treasury of the Company). The Merger Agreement provides that as soon as practicable after the purchase of shares of Common stock pursuant to the tender offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Massachusetts Business Corporation Law (the "MBCL"), the Purchaser will be merged with and into the Company ( the "Merger"). As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the surviving corporation and become a wholly-owned subsidiary of Parent. At the Effective Time (as defined in the Merger Agreement) each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Common Stock held in treasury of the Company, shares of Common Stock owned by the parent, the Purchaser or any subsidiary of Parent or the Company or share of Common Stock held by stockholders who will have properly demanded and perfected appraisal rights under the MBCL) will be canceled and converted automatically into the right to receive the offer price of $10.68 per share of Common Stock. Pursuant to the Merger Agreement, the obligation of Purchaser to purchase the shares of the Company is subject to a valid tender of the shares of the Company such that they would constitute two-thirds of the issued and outstanding shares of the Company, when added to the shares already owned by the Parent or any of Parent's subsidiaries. The Merger is conditioned upon, inter alia, earlier termination, or the expiration, of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and certain other conditions as identified in the Merger Agreement. Item 6. Exhibits and Reports on Form 8-K a.) Exhibits 10.1 Letter Agreement, dated September 30, 1997, between BankBoston, N.A. and the Company. 11 10.2 Agreement and Plan Merger dated as of October 30, 1997 by and among Creative Technology Ltd., CSW Acquisition Corporation and the Company (incorporated herein by reference to Exhibit (c) (1) to the schedule 14D-1 filed by Creative Technology Ltd. and CSW Acquisition Corporation with the SEC on November 3, 1997). 27 Financial Data Schedule b.) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended September 28, 1997. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as both Vice President - Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of the Registrant. Cambridge SoundWorks, Inc. ----------------------------- (Registrant) Date: November 12, 1997 By: /s/ Wayne P. Garrett --------------------------- Wayne P. Garrett Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 13 EX-10.1 2 EXHIBIT 10.1 September 30, 1997 Exhibit 10.1 Wayne P. Garrett Vice President - Financial/ Chief Financial Officer Cambridge SoundWorks, Inc. 311 Needham Street Newton, MA 02164 Re: Amendment to Loan and Security Agreement dated as of April 27, 1995 ------------------------------------------------------------------- Dear Wayne: We refer to the Loan and Security Agreement dated as of April 27, 1995 (as amended, the "Loan Agreement"), between Cambridge SoundWorks, Inc. (the "Borrower") and BankBoston, N.A. (f/k/a The First National Bank of Boston) (the "Lender"). This will confirm our understanding that, from and after the date hereof: (1) Section 1.2 of the Loan Agreement is amended by inserting, immediately after clause (b), the following new clause (c): (c) notwithstanding clauses (a) and (b) above, are due from Creative Technology, Inc. or any of its Subsidiaries, provided that if any such account debtor is located in the United States, the Commonwealth of Puerto Rico or the U.S. Virgin Islands, then the Lender shall have a valid and perfected first-priority security interest therein; or" (2) The first sentence of Section 1.3 of the Loan Agreement is amended to read in its entirety as follows: "1.3 "Base Finished Goods Inventory" means Inventory consisting of finished goods located in the United States, as to which the Borrower has acquired title, the Lender has acquired a first-priority security interest and the Borrower has furnished to the Lender information as provided by Section 3.4." (3) The first sentence of Section 1.5 of the Loan Agreement is amended to read in its entirety as follows: "1.5 "Base Raw Materials Inventory" means Inventory consisting of raw materials (other than supplies and packaging) located in the Unites States, as to which the Borrower has acquired title, the Lender has acquired a first-priority security interest and the Borrower has furnished to the Lender information as provided by Section 3.4." (4) Section 1.6 of the Loan Agreement is amended to read in its entirety as follows: "Borrowing Base" shall mean an amount equal to the lesser of: (i) $11,000,000 or (ii) the sum of (A), solely during the period from September 15 through February 14 of each year, eighty percent (80%) of the Net Outstanding Amount of Base Accounts, (B) thirty percent (30%) of the Net Security Value of Base Raw Materials Inventory, and (C) seventy percent (70%) of the Net Security Value of Base Finished Goods Inventory (provided that for purposes of clauses (B) and (C) above, the aggregate amount determined by applying such percentages shall not exceed $7,500,000). Whenever the Borrowing Base is used as a measure of Loans it shall be computed as of, and the Loans referred to shall be those reflected in the Loan Account at, the time in question." (5) The parenthetical contained in the sixth line of Section 1.16 of the Loan Agreement is amended to read in its entirety as follows: "(including, without limitation, third-party processing liens and liens in favor of any vendor)" (6) Section 1.18 of the Loan Agreement is amended to read in its entirety as follows: "1.18 "Net Outstanding Amount of Base Accounts" means the net amount of Base Accounts outstanding after (a) eliminating from the aggregate amount of outstanding Base Accounts such Accounts as are unpaid more than sixty (60) days after invoice date, and which the Lender no longer wishes to include therein, (b) deducting from the aggregate face amount of the remaining Base Accounts (i) Accounts owing from affiliates (other than those owing from Creative Technology, Inc. and its Subsidiaries), (ii) all payments, adjustments and credits applicable thereto, and (iii) all amounts due thereon considered by the Lender to be difficult to collect or uncollectible by reason of return, rejection, repossession, loss or damage of or to the merchandise giving rise thereto, a merchandise or other dispute, Insolvency of the account debtor, or any other reason, and (c) eliminating from the aggregate amount of outstanding Base Accounts such Accounts as are owing from any Ineligible Account Party or any supplier to the Borrower, all as determined by the Lender in its sole discretion, which determination shall be final and binding upon the Borrower." (7) Section 1 of the Loan Agreement is amended by inserting at the end thereof the following new definition: "1.2 "Ineligible Account Party" shall mean any account debtor or consolidated group including such account debtor who has twenty percent (20%) or more of its aggregate Accounts owing to the Borrower unpaid more than ninety (90) days after invoice date or which are otherwise excluded from the definition of "Net Outstanding Amount of Base Accounts" pursuant to any of the provisions of that definition." (8) Subsection (d) of Section 2.14 of the Loan Agreement is amended to read in its entirety as follows: "(d) as soon as available to the Borrower, but in any event (i) within twenty (20) days after the end of each fiscal month, a written report in form satisfactory to the Lender setting forth the Borrowing Base as of the last day of such fiscal month and all relevant components thereof, and all relevant calculations and other information relating thereto, including without limitation a detailed accounts receivable aging report, a backlog report and a designation of inventory, as of such last day, all certified on behalf of the Borrower by the chief financial officer of the Borrower; and (ii) not later than the last day of each fiscal month, a written report in form satisfactory to the Lender setting forth the Borrowing Base with respect to accounts receivable as of the fifteenth day of such month and all relevant components thereof, and all relevant calculations and other information relating thereto, including without limitation a detailed accounts receivable aging report, as of such fifteenth day, all certified on behalf of the Borrower by the chief financial officer of the Borrower;" (9) Section 2.14 of the Loan Agreement is further amended by adding the following two clauses at the end thereof: "(h) as soon as available to the Borrower, but in any event within one hundred eighty (180) days after each fiscal year-end of Creative Technology, Inc. and its Subsidiaries, the consolidated balance sheet of Creative Technology, Inc. and its Subsidiaries as at the end of, and related statements of income, retained earnings and cash flow for, such fiscal year prepared in accordance with GAAP and, in the case of such statement, audited by Price Waterhouse L.L.P. or other certified public accountants reasonably accepted to the Lender; (i) as soon as available to the Borrower, but in any event within ninety (90) days after the end of each fiscal quarter of Creative Technology, Inc. and its Subsidiaries, the consolidated balance sheet of Creative Technology, Inc. and its Subsidiaries as at the end of, and related statements of income, retained earnings and cash flow for, the portion of the fiscal year then ended and for the fiscal quarter then ended, prepared in accordance with GAAP, except for normal year-end audit adjustments (none of which are material) and footnotes with respect to unaudited reports, and certified by the chief financial officer of Creative Technology, Inc." (10) Section 5.1 (b) of the Loan Agreement is amended to read in its entirety as follows: "(b) Interest on Loans computed on the daily debit balance in the Loan Account (i) for amounts up to and including $8,000,000 at a rate which at all times shall be equal to the Base Rate plus one-quarter of one percent (.25%), and (ii) for amounts exceeding $8,000,000, at a rate which at all times shall be equal to the Base Rate plus three-quarters of one percent (.75%), calculated on the basis of a 360-day year for the actual number of days elapsed, provided however, that even if the Lender has not made demand for such interest and an Event of Default has not occurred, such interest, to the extent accrued but unpaid, shall be nonetheless paid by the Borrower on the last day of each month; provided, further, however, that if any Loan is not paid when due or upon demand, then the debit balance of the Loan Account shall bear interest, to the extent permitted by law, compounded monthly at an interest rate equal to the rate of four percent (4%) above the Base Rate in effect on the first business day after such Loan becomes overdue. Any change in the Base Rate shall become effective as of the beginning of the day during which such change in the Base Rate occurs;" (11) Section 13.1 is amended: (i) by deleting the name of Gregory N. Andrews; and (ii) by inserting in place thereof the following name: "Wayne Garrett" (12) Section 13.1 is further amended: (i) by deleting the name and address of Timothy G. Clifford; and (ii) by inserting in place thereof the following name and address: "Jennifer D. Palasinski Assistant Vice President BankBoston, N.A. 100 Federal Street Boston, Massachusetts 02110" Except to the extent specifically amended by the preceding paragraphs, all of the terms, conditions and provisions of the Loan Agreement remain unmodified, and the Loan Agreement, as amended by this letter, is confirmed as being in full force and effect. In addition, this letter does not constitute a waiver of any rights or remedies which the Lender may have under the Loan Agreement or otherwise arising. Please sign this letter where indicated below to confirm your agreement with the provisions hereof, and return the same together with authorizing resolutions of the Board of Directors, a Certificate of Good Standing, a Certificate of Incumbency, and a satisfactory legal opinion. Very truly yours, BANKBOSTON, N.A. (f/k/a THE FIRST NATIONAL BANK OF BOSTON) By: /s/ Christopher S. Allen -------------------------- Title: Director ACCEPTED AND AGREED as of the date of the above letter: CAMBRIDGE SOUNDWORKS, INC. By: /s/ Wayne P. Garrett ---------------------- Title: VP Finance, CFO EX-27 3 EXHIBIT-27 FDS
5 3-MOS JUN-28-1998 JUN-30-1997 SEP-29-1997 66 0 4,020 0 15,665 21,290 6,370 2,027 26,030 10,845 0 0 0 15,026 0 26,030 13,175 13,175 7,992 5,506 0 0 80 (402) (161) (241) 0 0 0 (241) (.06) (.06)
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